SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment ------ [ ]
Post-Effective Amendment No. 2 (File No. 333-146374) [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 (File No. 811-22127) [X]
RIVERSOURCE VARIABLE SERIES TRUST
50606 Ameriprise Financial Center
Minneapolis, MN 55474
Scott R. Plummer
5228 Ameriprise Financial Center
Minneapolis, MN 55474
(612) 671-1947
Approximate Date of Proposed Public Offering: May 1, 2008
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[X] on April 23, 2008 pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] This Post-Effective Amendment designates a new effective date for a previously filed Post-Effective Amendment.
Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS
PROSPECTUS APRIL 23, 2008
Disciplined Asset Allocation Portfolios - Conservative
Disciplined Asset Allocation Portfolios - Moderately Conservative
Disciplined Asset Allocation Portfolios - Moderate
Disciplined Asset Allocation Portfolios - Moderately Aggressive
Disciplined Asset Allocation Portfolios - Aggressive
As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
This prospectus may contain information on Funds not available under your variable annuity contract or life insurance policy. Please refer to your variable annuity contract or life insurance policy prospectus for information regarding the investment options available to you.
THESE SECURITIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK OR AN AFFILIATE OF ANY BANK, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER AGENCY OF THE UNITED STATES, OR ANY
BANK OR AN AFFILIATE OF ANY BANK; AND ARE SUBJECT TO INVESTMENT RISKS INCLUDING
POSSIBLE LOSS OF VALUE.
NOT FDIC INSURED - MAY LOSE VALUE - NO BANK GUARANTEE
TABLE OF CONTENTS
THE FUNDS................................................... 3P Objectives.................................................. 3p Principal Investment Strategies............................. 3p Principal Risks............................................. 5p Past Performance............................................ 8p Management.................................................. 8p FEES AND EXPENSES........................................... 10P OTHER INVESTMENT STRATEGIES AND RISKS....................... 11P FUND MANAGEMENT AND COMPENSATION............................ 12P BUYING AND SELLING SHARES................................... 13P Valuing Fund Shares......................................... 13p Purchasing Shares........................................... 14p Transferring/Selling Shares................................. 14p Market Timing............................................... 14p DISTRIBUTIONS AND TAXES..................................... 15P APPENDIX A: UNDERLYING FUNDS -- INVESTMENT OBJECTIVES AND STRATEGIES................................................ 16P APPENDIX B: UNDERLYING FUNDS -- RISKS....................... 19P |
RIVERSOURCE COMPLEX OF FUNDS
The RiverSource complex of funds includes funds branded "RiverSource Variable Portfolio," "RiverSource Partners Variable Portfolio," "Disciplined Asset Allocation" and "Threadneedle Variable Portfolio" (the "funds" or the "RiverSource Variable Portfolio Funds"). These funds have the same Board of Trustees, and the same policies and procedures including those set forth below under "Fund Management and Compensation," "Buying and Selling Shares," and "Distributions and Taxes." RiverSource Variable Portfolio Funds are sold exclusively as underlying investment options of variable insurance policies and variable annuity contracts offered by affiliated insurance companies. The RiverSource complex of funds also include mutual funds available for direct investment. Please see the Statement of Additional Information (SAI) for a complete list of mutual funds included in the RiverSource complex of funds.
2p DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS
THE FUNDS
OBJECTIVES
The objective of each fund is a high level of total return that is consistent with an acceptable level of risk. The following paragraphs highlight the objectives and compare each fund's levels of risk and potential for return relative to one another.
DISCIPLINED ASSET ALLOCATION PORTFOLIOS -- CONSERVATIVE (CONSERVATIVE) is designed for investors seeking a high level of total return that is consistent with a conservative level of risk. The Fund may be most appropriate for investors with a shorter term investment horizon.
DISCIPLINED ASSET ALLOCATION PORTFOLIOS -- MODERATELY CONSERVATIVE (MODERATELY CONSERVATIVE) is designed for investors seeking a high level of total return that is consistent with a moderately conservative level of risk. The Fund may be most appropriate for investors with a short-to-intermediate term investment horizon.
DISCIPLINED ASSET ALLOCATION PORTFOLIOS -- MODERATE (MODERATE) is designed for investors seeking a high level of total return that is consistent with a moderate level of risk. The Fund may be most appropriate for investors with an intermediate term investment horizon.
DISCIPLINED ASSET ALLOCATION PORTFOLIOS -- MODERATELY AGGRESSIVE (MODERATELY AGGRESSIVE) is designed for investors seeking a high level of total return that is consistent with a moderately aggressive level of risk. The Fund may be most appropriate for investors with an intermediate-to-long term investment horizon.
DISCIPLINED ASSET ALLOCATION PORTFOLIOS -- AGGRESSIVE (AGGRESSIVE) is designed for investors seeking a high level of total return that is consistent with an aggressive level of risk. The Fund may be most appropriate for investors with a longer term investment horizon.
Because any investment involves risk, there is no assurance a Fund's objective can be achieved. Only shareholders can change the Fund's objective.
Conservative, Moderately Conservative, Moderate, Moderately Aggressive and Aggressive are singularly and collectively, where the context requires, referred to as either "the Fund," "each Fund" or "the Funds." The RiverSource funds in which the Funds invest are referred to as the underlying funds. Investments referred to above are made through investments in underlying funds.
PLEASE REMEMBER THAT YOU MAY NOT BUY (NOR WILL YOU OWN) SHARES OF A FUND DIRECTLY. YOU INVEST BY BUYING A VARIABLE ANNUITY CONTRACT OR LIFE INSURANCE POLICY AND ALLOCATING YOUR PURCHASE PAYMENTS TO THE VARIABLE SUBACCOUNT OR VARIABLE ACCOUNT (THE SUBACCOUNTS) THAT INVESTS IN THE FUND.
PRINCIPAL INVESTMENT STRATEGIES
The Funds are intended for investors who have an objective of achieving a high
level of total return, but prefer to have investment decisions managed by
professional money managers. Each Fund is a "fund of funds" and seeks to achieve
its objective by investing in a combination of underlying funds for which
RiverSource Investments, LLC (RiverSource Investments or the investment manager)
acts as investment manager or an affiliate acts as principal underwriter.
RiverSource Investments is the investment manager for each of the Funds. By
investing in several underlying funds, the Funds seek to minimize the risks
inherent in investing in a single fund.
The investment management process for each Fund is similar: The investment manager will allocate each Fund's assets within and across different asset classes, potentially including an allocation to alternative investment strategies, in an effort to achieve the Fund's objective of providing a high level of total return that is consistent with an acceptable level of risk. Each Fund's asset allocation is expected to be different based on its different risk profile, as discussed under "Objectives." After the initial allocation, the Fund's asset will be reallocated monthly using quantitative techniques, with a qualitative review, that seek to maximize the level of total return, incorporating various measures of relative value subject to constraints that set minimum or maximum exposure between asset classes, as set forth in Table 1, and within asset classes, as set forth in Table 2.
ASSET CLASS ALLOCATION. The investment manager will manage each Fund's overall asset class mix: fixed income, equity, cash, and alternative investments. The target allocation range constraints set forth in Table 1 are intended to promote diversification between the asset classes, and are incorporated into the broader allocation process discussed above, in an effort to achieve the Fund's objective of providing a high level of total return that is consistent with an acceptable level of risk.
DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS 3p
TABLE 1. ASSET CLASS RANGES BY FUND
ASSET CLASS
(TARGET ALLOCATION RANGE -- UNDER NORMAL MARKET CONDITIONS)*
---------------------------------------------------------------------------------------------------------------------------------
FUND EQUITY FIXED INCOME CASH ALTERNATIVE INVESTMENT STRATEGY
Conservative 0-40% 20-99% 0-40% 0-20%
Moderately Conservative 15-55% 15-85% 0-30% 0-20%
Moderate 30-70% 10-70% 0-20% 0-20%
Moderately Aggressive 45-85% 5-55% 0-20% 0-20%
Aggressive 60-99% 0-40% 0-20% 0-20%
|
* Market appreciation or depreciation may cause each Fund to be temporarily outside the ranges identified in the table. The investment manager may modify the target allocation ranges only upon approval of the Fund's Board of Trustees.
INVESTMENT CATEGORY ALLOCATION. Within the equity and fixed income asset classes, the quantitative model establishes allocations for the Funds, seeking to achieve each Fund's objective by investing in defined investment categories. Fixed income investment categories include: treasury inflation protected securities (TIPS), U.S. investment grade bonds, high yield bonds, international bonds and emerging markets bonds. The investment manager also may allocate assets to money market (cash) or alternative investment strategy funds. Equity investment categories include: U.S. large cap value/equities, U.S. small and mid cap equities and international equities. The target allocation range constraints set forth in Table 2 are intended to promote diversification within the asset classes. The quantitative model takes into account factors such as style, sector, market capitalization, geographic location, credit quality, interest rate risk, and yield potential. Proposed allocation shifts are reviewed and approved by the investment manager as part of its qualitative review as necessary.
4p DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS
TABLE 2. INVESTMENT CATEGORY RANGES BY FUND
ASSET CLASS
(TARGET RANGES
SET FORTH IN
TABLE 1) INVESTMENT CATEGORY ELIGIBLE UNDERLYING FUND*
EQUITY U.S. Large Cap RiverSource Diversified Equity
Value/ Equities Income Fund
RiverSource Disciplined Equity
Fund
RiverSource Disciplined Large
Cap Growth Fund
U.S. Small/Mid Cap RiverSource Disciplined Small
Equities and Mid Cap Equity Fund
International RiverSource Disciplined
Equities International Equity Fund
FIXED INCOME TIPS RiverSource Inflation
Protected Securities Fund
U.S. Investment RiverSource Diversified Bond
Grade Bonds Fund
High Yield Bonds RiverSource High Yield Bond
Fund
International Bonds RiverSource Global Bond Fund
Emerging Markets RiverSource Emerging Markets
Bonds Bond Fund
CASH Cash RiverSource Cash Management
Fund
ALTERNATIVE RiverSource Absolute Return
INVESTMENT Currency and Income Fund
STRATEGIES
ASSET CLASS DISCIPLINED ASSET ALLOCATION PORTFOLIOS
(TARGET RANGES (TARGET ALLOCATION RANGE -- UNDER NORMAL MARKET CONDITIONS)**
SET FORTH IN MODERATELY MODERATELY
TABLE 1) CONSERVATIVE CONSERVATIVE MODERATE AGGRESSIVE AGGRESSIVE
EQUITY 0-30% 0-40% 0-50% 0-54% 0-54%
0-30% 0-40% 0-50% 0-54% 0-54%
0-30% 0-40% 0-50% 0-54% 0-54%
0-22% 0-24% 0-25% 0-27% 0-28%
0-30% 0-40% 0-50% 0-54% 0-54%
FIXED INCOME 0-27% 0-26% 0-24% 0-23% 0-22%
0-54% 0-54% 0-50% 0-41% 0-32%
0-27% 0-26% 0-24% 0-23% 0-22%
0-27% 0-26% 0-24% 0-23% 0-22%
0-27% 0-26% 0-24% 0-23% 0-22%
CASH 0-40% 0-30% 0-20% 0-20% 0-20%
ALTERNATIVE 0-20% 0-20% 0-20% 0-20% 0-20%
INVESTMENT
STRATEGIES
|
* A summary of the principal investment strategies of each eligible underlying fund is set forth in Appendix A. A description of the principal risks associated with these underlying funds is included in Appendix B. Additional information regarding the underlying funds may be found in the SAI. Additional underlying funds may be added in the future either in addition to, or to replace, current underlying funds in an investment category.
** Market appreciation or depreciation may cause each Fund to be temporarily outside the ranges identified in the table. The investment manager may modify the target allocation ranges only upon approval of the Fund's Board of Trustees.
RiverSource Investments may modify the underlying fund allocations within ranges or, subject to approval of the Fund's Board of Trustees (Board), may modify the range of asset class allocations.
A Fund may sell underlying funds in order to accommodate redemptions of the Fund's shares, to change the percentage of its assets invested in certain underlying funds in response to economic or market conditions, and to maintain or modify the proportion of its assets among the various asset classes. RiverSource Investments seeks to minimize the impact of the Funds' purchases and redemptions of shares of the underlying funds by implementing them over a reasonable timeframe. In addition, because RiverSource Investments earns different fees from the underlying funds, in determining the allocation of the assets of the Funds among the underlying funds, RiverSource Investments may have an economic conflict of interest. RiverSource Investments will report to each Fund's Board on the steps it has taken to manage any potential conflicts.
PRINCIPAL RISKS
Please remember that with any mutual fund investment you may lose money.
Principal risks associated with an investment in the Funds include specific
risks relating to the investment in the Funds based on their investment
processes, and certain general risks based on their "funds of funds" structure.
These are identified below.
ACTIVE MANAGEMENT RISK. Although the Funds are managed based primarily on quantitative methods, the investment manager provides a qualitative review of the quantitative output. Therefore, each Fund's performance will reflect in part the ability of
DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS 5p
the investment manager to make active, qualitative decisions, including allocation decisions that are suited to achieving the Fund's investment objectives.
UNDERLYING FUND SELECTION RISK. The risk that the investment manager's evaluations regarding asset class or underlying funds may be incorrect. There is no guarantee that the underlying funds will achieve their investment objectives. There is also the risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the investment category.
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.
RISKS OF UNDERLYING FUNDS IN WHICH THE FUNDS INVEST. By investing in many underlying funds, the Funds have exposure to the risks of many different areas of the market. Additionally, because each Fund is structured with a different risk/return profile, the risks set forth below are typically greater for Moderate relative to Conservative, and greater still for Aggressive relative to both Moderate and Conservative. For example, if you invest in Aggressive, you will typically have greater exposure to the risks set forth below. A description of the more common risks to which the underlying funds (and thus, the Funds) would be subjected are identified below. A more complete list of principal risks associated with direct investment in the underlying funds is set forth in Appendix B. Additional risks of the underlying funds are set forth in the SAI.
ACTIVE MANAGEMENT RISK. Each underlying 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 underlying fund's investment objectives. Due to their active management, the underlying funds could underperform other mutual funds with similar investment objectives.
COUNTERPARTY RISK. Counterparty risk is the risk that a counterparty to a financial instrument entered into by the Fund or held by a special purpose or structured vehicle becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties. The underlying fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The underlying fund may obtain only limited recovery or may obtain no recovery in such circumstances. The underlying fund will typically enter into financial instrument transactions with counterparties whose credit rating is investment grade, or, if unrated, determined to be of comparable quality by the investment manager.
CREDIT RISK. Credit risk is the risk that the borrower of a loan or the issuer of another debt instrument will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a loan. Rating agencies assign credit ratings to certain loans and other debt securities to indicate their credit risk. The price of a loan or other debt security generally will fall if the borrower or the issuer defaults on its obligation to pay principal or interest, the rating agencies downgrade the borrower's or the issuer's credit rating or other news affects the market's perception of the borrower's or the issuer's credit risk. If the borrower of a floating rate loan declares or is declared bankrupt, there may be a delay before the underlying fund can act on the collateral securing the loan, which may adversely affect the underlying fund. Further, there is a risk that a court could take action with respect to a floating rate loan adverse to the holders of the loan, such as invalidating the loan, the lien on the collateral, the priority status of the loan, or ordering the refund of interest previously paid by the borrower. Any such actions by a court could adversely affect the underlying fund's performance. If the underlying fund purchases unrated loans or other debt securities, or if the rating of a loan or security is reduced after purchase, the underlying fund will depend on the investment manager's analysis of credit risk more heavily than usual. Non-investment grade loans or securities, commonly called "high-yield" or "junk," may react more to perceived changes in the ability of the borrower or issuing entity to pay interest and principal when due than to changes in interest rates. Non-investment grade loans or securities have greater price fluctuations and are more likely to experience a default than investment grade loans or securities. A default or expected default of a floating rate loan could also make it difficult for the underlying fund to sell the loan at a price approximating the value previously placed on it.
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 underlying fund. Derivative instruments in which the underlying 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,
6p DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS
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 underlying fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks.
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 an underlying 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.
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.
DIVERSIFICATION RISK. Although the Funds are each diversified funds, certain underlying funds are non-diversified funds. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. Because each investment may therefore have a greater effect on the underlying fund's performance, non-diversified underlying funds may be more exposed to the risks of loss and volatility than a fund that invests more broadly.
GEOGRAPHIC CONCENTRATION RISK. Certain underlying funds may be particularly susceptible to economic, political or regulatory events affecting companies and countries within the specific geographic region in which the underlying fund focuses its investments. Currency devaluations could occur in countries that have not yet experienced currency devaluation to date, or could continue to occur in countries that have already experienced such devaluations. As a result, certain underlying funds may be more volatile than a more geographically diversified fund.
INFLATION PROTECTED SECURITIES RISK. Inflation-protected debt securities tend to react to change in real interest rates. Real interest rates can be described as nominal interest rates minus the expected impact of inflation. In general, the price of an inflation-protected debt security falls when real interest rates rise, and rises when real interest rates fall. Interest payments on inflation-protected debt securities will vary as the principal and/or interest is adjusted for inflation and may be more volatile than interest paid on ordinary bonds. In periods of deflation, these securities may generate no income at all.
INTEREST RATE RISK. Interest rate risk is the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with bond prices: when interest rates rise, bond prices fall. In general, the longer the maturity or duration of a bond, the greater its sensitivity to changes in interest rates.
ISSUER RISK. An issuer may perform poorly, and therefore, the value of its stocks and bonds may decline. Poor performance may be caused by poor management decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures or other factors.
MARKET RISK. The market value of securities and currencies may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities and currencies may fluctuate, sometimes rapidly and unpredictably.
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 underlying fund. Conversely, as interest rates rise, the likelihood of prepayment
DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS 7p
decreases. The investment manager may be unable to capitalize on securities with higher interest rates because the underlying fund's investments are locked in at a lower rate for a longer period of time.
QUANTITATIVE MODEL RISK. Certain underlying funds employ quantitative methods that may result in performance different from the market as a whole as a result of the factors used in the quantitative method, the weight placed on each factor, and changes in the factors' historical trends. There can be no assurance that the methodology will enable these underlying funds to achieve their objectives.
SMALL AND MID-SIZED COMPANY RISK. Investments in small and medium companies often involve greater risks than investments in larger, more established companies because small and medium companies may lack the management experience, financial resources, product diversification, experience and competitive strengths of larger companies. Additionally, in many instances, the securities of small and medium companies are traded only over-the-counter or on regional securities exchanges and the frequency and volume of their trading is substantially less and may be more volatile than is typical of larger companies.
PAST PERFORMANCE
Each Fund is new as of the date of this prospectus and therefore performance
information is not available.
When available, Conservative intends to compare its performance to the Lehman Brothers Aggregate Bond Index and a Blended Index, consisting of 74% Lehman Brothers Aggregate Bond Index, 14% Russell 3000 Index, 6% Morgan Stanley Capital International (MSCI), Europe, Australia and Far East (EAFE) Index, and 6% Citigroup 3-month U.S. Treasury Bill Index.
When available, Moderately Conservative intends to compare its performance to the Lehman Brothers Aggregate Bond Index and a Blended Index, consisting of 60% Lehman Brothers Aggregate Bond Index, 25% Russell 3000 Index, 10% MSCI EAFE Index, and 5% Citigroup 3-month U.S. Treasury Bill Index.
When available, Moderate intends to compare its performance to the Lehman Brothers Aggregate Bond Index and a Blended Index, consisting of 46% Lehman Brothers Aggregate Bond Index, 35% Russell 3000 Index, 15% MSCI EAFE Index, and 4% Citigroup 3-month U.S. Treasury Bill Index.
When available, Moderately Aggressive intends to compare its performance to the Russell 2000(R) Index and a Blended Index, consisting of 45% Russell 2000 Index, 32% Lehman Brothers Aggregate Bond Index, 20% MSCI EAFE Index, and 3% Citigroup 3-month U.S. Treasury Bill Index.
When available, Aggressive intends to compare its performance to the Russell 3000(R) Index and a Blended Index, consisting of 56% Russell 3000 Index, 24% MSCI EAFE Index, 18% Lehman Brothers Aggregate Bond Index and 2% Citigroup 3-month U.S. Treasury Bill Index.
The Russell 3000 Index, an unmanaged index, measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.
The Russell 2000 Index, an unmanaged index, measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
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 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 Citigroup 3-Month U.S. Treasury Bill Index, an unmanaged index, is representative of the performance of three-month Treasury Bills.
The indices reflect reinvestment of all distributions and changes in market prices.
MANAGEMENT
Portfolio Manager(s). Dimitris J. Bertsimas leads the team that determines each Fund's investment allocation in the various asset classes and investment categories. Tao Qiu supports the determination of allocations among the equity investment categories. Colin J. Lundgren and Erol Sonderegger support the determination of allocations among the fixed and cash investment categories.
Dimitris J. Bertsimas, Ph.D., Senior Portfolio Manager
- Managed the Fund since 2008.
- 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.
8p DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS
- Began investment career as a consultant to asset managers in 1993; became portfolio manager in 2002.
- MS and Ph.D., MIT.
Tao Qiu, CFA, Portfolio Manager
- Managed the Fund since 2008.
- Joined RiverSource Investments in 2004.
- Began investment career in 2001.
- B.S., MIT.
Colin J. Lundgren, CFA, Portfolio Manager
- Managed the Fund since 2008.
- Vice President, Institutional Fixed Income.
- Joined RiverSource Investments in 1986.
- Began investment career in 1989.
- BA, Lake Forest College.
Erol Sonderegger, CFA, Portfolio Manager
- Managed the Fund since 2008.
- Employed by RiverSource Investments from 1999 to 2001 as a manager for the Fixed Income Support Team and from 2003 to 2005 as a quantitative analyst.
- Investment Analyst, Minnesota State Board of Investment, 2001 to 2003.
- Began investment career in 1995.
- BBA, International Business, George Washington University.
The SAI provides additional information about portfolio manager compensation, management of other accounts and ownership of shares in the Funds.
DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS 9p
FEES AND EXPENSES
Because the Funds are the underlying investment vehicle for an annuity contract or life insurance policy, there is no sales charge for the purchase or sale of Fund shares. However, there may be charges associated with your annuity contract or life insurance policy, including those that may be associated with surrender or withdrawal. Any charges that apply to the subaccount and your contract or policy are described in the annuity contract or life insurance policy prospectus.
The summary below describes the Fund fees and expenses that you would pay if you buy a variable annuity or life insurance policy and allocate your purchase payments to subaccounts or premiums that invest in the Fund. By investing in a Fund, you will incur not only the expenses of the Fund, but also a proportionate share of the expenses of the underlying fund held by the Fund. Each Fund invests in Class I shares of the underlying funds, which are not subject to distribution fees. Class I shares are available to certain institutional investors.
This summary does not reflect any fees or sales charges imposed by your annuity contract or life insurance policy, which are disclosed in your separate variable annuity or life insurance contract prospectus. If the additional fees or sales charges imposed by your variable annuity contract or life insurance policy were reflected, it would increase overall expenses.
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS
ESTIMATED
ACQUIRED
TOTAL TOTAL FUND
ANNUAL ANNUAL (UNDERLYING
FUND FEE WAIVER/ (NET) FUND FUND) FEES AND
MANAGEMENT DISTRIBUTION OTHER OPERATING EXPENSE OPERATING FEES AND
FEES (12b-1) FEES(a) EXPENSES(b) EXPENSES REIMBURSEMENT EXPENSES(c) EXPENSES(d)(e)
Conservative 0.00% 0.25% 0.30% 0.55% 0.14% 0.41% 0.64%
Moderately
Conservative 0.00% 0.25% 0.30% 0.55% 0.14% 0.41% 0.67%
Moderate 0.00% 0.25% 0.30% 0.55% 0.14% 0.41% 0.70%
Moderately
Aggressive 0.00% 0.25% 0.30% 0.55% 0.14% 0.41% 0.73%
Aggressive 0.00% 0.25% 0.30% 0.55% 0.14% 0.41% 0.76%
TOTAL FUND
AND
ACQUIRED FUND
(UNDERLYING FUND)
FEES AND
EXPENSES(e)
Conservative 1.05%
Moderately
Conservative 1.08%
Moderate 1.11%
Moderately
Aggressive 1.14%
Aggressive 1.17%
|
(a) The Funds have adopted a plan under Rule 12b-1 of the Investment Company Act of 1940. The Funds pay RiverSource Distributors, Inc. an annual fee of up to 0.25% of average daily net assets as payment for distributing their shares and providing shareholder services. Because this fee is paid out of the Fund's assets on an on-going basis, over time this fee will increase the cost of your investment and may cost you more than paying other types of distribution or servicing charges.
(b) Other expenses include an administrative services fee, a transfer agency fee, a custody fee and other nonadvisory expenses and are based on estimated amounts for the current fiscal year.
(c) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Dec. 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not reimbursed by the Fund. There is no assurance that the investment manager and its affiliates will continue to waive fees and absorb expenses at the current level after the contractual period has expired. Under this agreement, net expenses (excluding fees and expenses of acquired funds) will not exceed 0.41% for Conservative, 0.41% for Moderately Conservative, 0.41% for Moderate, 0.41% for Moderately Aggressive and 0.41% for Aggressive.
(d) In addition to the total annual Fund operating expenses that the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the acquired funds in which the Fund invests. 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. The Fund's estimated indirect expense from investing in the underlying funds, based on its expected allocations to the acquired funds, is as shown.
(e) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses for Class I shares on a number of acquired funds until the end of the acquired funds' next fiscal year end, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Before taking the fee waivers into account, the "Estimated acquired fund (underlying fund) fees and expenses," is 0.66% for Conservative, 0.69% for Moderately Conservative, 0.71% for Moderate, 0.74% for Moderately Aggressive and 0.76% for Aggressive. The "Total fund and acquired fund (underlying fund) fees and expenses is 1.07% for Conservative, 1.10% for Moderately Conservative, 1.12% for Moderate, 1.15% for Moderately Aggressive and 1.17% for Aggressive.
EXAMPLE
THIS EXAMPLE ASSUMES THAT YOU INVEST $10,000 TO A SUBACCOUNT THAT INVESTS IN THE FUND FOR THE TIME PERIODS INDICATED AND THEN REDEEM ALL OF YOUR UNITS AT THE END OF THOSE PERIODS. THIS EXAMPLE ALSO ASSUMES 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 (BASED ON ESTIMATED FUND AND UNDERLYING FUND EXPENSES) WOULD BE:
FUND 1 YEAR 3 YEARS Conservative $107 $364 Moderately Conservative $110 $374 Moderate $113 $383 Moderately Aggressive $116 $392 Aggressive $119 $402 |
THIS EXAMPLE DOES NOT REPRESENT ACTUAL EXPENSES, PAST OR FUTURE. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
THIS EXAMPLE DOES NOT REFLECT THE EXPENSES THAT APPLY TO THE SUBACCOUNTS OR THE CONTRACTS. INCLUSION OF THESE CHARGES WOULD INCREASE EXPENSES FOR ALL PERIODS SHOWN.
10p DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS
OTHER INVESTMENT STRATEGIES AND RISKS
Affiliated Funds-of-Funds. A Fund may sell underlying funds in order to accommodate redemptions of the Fund's shares, to change the percentage of its assets invested in certain underlying funds in response to economic or market conditions, and to maintain or modify the proportion of its assets among the various asset classes or investment categories. The investment manager seeks to minimize the impact of the Funds' purchases and redemptions of shares of the underlying funds. This may result in a delay to an investment allocation decision, past the ideal time that the investment manager identified to implement the allocation. In addition, because the investment manager earns different fees from the underlying funds, in determining the allocation among the underlying funds, the investment manager may have an economic conflict of interest.
Other Investment Strategies. In addition to the principal investment strategies previously described, each Fund may invest in other securities and may use other investment strategies that are not principal investment strategies. Each Fund may invest in government securities and short-term paper. Each Fund may invest in underlying funds that fall outside of the targeted asset classes in order to increase diversification and reduce risk. For more information on strategies and holdings, and the risks of such strategies, see Appendix A, Appendix B as well as the Fund's 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.
Securities Transaction Commissions. To the extent a Fund purchases securities other than shares of underlying funds, 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 in pursuit of a Fund's objective. A description of the policies governing securities transactions and the dollar value of brokerage commissions paid by the Fund and underlying funds are set forth in the SAI. Funds that invest primarily in fixed income securities do not typically generate brokerage commissions that are used to pay for research or brokerage services. The brokerage commissions do not include implied commissions or mark-ups (implied commissions) 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 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 when distributed. To the extent a Fund purchases securities other than shares of underlying funds, any active trading may also increase the amount of brokerage commissions paid or mark-ups to broker-dealers that the Fund pays when it buys and sells securities. Capital gains and increased brokerage commissions or mark-ups paid to broker-dealers may adversely affect a Fund's performance. The Fund's historical portfolio turnover rate, which measures how frequently the Fund buys and sells investments, will be shown in the "Financial Highlights."
Directed Brokerage. The Fund's Board has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares as a factor in the selection of broker-dealers through which to execute securities transactions.
Additional information regarding securities transactions can be found in the
SAI.
DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS 11p
FUND MANAGEMENT AND COMPENSATION
INVESTMENT MANAGER
RiverSource Investments, 200 Ameriprise Financial Center, Minneapolis, Minnesota
55474, is the investment manager to the RiverSource funds, and is a wholly-owned
subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Ameriprise
Financial is a financial planning and financial services company that has been
offering solutions for clients' asset accumulation, income management and
protection needs for more than 110 years. In addition to managing investments
for all of the RiverSource funds, RiverSource Investments manages investments
for itself and its affiliates. For institutional clients, RiverSource
Investments and its affiliates provide investment management and related
services such as separate account asset management, and institutional trust and
custody, as well as other investment products. For all of its clients,
RiverSource Investments seeks to allocate investment opportunities in an
equitable manner over time. See the SAI for more information.
The Fund does not pay RiverSource Investments a direct management fee for managing its assets. Under the Investment Management Services Agreement (Agreement), however, the Fund pays taxes, brokerage commissions, and nonadvisory expenses. A discussion regarding the basis for the Board approving the Agreement will be available in the Fund's annual or semiannual shareholder report.
ADDITIONAL SERVICES AND COMPENSATION
RiverSource Investments and its affiliates receive compensation for providing
services to the Funds.
Administration Services. Ameriprise Financial, Inc., 200 Ameriprise Financial Center, Minneapolis, Minnesota 55474, provides or compensates others to provide administrative services to the RiverSource Variable Portfolio Funds. These services include administrative, accounting, treasury, and other services. Fees paid by the 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 for the RiverSource Variable Portfolio Funds. 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 the Fund for these services are included under "Other expenses" in the expense table under "Fees and Expenses."
Distribution Services. RiverSource Distributors, Inc., 50611 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (the distributor or RiverSource Distributors), provides underwriting and distribution services to the RiverSource Variable Portfolio Funds. Under the Distribution Agreement and related distribution plan(s), the distributor receives distribution and servicing fees. The distributor uses these fees to either pay financial advisors and/or to support its distribution and servicing activity. Fees paid by the 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 in the SAI.
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 Variable Portfolio Funds pay the transfer agent a fee as set forth in the SAI and reimburse the transfer agent for its out-of-pocket expenses incurred while providing these transfer agency services to the funds. Fees paid by the 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 the distributor or other intermediaries that provide sub-transfer agent and other services to Fund shareholders and contract owners.
The SAI provides additional information about the services provided for the agreements set forth above.
PAYMENTS TO RIVERSOURCE LIFE INSURANCE COMPANY AND RIVERSOURCE LIFE INSURANCE CO. OF NEW YORK
The RiverSource Variable Portfolio Funds will be sold exclusively as underlying investment options of variable insurance policies and annuity contracts (products) offered by RiverSource Life Insurance Company (RiverSource Life) and its wholly-owned subsidiary, RiverSource Life Insurance Co. of New York (collectively, the Companies). Within Ameriprise Financial, Inc., (Ameriprise Financial) the Companies are allocated resources, including revenue earned by RiverSource Investments and its affiliates for providing investment management and other services to the Funds, as a result of including these Funds in the products. These allocations may be significant. In addition, employees of Ameriprise Financial and its affiliates, including employees of the Companies, may be separately incented to include the Fund in the product, as employee compensation and business unit operating goals at all levels are tied to the company's success. These products may also include unaffiliated mutual funds as investment options, and the Companies receive payments from the sponsors of these unaffiliated mutual funds as a result of including these funds in the products. The amount of payment from an unaffiliated fund or allocation from affiliates resources varies, and may be significant. The amount of the payment or allocation the Companies receive from a Fund may create an incentive for the Companies and may influence their decision regarding which funds to include in a product. Employees of Ameriprise Financial and its affiliates, including employees of affiliated broker-dealers, may be separately incented to recommend or sell shares of the fund, as employee compensation and business unit operating goals at all levels are tied to the company's success. Certain employees, directly or indirectly, may receive higher compensation and other benefits as investment in the fund increases. In addition, management,
12p DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS
sales leaders and other employees may spend more of their time and resources promoting Ameriprise Financial and its subsidiary companies, including RiverSource Investments, and the distributor, and the products they offer, including the Fund. These arrangements are sometimes are referred to as "revenue sharing payments," and are in addition to any 12b-1 distribution and/or service fees or other amounts paid by the funds for account maintenance, sub-accounting or recordkeeping services provided directly by the Companies. See the product prospectus for more information regarding these payments and allocations.
POTENTIAL CONFLICTS OF INTEREST
Shares of the Fund may serve as the underlying investments for both variable annuity and variable life insurance contracts of the Companies. Due to differences in tax treatment or other considerations, the interests of various contract owners might at some time be in conflict. The Funds currently do not foresee any such conflict. However, if they do arise, the Board intends to consider what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more of each Company's separate accounts might be required to withdraw its investments in the Fund. This might force the Fund to sell securities at disadvantageous prices.
ADDITIONAL MANAGEMENT INFORMATION
Manager of Manager 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 the Fund without first obtaining shareholder approval. The order permits the Fund to add or change unaffiliated subadvisers or change the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. RiverSource Investments or its affiliates may have other relationships, including significant financial relationships, with current or potential subadvisers or their affiliates, which may create a conflict of interest. In making recommendations to the Board to appoint or to change a subadviser, or to change the terms of a subadvisory agreement, RiverSource Investments does not consider any other relationship it or its affiliates may have with a subadviser, and RiverSource Investments discloses the nature of any material relationships it has with a subadviser to the Board.
Affiliated Products. RiverSource Investments seeks to minimize the impact of the Fund's purchases and redemptions of shares of the underlying funds by implementing them over a reasonable time frame. In addition, because RiverSource Investments earns different fees from the underlying funds, in determining the allocation of the fund's assets among underlying funds, RiverSource Investments may have an economic conflict of interest. RiverSource Investments will report to the Fund's 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. However, Short-Term Cash Fund 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 the Fund. A description of these policies and procedures is included in the Fund's 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.
BUYING AND SELLING SHARES
VALUING FUND SHARES
The net asset value (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. The assets of the fund will consist primarily of shares of the underlying funds, which are valued at their NAVs. The underlying funds' 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
DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS 13p
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 an underlying fund is materially affected by events that occur after the close of a securities market but prior to the time as of which the underlying fund's NAV is determined. Valuing investments at fair value involves reliance on judgment. The fair value of an investment is likely to differ from any available quoted or published price. To the extent that an underlying fund has significant holdings of small cap stocks, high yield bonds, floating rate loans, or foreign securities that may trade infrequently, fair valuation may be used more frequently than for other funds. The underlying 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 an underlying fund's securities may be listed on foreign exchanges that trade on weekends or other days when the fund does not price its shares. In that event, the NAV of the underlying fund's shares may change on days when shareholders will not be able to purchase or sell the underlying fund's shares.
PURCHASING SHARES
You may not buy (nor will you own) shares of the Fund directly. You invest by
buying an annuity contract or life insurance policy and allocating your purchase
payments to the subaccount that invests in the Fund. Your purchase price will be
the next NAV calculated after your request is received by the Fund or an
authorized insurance company.
For further information concerning minimum and maximum payments and submission and acceptance of your application, see your annuity contract or life insurance policy prospectus.
TRANSFERRING/SELLING SHARES
There is no sales charge associated with the purchase of Fund shares, but there may be charges associated with the surrender or withdrawal of your annuity contract or life insurance policy. Any charges that apply to the subaccount and your contract are described in your annuity contract or life insurance policy prospectus.
You may transfer all or part of your value in a subaccount investing in shares of the Fund to one or more of the other subaccounts investing in shares of other funds with different investment objectives.
You may provide instructions to sell any shares you have allocated to the subaccounts. Proceeds will be mailed within seven days after your surrender or withdrawal request is accepted by an authorized agent. 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 by the Fund or an authorized insurance company.
Please refer to your annuity contract or life insurance policy prospectus for more information about transfers among subaccounts as well as surrenders and withdrawals.
MARKET TIMING
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. The assets of the Fund consist primarily of shares of the underlying funds. The underlying funds more susceptible to the risks of market timing. Underlying funds that invest in securities that trade on overseas securities markets may be vulnerable to market timers who seek to take advantage of changes in the values of securities between the close of overseas markets and the close of U.S. Markets, which is generally the time at which a Fund's NAV is calculated. To the extent that an underlying Fund has significant holdings of small cap stocks, foreign securities, floating rate loans or high yield bonds, the risks of market timing may be greater for the Fund than for other Funds. See Appendix A for a list of underlying Funds' investment strategies. See "Valuing Fund Shares" for a discussion of the RiverSource Funds' policy on fair value pricing, which is intended, in part, to reduce the frequency and effect of market timing. The RiverSource Funds' Board has adopted a policy that is designed to detect and deter market timing that may be harmful to the funds. Each Fund seeks to enforce this policy through its service providers as follows:
- The fund tries to distinguish market timing from trading that it believes is not harmful, such as periodic rebalancing for purposes of asset allocation or dollar cost averaging. 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
14p DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS
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.
The Fund is offered only through variable annuity contracts and life insurance policies, and shares of the Fund are held in affiliated insurance company subaccounts. Because insurance companies process contract and policyholder's Fund trades in the subaccounts on an omnibus basis, the Funds' Board has not adopted procedures to monitor market timing activity at the Fund level, but rather has approved monitoring procedures designed to detect and deter market timing activities at the contract or policy level.
Please refer to your annuity contract or life insurance policy prospectus for specific details on transfers between accounts and market timing policies and procedures.
The procedures that are designed to detect and deter market timing activities at the contract or policy level cannot provide a guarantee that all market timing activity will be identified and restricted. In addition, state law and the terms of some contracts and policies may prevent or restrict the effectiveness of the market timing procedures from stopping certain market timing activity. Market timing activity that is not identified, prevented or restricted may impact the performance of the Fund.
DISTRIBUTIONS AND TAXES
The Funds will be treated as partnerships for federal income tax purposes, and do not expect to make regular distributions to shareholders.
REINVESTMENT
Since all distributions by the Funds are automatically reinvested in additional
Fund shares, the total value of your holdings will not change. The reinvestment
price is the next calculated NAV after the distribution is paid.
TAXES
Each Fund intends to comply with the regulations relating to the diversification
requirements under section 817(h) of the Internal Revenue Code.
IMPORTANT: This information is a brief and selective summary of some of the tax rules that apply to the Fund. Because tax matters are highly individual and complex, you should consult a qualified tax advisor.
Federal income taxation of subaccounts, life insurance companies and annuity contracts or life insurance policies is discussed in your annuity contract or life insurance policy prospectus.
DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS 15p
APPENDIX A
UNDERLYING FUNDS -- INVESTMENT OBJECTIVES AND STRATEGIES
The following is a brief description of the investment objectives and strategies
of the underlying funds. RiverSource Investments may add new underlying funds
for investment or change underlying funds without the approval of shareholders.
Additional information regarding the underlying funds is available in the
applicable fund's prospectus and statement of additional information. This
prospectus is not an offer for any of the underlying funds.
UNDERLYING FUNDS INVESTMENT OBJECTIVES AND STRATEGIES
EQUITY FUNDS
RiverSource Disciplined The Fund seeks to provide shareholders with long-term
Equity Fund capital growth. Under normal market conditions, at least 80%
of the Fund's net assets are invested in equity securities
of companies listed on U.S. exchanges with market
capitalizations greater than $5 billion at the time of
purchase.
------------------------------------------------------------------------------------------
RiverSource Disciplined The Fund seeks to provide shareholders with long-term
International Equity Fund capital growth. Under normal market conditions, at least 80%
of the 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.
------------------------------------------------------------------------------------------
RiverSource Disciplined The Fund seeks to provide shareholders with long-term
Large Cap Growth Fund capital growth. Under normal market conditions, at least 80%
of the Fund's net assets are invested in equity securities
of companies with market capitalizations of over $5 billion
at the time of purchase or that fall within the
capitalization range of companies in the Russell 1000 Growth
Index at the time of purchase.
------------------------------------------------------------------------------------------
RiverSource Disciplined The Fund seeks to provide shareholders with long-term
Small and Mid Cap Equity capital growth. Under normal market conditions, at least 80%
Fund of the Fund's net assets are invested in equity securities
of companies with market capitalizations of up to $5 billion
or that fall within the range of companies that comprise the
Russell 2500(TM) Index (the Index) at the time of
investment. The market capitalization range and composition
of the Index is subject to change. Up to 25% of the Fund's
net assets may be invested in foreign investments.
------------------------------------------------------------------------------------------
RiverSource Diversified The Fund seeks to provide shareholders with a high level of
Equity Income Fund current income and, as a secondary objective, steady growth
of capital. The 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 stock. The 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.
------------------------------------------------------------------------------------------
FIXED INCOME FUNDS
RiverSource Diversified Bond The Fund seeks to provide shareholders with a high level of
Fund current income while conserving the value of the investment
for the longest period of time.
Under normal market conditions, the Fund invests at least
80% of it 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.
------------------------------------------------------------------------------------------
|
16p DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS
UNDERLYING FUNDS INVESTMENT OBJECTIVES AND STRATEGIES
RiverSource Emerging Markets The Fund seeks to provide shareholders with high total
Bond Fund return through current income and, secondarily, through
capital appreciation. The Fund is a non-diversified fund
that invests primarily in fixed income securities of
emerging markets issuers. Emerging markets include any
country determined to have an emerging market economy.
Emerging markets include any country that is not defined by
the World Bank as a High Income OECD country. The OECD
(Organization for Economic Co-operation and Development) is
a group of 30 member countries sharing a commitment to
democratic government and the market economy. Under normal
market conditions, at least 80% of the Fund's net assets
will be invested in fixed income securities of issuers that
are located in emerging markets countries, or that earn 50%
or more of their total revenues from goods or services
produced in emerging markets countries or from sales made in
emerging markets countries. Such securities may be
denominated in either non-U.S. currencies or the U.S.
dollar. While the Fund may invest 25% or more of its total
assets in the securities of foreign governmental and
corporate entities located in the same country, it will not
invest 25% or more of its total assets in any single foreign
government issuer. Emerging market fixed income securities
are generally rated in the lower rating categories of
recognized rating agencies or considered by the investment
manager to be of comparable quality. These lower quality
fixed income securities are often called "junk bonds." The
Fund may invest up to 100% of its assets in these lower
rated securities.
------------------------------------------------------------------------------------------
RiverSource Global Bond Fund The Fund seeks to provide shareholders with high total
return through income and growth of capital. The Fund is a
non-diversified mutual fund that invests primarily in debt
obligations of U.S. and foreign issuers. Under normal market
conditions, at least 80% of the Fund's net assets will be
invested in investment-grade corporate or government debt
obligations, including money market instruments, of issuers
located in at least three different countries. Although the
Fund emphasizes high and medium-quality debt securities, it
may assume some credit risk in seeking to achieve higher
dividends and/or capital appreciation by buying below
investment-grade bonds (junk bonds).
------------------------------------------------------------------------------------------
RiverSource High Yield Bond The Fund seeks to provide shareholders with high current
Fund income as its primary objective and, as its secondary
objective, capital growth. Under normal market conditions,
the Fund will invest at least 80% of its net assets in
high-yield debt instruments (commonly referred to as
"junk"). These high yield debt instruments include corporate
debt securities as well as bank loans rated below investment
grade by a nationally recognized statistical rating
organization, or if unrated, determined to be of comparable
quality. Up to 25% of the Fund may be invested in high yield
debt instruments of foreign issuers.
Corporate debt securities in which the Fund invests are
typically unsecured, with a fixed-rate of interest, and are
usually issued by companies or similar entities to provide
financing for their operations, or other activities. Bank
loans (which may commonly be referred to as "floating rate
loans"), which are another form of financing, are typically
secured, with interest rates that adjust or "float"
periodically (normally on a daily, monthly, quarterly or
semiannual basis by reference to a base lending rate, such
as LIBOR (London Interbank Offered Rate), plus a premium).
Secured debt instruments are ordinarily secured by specific
collateral or assets of the issuer or borrower such that
holders of these instruments will have claims senior to the
claims of other parties who hold unsecured instruments.
------------------------------------------------------------------------------------------
|
DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS 17p
UNDERLYING FUNDS INVESTMENT OBJECTIVES AND STRATEGIES
RiverSource Inflation The Fund seeks to provide shareholders with total return
Protected Securities Fund that exceeds the rate of inflation over the long-term. The
Fund is a non-diversified fund that, under normal market
conditions, invests at least 80% of its net assets in
inflation-protected debt securities. These securities
include inflation-indexed bonds of varying maturities issued
by the U.S. and non-U.S. governments, their agencies or
instrumentalities, and corporations. The Fund currently
intends to focus on inflation-protected debt securities
issued by the U.S. Treasury. The Fund invests only in
securities rated investment grade. Inflation-protected
securities are designed to protect the future purchasing
power of the money invested in them. The value of the bond's
principal or the interest income paid on the bond is
adjusted to track changes in an official inflation measure.
For example, the U.S. Treasury uses the Consumer Price Index
for Urban Consumers (nonseasonally adjusted) as the
inflation measure.
------------------------------------------------------------------------------------------
MONEY MARKET FUNDS
RiverSource Cash Management The Fund seeks to provide shareholders with maximum current
Fund income consistent with liquidity and stability of principal.
The Fund's assets primarily are invested in money market
instruments, such as marketable debt obligations issued by
corporations or the U.S. government or its agencies, bank
certificates of deposit, bankers' acceptances, letters of
credit, and commercial paper, including asset-backed
commercial paper. The Fund may invest more than 25% of its
total assets in money market instruments issued by U.S.
banks, U.S. branches of foreign banks and U.S. government
securities. Additionally, the Fund may invest up to 35% of
its total assets in U.S. dollar-denominated foreign
investments.
------------------------------------------------------------------------------------------
ALTERNATIVE INVESTMENT
STRATEGIES
RiverSource Absolute Return The Fund seeks to provide shareholders with positive
Currency and Income Fund absolute return. The Fund is a non- diversified fund that,
under normal market conditions, will invest at least 80% of
its net assets (including any borrowings for investment
purposes) in short-duration debt obligations (or securities
that invest in such debt obligations, including an
affiliated money market fund) and forward foreign currency
contracts. It is expected that the gross notional value of
the Fund's forward foreign currency contracts will be
equivalent to at least 80% of the Fund's net assets.
------------------------------------------------------------------------------------------
|
18p DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS
APPENDIX B
UNDERLYING FUNDS -- RISKS
The following is a brief description of principal risks associated with the
underlying funds in which the Funds invest. Additional information regarding the
principal risks for the underlying funds is available in the applicable
underlying fund's prospectus and Statement of Additional Information. This
prospectus is not an offer for any of the underlying funds.
ACTIVE MANAGEMENT RISK. The underlying funds are 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 underlying funds' investment objectives. Due to its active management, the underlying funds could underperform other mutual funds with similar investment objectives.
COUNTERPARTY RISK (ABSOLUTE RETURN CURRENCY AND INCOME FUND). Counterparty risk is the risk that a counterparty to a financial instrument entered into by the underlying fund or held by a special purpose or structured vehicle becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties. The underlying fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The underlying fund may obtain only limited recovery or may obtain no recovery in such circumstances. The underlying fund will typically enter into financial instrument transactions with counterparties whose credit rating is investment grade, or, if unrated, determined to be of comparable quality by the investment manager.
CONCENTRATION RISK (CASH MANAGEMENT FUND). Investments that are concentrated in a particular issuer, geographic region, or sector will be more susceptible to changes in price. The more a fund diversifies, the more it spreads risk. For example, if an underlying fund concentrates its investments in banks, the value of these investments may be adversely affected by economic or regulatory developments in the banking industry.
CREDIT RISK. Credit risk is the risk that the borrower of a loan or the issuer of another debt security will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a loan. Rating agencies assign credit ratings to certain loans and other debt securities to indicate their credit risk. The price of a loan or other debt security generally will fall if the borrower or the issuer defaults on its obligation to pay principal or interest, the rating agencies downgrade the borrower's or the issuer's credit rating or other news affects the market's perception of the borrower's or the issuer's credit risk. If the borrower of a floating rate loan declares or is declared bankrupt, there may be a delay before the underlying fund can act on the collateral securing the loan, which may adversely affect the underlying fund. Further, there is a risk that a court could take action with respect to a floating rate loan adverse to the holders of the loan, such as invalidating the loan, the lien on the collateral, the priority status of the loan, or ordering the refund of interest previously paid by the borrower. Any such actions by a court could adversely affect the underlying fund's performance. If the underlying fund purchases unrated loans or other debt securities, or if the rating of a loan or security is reduced after purchase, the underlying fund will depend on the investment manager's analysis of credit risk more heavily than usual. Non-investment grade loans or securities, commonly called "high-yield" or "junk," may react more to perceived changes in the ability of the borrower or issuing entity to pay interest and principal when due than to changes in interest rates. Non-investment grade loans or securities have greater price fluctuations and are more likely to experience a default than investment grade loans or securities. A default or expected default of a floating rate loan could also make it difficult for the underlying fund to sell the loans at prices approximating the value previously placed on them.
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 underlying fund. Derivative instruments in which the underlying 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 underlying fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity. Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment. See the SAI for more information on derivative instruments and related risks.
DIVERSIFICATION RISK (ABSOLUTE RETURN CURRENCY AND INCOME FUND, EMERGING MARKETS BOND FUND, GLOBAL BOND FUND AND INFLATION PROTECTED SECURITIES FUND). A non-diversified fund may invest more of its assets in fewer issuers than if it were a
DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS 19p
diversified fund. Because each investment has a greater effect on the underlying fund's performance, the underlying fund may be more exposed to risk of loss and volatility then a fund that invests more broadly.
FOREIGN CURRENCY RISK (ABSOLUTE RETURN CURRENCY AND INCOME FUND). The Fund's exposure to foreign currencies subjects the Fund to constantly changing exchange rates and the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of short positions, that the U.S. dollar will decline in value relative to the currency being sold forward. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates and economic or political developments in the U.S. or abroad. As a result, the Fund's exposure to foreign currencies may reduce the returns of the Fund. Trading of foreign currencies also includes the risk of clearing and settling trades which, if prices are volatile, may be difficult.
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. Exposure to foreign currencies creates exposure to constantly changing exchange rates and the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of short positions, that the U.S. dollar will decline in value relative to the currency being sold forward. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates and economic or political developments in the U.S. or abroad. As a result, the Fund's exposure to foreign currencies may reduce the returns of the Fund. Trading of foreign currencies also includes the risk of clearing and settling trades which, if prices are volatile, may be difficult.
Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring.
Emerging markets risk includes the dramatic pace of change (economic, social and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries.
GEOGRAPHIC CONCENTRATION RISK (EMERGING MARKETS BOND FUND AND ABSOLUTE RETURN CURRENCY AND INCOME FUND). The underlying fund may be particularly susceptible to economic, political or regulatory events affecting companies and countries within the specific geographic region in which the underlying fund focuses its investments. Currency devaluations could occur in countries that have not yet experienced currency devaluation to date, or could continue to occur in countries that have already experienced such devaluations. As a result, the underlying fund may be more volatile than a more geographically diversified fund.
INFLATION RISK. Also known as purchasing power risk, inflation risk reflects the effects of continually rising prices on investments. If an investment's return is lower than the rate of inflation, your money will have less purchasing power as time goes on.
INFLATION PROTECTED SECURITIES RISK (INFLATION PROTECTED SECURITIES FUND). Inflation-protected debt securities tend to react to change in real interest rates. Real interest rates can be described as nominal interest rates minus the expected impact of inflation. In general, the price of an inflation-protected debt security falls when real interest rates rise, and rises when real interest rates fall. Interest payments on inflation-protected debt securities will vary as the principal and/or interest is adjusted for inflation and may be more volatile than interest paid on ordinary bonds. In periods of deflation, the underlying fund may have no income at all. Income earned by a shareholder depends on the amount of principal invested and that principal will not grow with inflation unless the investor reinvests the portion of underlying fund's distributions that comes from inflation adjustments.
INTEREST RATE RISK. The securities in the portfolio are subject to the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with fixed income securities in the underlying fund's portfolio: when interest rates rise, the prices of fixed income securities generally fall. In general, the longer the maturity or duration of a fixed income security, the greater its sensitivity to changes in interest rates. Securities with floating interest rates can be less sensitive to interest rate changes, but may decline in value if their interest rates do not rise as much as interest rates in general. Because rates on certain floating rate loans and other debt securities reset only periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause fluctuations in the underlying fund's net asset value. Interest rate changes also may increase prepayments of debt obligations, which in turn would increase prepayment risk.
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.
20p DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS
LIQUIDITY RISK. The risk associated from a lack of marketability of securities which may make it difficult or impossible to sell at desirable prices in order to minimize loss. The underlying funds may have to lower the selling price, sell other investments, or forego another, more appealing investment opportunity. Floating rate loans generally are subject to legal or contractual restrictions on resale. Floating rate loans also may trade infrequently on the secondary market. The value of the loan to the underlying fund may be impaired in the event that the underlying fund needs to liquidate such loans. Other debt securities in which the underlying fund invests may be traded in the over-the-counter market rather than on an organized exchange and therefore may be more difficult to purchase or sell at a fair price. The inability to purchase or sell floating rate loans and other debt securities at a fair price may have a negative impact on the underlying fund's performance.
MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. 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 underlying fund to underperform other mutual funds if that style falls out of favor with the market.
PREPAYMENT AND EXTENSION RISK. The risk that a bond or other security might be called or otherwise converted, prepaid, or redeemed before maturity. This risk is primarily associated with asset-backed securities, including mortgage-backed securities. If a security is converted, prepaid, or redeemed before maturity, particularly during a time of declining interest rates, the investment manager may not be able to reinvest in securities providing as high a level of income, resulting in a reduced yield to the underlying funds. 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 underlying funds' investments are locked in at a lower rate for a longer period of time.
QUANTITATIVE MODEL RISK (DISCIPLINED EQUITY FUND, DISCIPLINED INTERNATIONAL EQUITY FUND, DISCIPLINED LARGE CAP GROWTH FUND, DISCIPLINED SMALL AND MID CAP EQUITY FUND AND ABSOLUTE RETURN CURRENCY AND INCOME FUND). Securities selected using quantitative methods may perform differently from the market as a whole for many reasons, including the factors used in the quantitative analytical framework, the weight placed on each factor, and changing sources of market returns, among others. There can be no assurance that the methodology will enable the underlying fund to achieve its objective.
REINVESTMENT RISK (CASH MANAGEMENT FUND). The risk that the Fund will not be able to reinvest income or principal at the same rate it currently is earning.
SECTOR RISK (EMERGING MARKETS BOND FUND AND GLOBAL BOND FUND). Investments that are concentrated in a particular issuer, geographic region or sector will be more susceptible to changes in price. The more a fund diversifies, the more it spreads risk and potentially reduces the risks of loss and volatility.
SMALL AND MID-SIZED COMPANY RISK (DISCIPLINED SMALL AND MID CAP EQUITY FUND). Investments in small and medium companies often involve greater risks than investments in larger, more established companies because small and medium companies may lack the management experience, financial resources, product diversification, experience and competitive strengths of larger companies. Additionally, in many instances the securities of small and medium companies are traded only over-the-counter or on regional securities exchanges and the frequency and volume of their trading is substantially less and may be more volatile than is typical of larger companies.
TAX RISK (ABSOLUTE RETURN CURRENCY AND INCOME FUND). As a regulated investment company, a fund must derive at least 90% of its gross income for each taxable year from sources treated as "qualifying income" under the Internal Revenue Code of 1986, as amended. The Fund currently intends to take positions in forward currency contracts with notional value exceeding 80% of the Fund's total net assets. Although foreign currency gains currently constitute "qualifying income," the Treasury Department has the authority to issue regulations excluding from the definition of "qualifying income" a fund's foreign currency gains not "directly related" to its "principal business" of investing in stocks or securities (or options and futures with respect thereto). Such regulations might treat gains from some of the Fund's foreign currency-denominated positions as not "qualifying income" and there is a remote possibility that such regulations might be applied retroactively, in which case, the Fund might not qualify as a regulated investment company for one or more years. In the event the Treasury Department issues such regulations, the Fund's Board of Directors may authorize a significant change in investment strategy or Fund liquidation.
DISCIPLINED ASSET ALLOCATION(SM) PORTFOLIOS -- 2008 PROSPECTUS 21p
THIS PAGE LEFT BLANK INTENTIONALLY
THIS PAGE LEFT BLANK INTENTIONALLY
RIVERSOURCE VARIABLE PORTFOLIO FUNDS
734 Ameriprise Financial Center
Minneapolis, MN 55474
Additional information about the Funds and their investments is available in the Funds' SAI. The SAI is incorporated by reference in this prospectus. For a free copy of the SAI or to request other information about the Funds or to make a shareholder inquiry, contact your financial advisor, investment professional or RiverSource Variable Portfolio Funds at (888) 791-3380 or through the address listed above.
Shares of the Funds are offered generally only to insurance company separate accounts to serve as the investment vehicles for variable annuity contracts and for variable life insurance policies, they are not offered to the public. Because of this, the Funds' offering documents and shareholder reports are not available on our public website at riversource.com/funds.
You may review and copy information about the Fund, including the SAI, at the Securities and Exchange Commission's (Commission) Public Reference Room in Washington, D.C. (for information about the public reference room call 1-202-551-8090). Reports and other information about the Funds are available on the EDGAR Database on the Commission's Internet site at www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing to the Public Reference Section of the Commission, 100 F Street, N.E.,Washington, D.C. 20549-0102.
Investment Company Act File #s: 811-22127
S-6521-99 A (5/08)
STATEMENT OF ADDITIONAL INFORMATION
APRIL 23, 2008
RIVERSOURCE VARIABLE SERIES TRUST
Disciplined Asset Allocation(SM) Portfolios - Aggressive
Disciplined Asset Allocation Portfolios - Conservative
Disciplined Asset Allocation Portfolios - Moderate
Disciplined Asset Allocation Portfolios - Moderately Aggressive
Disciplined Asset Allocation Portfolios - Moderately Conservative
This is the Statement of Additional Information (SAI) for each of the funds listed above. This SAI is not a prospectus. It should be read together with the appropriate current fund prospectus dated the same date as this SAI.
Each fund's financial statements for its most recent fiscal period are contained in the fund's Annual or Semiannual Report to Shareholders. The Independent Registered Public Accounting Firm's Report and the Financial Statements, including Notes to the Financial Statements and the Schedule of Investments in Securities, contained in the Annual Report are incorporated in this SAI by reference. No other portion of the Annual Report is incorporated by reference. For a free copy of a fund prospectus, annual or semiannual report, contact your financial institution or write to RiverSource Funds, 734 Ameriprise Financial Center, Minneapolis, MN 55474, call (888) 791-3380 or visit riversource.com/funds.
Each fund is governed by a Board of Trustees (the "Board") that meets regularly to review a wide variety of matters affecting the funds. Detailed information about fund governance, the funds' investment manager, RiverSource Investments, LLC (the investment manager or RiverSource Investments), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial), and other aspects of fund management can be found by referencing the Table of Contents or the List of Tables on the following page.
TABLE OF CONTENTS
Fundamental and Nonfundamental Investment Policies.............................. p. 4 Investment Strategies and Types of Investments.................................. p. 5 Information Regarding Risks and Investment Strategies........................... p. 6 Securities Transactions......................................................... p. 29 Brokerage Commissions Paid to Brokers Affiliated with the Investment Manager.... p. 30 Valuing Fund Shares............................................................. p. 31 Portfolio Holdings Disclosure................................................... p. 31 Proxy Voting.................................................................... p. 33 Selling Shares.................................................................. p. 35 Taxes........................................................................... p. 35 Service Providers............................................................... p. 37 Investment Management Services................................................ p. 37 Administrative Services....................................................... p. 39 Transfer Agency Services...................................................... p. 39 Distribution Services......................................................... p. 39 Plan and Agreement of Distribution............................................ p. 39 Custodian Services............................................................ p. 40 Board Services Corporation.................................................... p. 40 Organizational Information...................................................... p. 40 Board Members and Officers...................................................... p. 45 Control Persons and Principal Holders of Securities............................. p. 50 Information Regarding Pending and Settled Legal Proceedings..................... p. 50 Independent Registered Public Accounting Firm................................... p. 50 Appendix A: Description of Ratings.............................................. p. A-1 Appendix B...................................................................... p. B-1 |
LIST OF TABLES
1. Fund Fiscal Year Ends and Investment Categories.............................. p. 3 2. Investment Strategies and Types of Investments............................... p. 5 3. Portfolio Managers........................................................... p. 37 4. Administrative Services Agreement Fee Schedule............................... p. 39 5. Fund History Table for RiverSource Funds..................................... p. 41 6. Board Members................................................................ p. 45 7. Fund Officers................................................................ p. 47 8. Board Member Holdings -- All Funds........................................... p. 48 9. Board Member Compensation -- All Funds....................................... p. 49 |
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 2
Throughout this SAI, the funds are referred to as follows:
Disciplined Asset Allocation Portfolios - Aggressive (Aggressive)
Disciplined Asset Allocation Portfolios - Conservative (Conservative)
Disciplined Asset Allocation Portfolios - Moderate (Moderate)
Disciplined Asset Allocation Portfolios - Moderately Aggressive (Moderately
Aggressive)
Disciplined Asset Allocation Portfolios - Moderately Conservative (Moderately
Conservative)
The table that follows lists each fund's fiscal year end and investment category. The information can be used to identify groups of funds that are referenced throughout this SAI.
TABLE 1. FUND FISCAL YEAR ENDS AND INVESTMENT CATEGORIES
FUND Fiscal Year End Fund Investment Category -------------------------------------------------------------------------------------------------------- Aggressive December 31 Fund-of-funds - equity -------------------------------------------------------------------------------------------------------- Conservative December 31 Fund-of-funds - fixed income -------------------------------------------------------------------------------------------------------- Moderate December 31 Fund-of-funds - equity -------------------------------------------------------------------------------------------------------- Moderately Aggressive December 31 Fund-of-funds - equity -------------------------------------------------------------------------------------------------------- Moderately Conservative December 31 Fund-of-funds - fixed income -------------------------------------------------------------------------------------------------------- |
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 3
FUNDAMENTAL AND NONFUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies adopted by a fund cannot be changed without the approval of a majority of the outstanding voting securities of the fund as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Nonfundamental investment policies may be changed by the Board at any time.
Notwithstanding any of a fund's other investment policies, each fund may invest its assets in an open-end management investment company having substantially the same investment objectives, policies, and restrictions as the fund for the purpose of having those assets managed as part of a combined pool.
Fund-of-funds invest in a combination of underlying funds. These underlying funds have adopted their own investment policies that may be more or less restrictive than those of the fund. The policies of the underlying funds may permit a fund to engage in investment strategies indirectly that would otherwise be prohibited under the funds' investment structure.
FUNDAMENTAL POLICIES
Fundamental policies are policies that can be changed only with shareholder approval.
FOR EACH FUND: The fund will not:
- Act as an underwriter (sell securities for others). However, under the securities laws, the fund may be deemed to be an underwriter when it purchases securities directly from the issuer and later resells them.
- Lend securities or participate in an interfund lending program if the total of all such loans would exceed 33 1/3% of the fund's total assets except this fundamental investment policy shall not prohibit the fund from purchasing money market securities, loans, loan participation or other debt securities, or from entering into repurchase agreements. For funds- of-funds -- equity, under current Board policy, the fund has no current intention to lend to a material extent.
- Borrow money, except for temporary purposes (not for leveraging or
investment) in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than borrowings)
immediately after the borrowings. For funds-of-funds -- equity, under
current Board policy, the fund has no current intention to borrow to a
material extent.
- 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, futures contracts and foreign currency or from entering into forward currency contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities.
- Issue senior securities, except as permitted under the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
- Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
- 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. The fund itself does not intend to concentrate, however, the aggregation of holdings of the underlying funds may result in the fund indirectly investing more than 25% of its assets in a particular industry. The fund does not control the investments of the underlying funds and any indirect concentration will occur only as a result of the fund following its investment objectives by investing in the underlying funds.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 4
NONFUNDAMENTAL POLICIES
Nonfundamental policies are policies that can be changed by the Board without shareholder approval. The following nonfundamental policies are in addition to those described in the prospectus.
- No more than 15% of the fund's net assets will be held in securities and other instruments that are illiquid.
INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
This table shows many of the various investment strategies and investments the funds are allowed to engage in and purchase. It is intended to show the breadth of investments that the investment manager or subadviser (individually and collectively, the "investment manager") may make on behalf of a fund. For a description of principal risks for an individual fund, please see the applicable prospectus for that fund. Notwithstanding a fund's ability to utilize these strategies and techniques, the investment manager is not obligated to use them at any particular time. For example, even though the investment manager is authorized to adopt temporary defensive positions and is authorized to attempt to hedge against certain types of risk, these practices are left to the investment manager's sole discretion.
Fund-of-funds invest in a combination of underlying funds, although they may invest directly in stocks, bonds and other securities. These underlying funds have their own investment strategies and types of investments they are allowed to engage in and purchase. Fund-of-funds currently only invest in underlying funds, which may invest directly in securities and engage in investment strategies, indicated in the table below.
TABLE 2. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
INVESTMENT STRATEGY Authorized for fund ---------------------------------------------------------------------------------------------- Agency and government securities Yes ---------------------------------------------------------------------------------------------- Borrowing Yes ---------------------------------------------------------------------------------------------- Cash/money market instruments Yes ---------------------------------------------------------------------------------------------- Collateralized bond obligations Yes ---------------------------------------------------------------------------------------------- Commercial paper Yes ---------------------------------------------------------------------------------------------- Common stock Yes ---------------------------------------------------------------------------------------------- Convertible securities Yes ---------------------------------------------------------------------------------------------- Corporate bonds Yes ---------------------------------------------------------------------------------------------- Debt obligations Yes ---------------------------------------------------------------------------------------------- Depositary receipts Yes ---------------------------------------------------------------------------------------------- Derivative instruments (including options and futures) Yes ---------------------------------------------------------------------------------------------- Exchange-traded funds Yes ---------------------------------------------------------------------------------------------- Floating rate loans Yes ---------------------------------------------------------------------------------------------- Foreign currency transactions Yes ---------------------------------------------------------------------------------------------- Foreign securities Yes ---------------------------------------------------------------------------------------------- Funding agreements Yes ---------------------------------------------------------------------------------------------- High yield debt securities (junk bonds) Yes ---------------------------------------------------------------------------------------------- Illiquid and restricted securities Yes ---------------------------------------------------------------------------------------------- Indexed securities Yes ---------------------------------------------------------------------------------------------- Inflation protected securities Yes ---------------------------------------------------------------------------------------------- Inverse floaters Yes ---------------------------------------------------------------------------------------------- Investment companies Yes ---------------------------------------------------------------------------------------------- Lending of portfolio securities Yes ---------------------------------------------------------------------------------------------- Loan participations Yes ---------------------------------------------------------------------------------------------- Mortgage- and asset-backed securities Yes ---------------------------------------------------------------------------------------------- Mortgage dollar rolls Yes ---------------------------------------------------------------------------------------------- Municipal obligations Yes ---------------------------------------------------------------------------------------------- Preferred stock Yes ---------------------------------------------------------------------------------------------- |
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 5
INVESTMENT STRATEGY Authorized for fund ---------------------------------------------------------------------------------------------- Real estate investment trusts Yes ---------------------------------------------------------------------------------------------- Repurchase agreements Yes ---------------------------------------------------------------------------------------------- Reverse repurchase agreements Yes ---------------------------------------------------------------------------------------------- Short sales Yes ---------------------------------------------------------------------------------------------- Sovereign debt Yes ---------------------------------------------------------------------------------------------- Structured investments Yes ---------------------------------------------------------------------------------------------- Swap agreements Yes ---------------------------------------------------------------------------------------------- Variable- or floating-rate securities Yes ---------------------------------------------------------------------------------------------- Warrants Yes ---------------------------------------------------------------------------------------------- When-issued securities and forward commitments Yes ---------------------------------------------------------------------------------------------- Zero-coupon, step-coupon and pay-in-kind securities Yes ---------------------------------------------------------------------------------------------- |
INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES
RISKS
The following is a summary of common risk characteristics. Following this summary is a description of certain investments and investment strategies and the risks most commonly associated with them (including certain risks not described below and, in some cases, a more comprehensive discussion of how the risks apply to a particular investment or investment strategy). A mutual fund's risk profile is largely defined by the fund's primary securities and investment strategies. However, most mutual funds are allowed to use certain other strategies and investments that may have different risk characteristics. Accordingly, one or more of the following types of risk may be associated with a fund at any time (for a description of principal risks for an individual fund, please see that fund's prospectus):
ACTIVE MANAGEMENT RISK. For a fund that is actively managed, its performance will reflect in part the ability of the portfolio managers to select securities and to make investment decisions that are suited to achieving the fund's investment objective. Due to its active management, a fund could underperform other mutual funds with similar investment objectives.
AFFILIATED FUND RISK. For funds-of-funds, the risk that the investment manager may have potential conflicts of interest in selecting underlying funds because the fees paid to it by some underlying funds are higher than the fees paid by other underlying funds. However, the investment manager is a fiduciary to the funds and is legally obligated to act in their best interests when selecting underlying funds, without taking fees into consideration.
ALLOCATION RISK. For funds-of-funds, the risk that the investment manager's evaluations regarding asset classes or underlying funds may be incorrect. There is no guarantee that the underlying funds will achieve their investment objectives. There is also a risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the asset class.
BORROWING RISK. To the extent the fund borrows money for investment purposes, which is commonly referred to as "leveraging," the fund's exposure to fluctuations in the prices of its assets will be increased as compared to the fund's exposure if the fund did not borrow. The fund's borrowing activities will exaggerate any increase or decrease in the net asset value of the fund. In addition, the interest which the fund pays on borrowed money, together with any additional costs of maintaining a borrowing facility, are additional costs borne by the fund and could reduce or eliminate any net investment profits. Unless profits on assets acquired with borrowed funds exceed the costs of borrowing, the use of borrowing will diminish the investment performance of the fund compared with what it would have been without borrowing. When the fund borrows money it must comply with certain asset coverage requirements, which at times may require the fund to dispose of some of its holdings, even though it may be disadvantageous to do so at the time.
CREDIT RISK. Credit risk is the risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a bond or a note. If the fund purchases unrated securities, or if the rating of a security is reduced after purchase, the fund will depend on the investment manager's analysis of credit risk more heavily than usual.
COUNTERPARTY RISK. Counterparty risk is the risk that a counterparty to a financial instrument entered into by the fund or held by a special purpose or structured vehicle becomes bankrupt or otherwise fails to perform its obligations due to
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 6
financial difficulties. The fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The fund may obtain only limited recovery or may obtain no recovery in such circumstances. The fund will typically enter into financial instrument transactions with counterparties whose credit rating is investment grade, or, if unrated, determined to be of comparable quality by the investment manager.
DERIVATIVES RISK. Derivatives are financial instruments that have a value which depends upon, or is derived from, the value of something else, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies. Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund. Derivative instruments in which the Fund invests will typically increase the Fund's exposure to Principal Risks to which it is otherwise exposed, and may expose the Fund to additional risks, including correlation risk, counterparty credit risk, hedging risk, leverage risk, and liquidity risk.
Correlation risk is related to hedging risk and is the risk that there may be an incomplete correlation between the hedge and the opposite position, which may result in increased or unanticipated losses.
Counterparty credit risk is the risk that a counterparty to the derivative instrument becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, and the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed.
Hedging risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they may also offset gains.
Leverage risk is the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument. Certain derivatives have the potential for unlimited losses, regardless of the size of the initial investment.
Liquidity risk is the risk that the derivative instrument may be difficult or impossible to sell or terminate, which may cause the fund to be in a position to do something the investment manager would not otherwise choose, including accepting a lower price for the derivative instrument, selling other investments or foregoing another, more appealing investment opportunity.
Certain derivatives have the potential for unlimited losses regardless of the size of the initial investment.
DIVERSIFICATION RISK. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. Because each investment has a greater effect on the fund's performance, the fund may be more exposed to the risks of loss and volatility than a fund that invests more broadly.
EXCHANGE-TRADED FUND (ETF) RISK. The price movement of an ETF may not track the underlying index and may result in a loss. In addition, shareholders bear both their proportionate share of the fund's expenses and similar expenses incurred through ownership of the ETF.
FOREIGN/EMERGING MARKETS RISK. The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices.
Currency risk results from the constantly changing exchange rates between local currency and the U.S. dollar. Whenever the fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring.
Emerging markets risk includes the dramatic pace of change (economic, social, and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 7
GEOGRAPHIC CONCENTRATION RISK. The fund may be particularly susceptible to economic, political or regulatory events affecting companies and countries within the specific geographic region in which the fund focuses its investments. Currency devaluations could occur in countries that have not yet experienced currency devaluation to date, or could continue to occur in countries that have already experienced such devaluations. As a result, the fund may be more volatile than a more geographically diversified fund.
INFLATION PROTECTED SECURITIES RISK. Inflation-protected debt securities tend to react to change in real interest rates. Real interest rates can be described as nominal interest rates minus the expected impact of inflation. In general, the price of an inflation-protected debt security falls when real interest rates rise, and rises when real interest rates fall. Interest payments on inflation- protected debt securities will vary as the principal and/or interest is adjusted for inflation and may be more volatile than interest paid on ordinary bonds. In periods of deflation, the fund may have no income at all. Income earned by a shareholder depends on the amount of principal invested and that principal will not grow with inflation unless the investor reinvests the portion of fund distributions that comes from inflation adjustments.
INITIAL PUBLIC OFFERING (IPO) RISK. IPOs are subject to many of the same risks as investing in companies with smaller market capitalizations. To the extent a fund determines to invest in IPOs it may not be able to invest to the extent desired, because, for example, only a small portion (if any) of the securities being offered in an IPO may be made available. The investment performance of a fund during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the fund is able to do so. In addition, as a fund increases in size, the impact of IPOs on the fund's performance will generally decrease. IPOs will frequently be sold within 12 months of purchase. This may result in increased short-term capital gains, which will be taxable to shareholders as ordinary income.
INTEREST RATE RISK. The securities in the portfolio are subject to the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with bond prices: when interest rates rise, bond prices fall. In general, the longer the maturity or duration of a bond, the greater its sensitivity to changes in interest rates.
ISSUER RISK. An issuer, or the value of its stocks or bonds, may perform poorly. Poor performance may be caused by poor management decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures, or other factors.
LEVERAGE RISK. Leverage occurs when the fund increases its assets available for investment using borrowings, short sales, derivatives, or similar instruments or techniques. Due to the fact that short sales involve borrowing securities and then selling them, the fund's short sales effectively leverage the fund's assets. The use of leverage may make any change in the fund's net asset value ("NAV") even greater and thus result in increased volatility of returns. The fund's assets that are used as collateral to secure the short sales may decrease in value while the short positions are outstanding, which may force the fund to use its other assets to increase the collateral. Leverage can also create an interest expense that may lower the fund's overall returns. Lastly, there is no guarantee that a leveraging strategy will be successful.
LIQUIDITY RISK. The risk associated from a lack of marketability of securities which may make it difficult or impossible to sell at desirable prices in order to minimize loss. The Fund may have to lower the selling price, sell other investments, or forego another, more appealing investment opportunity.
MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. This risk is generally greater for small and mid-sized companies, which tend to be more vulnerable to adverse developments. In addition, focus on a particular style, for example, investment in growth or value securities, may cause the Fund to underperform other mutual funds if that style falls out of favor with the market.
PREPAYMENT AND EXTENSION RISK. The risk that a bond or other security might be called, or otherwise converted, prepaid, or redeemed, before maturity. This risk is primarily associated with asset-backed securities, including mortgage backed securities. If a security is converted, prepaid, or redeemed, before maturity, particularly during a time of declining interest rates, the portfolio managers may not be able to reinvest in securities providing as high a level of income, resulting in a reduced yield to the fund. Conversely, as interest rates rise, the likelihood of prepayment decreases. The portfolio managers may be unable to capitalize on securities with higher interest rates because the Fund's investments are locked in at a lower rate for a longer period of time.
QUANTITATIVE MODEL RISK. Securities selected using quantitative methods may perform differently from the market as a whole as a result of the factors used in the quantitative method, the weight placed on each factor, and changes in the factors' historical trends. The quantitative methodology employed by the investment manager has been extensively tested using historical securities market data, but has only recently begun to be used to manage open-end mutual funds. There can be no assurance that the methodology will enable the fund to achieve its objective.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 8
REINVESTMENT RISK. The risk that an investor will not be able to reinvest income or principal at the same rate it currently is earning.
SECTOR RISK. Investments that are concentrated in a particular issuer, geographic region, or sector will be more susceptible to changes in price. The more a fund diversifies, the more it spreads risk and potentially reduces the risks of loss and volatility.
SHORT SALES RISK. The fund may make short sales, which involves selling a security the fund does not own in anticipation that the security's price will decline. The fund must borrow those securities to make delivery to the buyer. The fund may not always be able to borrow a security it wants to sell short. The fund will suffer a loss if it sells a security short and the value of the security rises rather than falls. It is possible that the fund's long positions will decline in value at the same time that the value of its short positions increase, thereby increasing potential losses to the fund. Short sales expose the fund to the risk that it will be required to buy the security sold short (also known as "covering" the short position) at a time when the security has appreciated in value, thus resulting in a loss to the fund. The fund may also be required to close out a short position at a time when it might not otherwise choose, for example, if the lender of the security calls it back, which may have the effect of reducing or eliminating potential gain, or cause the fund to realize a loss. Short positions introduce more risk to the fund than long positions (purchases) because the maximum sustainable loss on a security purchased (held long) is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of the shorted security. Therefore, in theory, securities sold short have unlimited risk. Additionally, the fund's use of short sales in effect "leverages" the fund, as the fund intends to use the cash proceeds from short sales to invest in additional long positions. This leverage effect potentially exposes the fund to greater risks due to unanticipated market movements, which may magnify losses and increase the volatility of returns. See Leverage Risk and Market Risk.
SMALL AND MID-SIZED COMPANY RISK. Investments in small and medium companies often involve greater risks than investments in larger, more established companies because small and medium companies may lack the management experience, financial resources, product diversification, experience, and competitive strengths of larger companies. Additionally, in many instances the securities of small and medium companies are traded only over-the-counter or on regional securities exchanges and the frequency and volume of their trading is substantially less and may be more volatile than is typical of larger companies.
UNDERLYING FUND SELECTION RISK. For funds-of-funds, the risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the investment category.
INVESTMENT STRATEGIES
The following information supplements the discussion of each fund's investment objectives, policies, and strategies that are described in the prospectus and in this SAI. The following describes strategies that many mutual funds use and types of securities that they purchase. Please refer to the table titled Investment Strategies and Types of Investments to see which are applicable to various categories of funds.
AGENCY AND GOVERNMENT SECURITIES
The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities, including mortgage pass
through certificates of the Government National Mortgage Association (GNMA), are
guaranteed by the U.S. government.
Other U.S. government securities are issued or guaranteed by federal agencies or government-sponsored enterprises but are not guaranteed by the U.S. government. This may increase the credit risk associated with these investments. Government- sponsored entities issuing securities include privately owned, publicly chartered entities created to reduce borrowing costs for certain sectors of the economy, such as farmers, homeowners, and students. They include the Federal Farm Credit Bank System, Farm Credit Financial Assistance Corporation, Federal Home Loan Bank, Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Student Loan Marketing Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored entities may issue discount notes (with maturities ranging from overnight to 360 days) and bonds. Agency and government securities are subject to the same concerns as other debt obligations. (See also Debt Obligations and Mortgage- and Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Inflation Risk, Interest Rate Risk, Prepayment and Extension Risk, and
Reinvestment Risk.
BORROWING
If the fund borrows money, its share price may be subject to greater fluctuation until the borrowing is paid off. If the fund makes additional investments while borrowings are outstanding, this may be considered a form of leverage. Under the
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 9
1940 Act, the fund is required to maintain continuous asset coverage of 300% with respect to such borrowings and to sell (within three days) sufficient portfolio holdings to restore such coverage if it should decline to less than 300% due to market fluctuations or otherwise, even if such liquidations of the fund's holdings may be disadvantageous from an investment standpoint. Leveraging by means of borrowing may exaggerate the effect of any increase or decrease in the value of portfolio securities or the fund's NAV, and money borrowed will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances) which may or may not exceed the income received from the securities purchased with borrowed funds.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with borrowing include: Borrowing Risk and Inflation Risk.
CASH/MONEY MARKET INSTRUMENTS
Cash-equivalent investments include short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable fixed-time
deposits, bankers' acceptances, and letters of credit of banks or savings and
loan associations having capital, surplus, and undivided profits (as of the date
of its most recently published annual financial statements) in excess of $100
million (or the equivalent in the instance of a foreign branch of a U.S. bank)
at the date of investment. A fund also may purchase short-term notes and
obligations of U.S. and foreign banks and corporations and may use repurchase
agreements with broker-dealers registered under the Securities Exchange Act of
1934 and with commercial banks. (See also Commercial Paper, Debt Obligations,
Repurchase Agreements, and Variable- or Floating-Rate Securities.) These types
of instruments generally offer low rates of return and subject a fund to certain
costs and expenses. See Appendix A for a discussion of securities ratings.
A fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with cash/money market instruments include: Credit Risk and Inflation Risk.
COLLATERALIZED BOND OBLIGATIONS
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of bonds, which may include junk bonds. CBOs are similar in concept to
collateralized mortgage obligations (CMOs), but differ in that CBOs represent
different degrees of credit quality rather than different maturities. (See also
Mortgage- and Asset-Backed Securities.) Underwriters of CBOs package a large and
diversified pool of high-risk, high-yield junk bonds, which is then separated
into "tiers." Typically, the first tier represents the higher quality collateral
and pays the lowest interest rate; the second tier is backed by riskier bonds
and pays a higher rate; the third tier represents the lowest credit quality and
instead of receiving a fixed interest rate receives the residual interest
payments -- money that is left over after the higher tiers have been paid. CBOs,
like CMOs, are substantially overcollateralized and this, plus the
diversification of the pool backing them, may earn certain of the tiers
investment-grade bond ratings. Holders of third-tier CBOs stand to earn high
yields or less money depending on the rate of defaults in the collateral pool.
(See also High-Yield Debt Securities (Junk Bonds).)
Although one or more of the other risks described in this SAI may apply, the largest risks associated with CBOs include: Credit Risk, Interest Rate Risk, and Prepayment and Extension Risk.
COMMERCIAL PAPER
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the largest risks associated with commercial paper include: Credit Risk and Liquidity Risk.
COMMON STOCK
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of common stock is generally determined by corporate earnings, type of products or services offered, projected growth rates, experience of management, liquidity, and general market conditions for the markets on which the stock trades.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 10
Although one or more of the other risks described in this SAI may apply, the largest risks associated with common stock include: Issuer Risk, Market Risk, and Small and Mid-Sized Company Risk.
CONVERTIBLE SECURITIES
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common, preferred or other securities of
the same or a different issuer within a particular period of time at a specified
price. Some convertible securities, such as preferred equity-redemption
cumulative stock (PERCs), have mandatory conversion features. Others are
voluntary. A convertible security entitles the holder to receive interest
normally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted, or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value" (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its "conversion value" (the security's worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. Generally, the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with convertible securities include: Interest Rate Risk, Issuer Risk, Market Risk, Prepayment and Extension Risk, and Reinvestment Risk.
CORPORATE BONDS
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield Debt Securities (Junk Bonds).) Corporate bonds may be
either secured or unsecured. Unsecured corporate bonds are generally referred to
as "debentures." See Appendix A for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with corporate bonds include: Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk.
DEBT OBLIGATIONS
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a fixed, variable or floating rate on specified dates and to repay
principal on a specified maturity date. Certain debt obligations (usually
intermediate- and long-term bonds) have provisions that allow the issuer to
redeem or "call" a bond before its maturity. Issuers are most likely to call
these securities during periods of falling interest rates. When this happens, an
investor may have to replace these securities with lower yielding securities,
which could result in a lower return.
The market value of debt obligations is affected primarily by changes in prevailing interest rates and the issuers perceived ability to repay the debt. The market value of a debt obligation generally reacts inversely to interest rate changes. When prevailing interest rates decline, the price usually rises, and when prevailing interest rates rise, the price usually declines.
In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. Conversely, the shorter the maturity, the lower the yield but the greater the price stability.
As noted, the values of debt obligations also may be affected by changes in the credit rating or financial condition of their issuers. Generally, the lower the quality rating of a security, the higher the degree of risk as to the payment of interest and return of principal. To compensate investors for taking on such increased risk, those issuers deemed to be less creditworthy generally must offer their investors higher interest rates than do issuers with better credit ratings. (See also Agency and Government Securities, Corporate Bonds, and High- Yield Debt Securities (Junk Bonds).)
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 11
Generally, debt obligations that are investment grade are those that have been rated in one of the top four credit quality categories by two out of the three independent rating agencies. In the event that a debt obligation has been rated by only two agencies, the most conservative, or lower, rating must be in one of the top four credit quality categories in order for the security to be considered investment grade. If only one agency has rated the debt obligation, that rating must be in one of the top four credit quality categories for the security to be considered investment grade. See Appendix A for a discussion of securities ratings.
All ratings limitations are applied at the time of purchase. Subsequent to purchase, a debt security may cease to be rated or its rating may be reduced below the minimum required for purchase by a fund. Neither event will require the sale of such a security, but it will be a factor in considering whether to continue to hold the security. To the extent that ratings change as a result of changes in a rating agency or its rating system, a fund will attempt to use comparable ratings as standards for selecting investments.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with debt obligations include: Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk.
DEPOSITARY RECEIPTS
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the largest risks associated with depositary receipts include: Foreign/Emerging Markets Risk, Issuer Risk, and Market Risk.
DERIVATIVE INSTRUMENTS
Derivative instruments are commonly defined to include securities or contracts
whose values depend, in whole or in part, on (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities.
A derivative instrument generally consists of, is based upon, or exhibits characteristics similar to options or forward contracts. Such instruments may be used to maintain cash reserves while remaining fully invested, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns. Derivative instruments are characterized by requiring little or no initial payment. Their value changes daily based on a security, a currency, a group of securities or currencies, or an index. A small change in the value of the underlying security, currency, or index can cause a sizable percentage gain or loss in the price of the derivative instrument.
Options and forward contracts are considered to be the basic "building blocks" of derivatives. For example, forward-based derivatives include forward contracts, swap contracts, and exchange-traded futures. Forward-based derivatives are sometimes referred to generically as "futures contracts." Option-based derivatives include privately negotiated, over-the-counter (OTC) options (including caps, floors, collars, and options on futures) and exchange- traded options on futures. Diverse types of derivatives may be created by combining options or futures in different ways, and by applying these structures to a wide range of underlying assets.
Options. An option is a contract. A person who buys a call option for a security has the right to buy the security at a set price for the length of the contract. A person who sells a call option is called a writer. The writer of a call option agrees for the length of the contract to sell the security at the set price when the buyer wants to exercise the option, no matter what the market price of the security is at that time. A person who buys a put option has the right to sell a security at a set price for the length of the contract. A person who writes a put option agrees to buy the security at the set price if the purchaser wants to exercise the option during the length of the contract, no matter what the market price of the security is at that time. An option is covered if the writer owns the security (in the case of a call) or sets aside the cash or securities of equivalent value (in the case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to the premium, the buyer generally pays a broker a commission. The writer receives a premium, less another commission, at the time the option is written. The premium received by the writer is retained whether or not the option is exercised. A writer of a call option may have to sell the
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 12
security for a below-market price if the market price rises above the exercise price. A writer of a put option may have to pay an above-market price for the security if its market price decreases below the exercise price.
When an option is purchased, the buyer pays a premium and a commission. It then pays a second commission on the purchase or sale of the underlying security when the option is exercised. For record keeping and tax purposes, the price obtained on the sale of the underlying security is the combination of the exercise price, the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the premium. To be beneficial to the investor, the price of the underlying security must change within the time set by the option contract. Furthermore, the change must be sufficient to cover the premium paid, the commissions paid both in the acquisition of the option and in a closing transaction or in the exercise of the option and sale (in the case of a call) or purchase (in the case of a put) of the underlying security. Even then, the price change in the underlying security does not ensure a profit since prices in the option market may not reflect such a change.
Options on many securities are listed on options exchanges. If a fund writes listed options, it will follow the rules of the options exchange. Options are valued at the close of the New York Stock Exchange. An option listed on a national exchange, Chicago Board Options Exchange, or NASDAQ will be valued at the last quoted sales price or, if such a price is not readily available, at the mean of the last bid and ask prices.
Options on certain securities are not actively traded on any exchange, but may be entered into directly with a dealer. These options may be more difficult to close. If an investor is unable to effect a closing purchase transaction, it will not be able to sell the underlying security until the call written by the investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a buyer (holding the "long" position) and a seller (holding the "short" position) for an asset with delivery deferred until a future date. The buyer agrees to pay a fixed price at the agreed future date and the seller agrees to deliver the asset. The seller hopes that the market price on the delivery date is less than the agreed upon price, while the buyer hopes for the contrary. Many futures contracts trade in a manner similar to the way a stock trades on a stock exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting transaction. An offsetting transaction is effected by an investor taking an opposite position. At the time a futures contract is made, a good faith deposit called initial margin is set up. Daily thereafter, the futures contract is valued and the payment of variation margin is required so that each day a buyer would pay out cash in an amount equal to any decline in the contract's value or receive cash equal to any increase. At the time a futures contract is closed out, a nominal commission is paid, which is generally lower than the commission on a comparable transaction in the cash market.
Futures contracts may be based on various securities, securities indexes (such as the S&P 500 Index), foreign currencies and other financial instruments and indexes.
A fund may engage in futures and related options transactions to produce incremental earnings, to hedge existing positions, and to increase flexibility. The fund intends to comply with Rule 4.5 of the Commodity Futures Trading Commission (CFTC), under which a mutual fund is exempt from the definition of a "commodity pool operator." The fund, therefore, is not subject to registration or regulation as a pool operator, meaning that the fund may invest in futures contracts without registering with the CFTC.
Options on Futures Contracts. Options on futures contracts give the holder a right to buy or sell futures contracts in the future. Unlike a futures contract, which requires the parties to the contract to buy and sell a security on a set date (some futures are settled in cash), an option on a futures contract merely entitles its holder to decide on or before a future date (within nine months of the date of issue) whether to enter into a contract. If the holder decides not to enter into the contract, all that is lost is the amount (premium) paid for the option. Further, because the value of the option is fixed at the point of sale, there are no daily payments of cash to reflect the change in the value of the underlying contract. However, since an option gives the buyer the right to enter into a contract at a set price for a fixed period of time, its value does change daily.
One of the risks in buying an option on a futures contract is the loss of the premium paid for the option. The risk involved in writing options on futures contracts an investor owns, or on securities held in its portfolio, is that there could be an increase in the market value of these contracts or securities. If that occurred, the option would be exercised and the asset sold at a lower price than the cash market price. To some extent, the risk of not realizing a gain could be reduced by entering into a closing transaction. An investor could enter into a closing transaction by purchasing an option with the same terms as the one previously sold. The cost to close the option and terminate the investor's obligation, however, might still result in a loss. Further, the investor might not be able to close the option because of insufficient activity in the options market. Purchasing options also limits the use of monies that might otherwise be available for long-term investments.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 13
Options on Indexes. Options on indexes are securities traded on national securities exchanges. An option on an index is similar to an option on a futures contract except all settlements are in cash. A fund exercising a put, for example, would receive the difference between the exercise price and the current index level. Options may also be traded with respect to other types of indexes, such as options on indexes of commodities futures.
Tax and Accounting Treatment. As permitted under federal income tax laws and to the extent a fund is allowed to invest in futures contracts, a fund would intend to identify futures contracts as part of a mixed straddle and not mark them to market, that is, not treat them as having been sold at the end of the year at market value. If a fund is using short futures contracts for hedging purposes, the fund may be required to defer recognizing losses incurred on short futures contracts and on underlying securities. Any losses incurred on securities that are part of a straddle may be deferred to the extent there is unrealized appreciation on the offsetting position until the offsetting position is sold. Federal income tax treatment of gains or losses from transactions in options, options on futures contracts and indexes will depend on whether the option is a section 1256 contract. If the option is a non-equity option, a fund would either make a 1256(d) election and treat the option as a mixed straddle or mark to market the option at fiscal year end and treat the gain/loss as 40% short-term and 60% long-term.
The IRS has ruled publicly that an exchange-traded call option is a security for purposes of the 50%-of-assets test and that its issuer is the issuer of the underlying security, not the writer of the option, for purposes of the diversification requirements.
Accounting for futures contracts will be according to generally accepted accounting principles. Initial margin deposits will be recognized as assets due from a broker (a fund's agent in acquiring the futures position). During the period the futures contract is open, changes in value of the contract will be recognized as unrealized gains or losses by marking to market on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments will be made or received depending upon whether gains or losses are incurred. All contracts and options will be valued at the last- quoted sales price on their primary exchange.
Other Risks of Derivatives. The primary risk of derivatives is the same as the risk of the underlying asset, namely that the value of the underlying asset may go up or down. Adverse movements in the value of an underlying asset can expose an investor to losses. Derivative instruments may include elements of leverage and, accordingly, the fluctuation of the value of the derivative instrument in relation to the underlying asset may be magnified. The successful use of derivative instruments depends upon a variety of factors, particularly the investment manager's ability to predict movements of the securities, currencies, and commodity markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy will succeed.
Another risk is the risk that a loss may be sustained as a result of the failure of a counterparty to comply with the terms of a derivative instrument. The counterparty risk for exchange-traded derivative instruments is generally less than for privately-negotiated or OTC derivative instruments, since generally a clearing agency, which is the issuer or counterparty to each exchange-traded instrument, provides a guarantee of performance. For privately-negotiated instruments, there is no similar clearing agency guarantee. In all transactions, an investor will bear the risk that the counterparty will default, and this could result in a loss of the expected benefit of the derivative transaction and possibly other losses.
When a derivative transaction is used to completely hedge another position, changes in the market value of the combined position (the derivative instrument plus the position being hedged) result from an imperfect correlation between the price movements of the two instruments. With a perfect hedge, the value of the combined position remains unchanged for any change in the price of the underlying asset. With an imperfect hedge, the values of the derivative instrument and its hedge are not perfectly correlated. For example, if the value of a derivative instrument used in a short hedge (such as writing a call option, buying a put option, or selling a futures contract) increased by less than the decline in value of the hedged investment, the hedge would not be perfectly correlated. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded.
Derivatives also are subject to the risk that they cannot be sold, closed out, or replaced quickly at or very close to their fundamental value. Generally, exchange contracts are very liquid because the exchange clearinghouse is the counterparty of every contract. OTC transactions are less liquid than exchange- traded derivatives since they often can only be closed out with the other party to the transaction.
Another risk is caused by the legal unenforcibility of a party's obligations under the derivative. A counterparty that has lost money in a derivative transaction may try to avoid payment by exploiting various legal uncertainties about certain derivative products.
(See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the largest risks associated with derivative instruments include: Derivatives Risk and Liquidity Risk.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 14
EXCHANGE-TRADED FUNDS
Exchange-traded funds (ETFs) represent shares of ownership in mutual funds, unit
investment trusts or depositary receipts. ETFs hold portfolios of securities
that are designed to replicate, as closely as possible before expenses, the
price and yield of a specified market index. The performance results of ETFs
will not replicate exactly the performance of the pertinent index due to
transaction and other expenses, including fees to service providers, borne by
ETFs. ETF shares are sold and redeemed at net asset value only in large blocks
called creation units and redemption units, respectively. ETF shares also may be
purchased and sold in secondary market trading on national securities exchanges,
which allows investors to purchase and sell ETF shares at their market price
throughout the day.
Although one or more of the other risks described in this SAI may apply, investments in ETFs involve the same risks associated with a direct investment in the types of securities included in the indices the ETFs are designed to replicate, including Market Risk. Shares of an ETF may trade at a market price that is less than their net asset value and an active trading market in such shares may not develop or continue. Finally, there can be no assurance that the portfolio of securities purchased by an ETF to replicate a particular index will replicate such index.
FLOATING RATE LOANS
Most floating rate loans are acquired directly from the agent bank or from
another holder of the loan by assignment. Most such loans are secured, and most
impose restrictive covenants which must be met by the borrower. These loans are
typically made by a syndicate of banks and institutional investors, represented
by an agent bank which has negotiated and structured the loan and which is
responsible generally for collecting interest, principal, and other amounts from
the borrower on its own behalf and on behalf of the other lending institutions
in the syndicate, and for enforcing its and their other rights against the
borrower. Each of the lending institutions, including the agent bank, lends to
the borrower a portion of the total amount of the loan, and retains the
corresponding interest in the loan. Floating rate loans may include delayed draw
term loans and prefunded or synthetic letters of credit.
A fund's ability to receive payments of principal and interest and other amounts in connection with loans held by it will depend primarily on the financial condition of the borrower. The failure by the fund to receive scheduled interest or principal payments on a loan would adversely affect the income of the fund and would likely reduce the value of its assets, which would be reflected in a reduction in the fund's net asset value. Banks and other lending institutions generally perform a credit analysis of the borrower before originating a loan or purchasing an assignment in a loan. In selecting the loans in which the fund will invest, however, the investment manager will not rely on that credit analysis of the agent bank, but will perform its own investment analysis of the borrowers. The investment manager's analysis may include consideration of the borrower's financial strength and managerial experience, debt coverage, additional borrowing requirements or debt maturity schedules, changing financial conditions, and responsiveness to changes in business conditions and interest rates. The majority of loans the fund will invest in will be rated by one or more of the nationally recognized rating agencies. Investments in loans may be of any quality, including "distressed" loans, and will be subject to the fund's credit quality policy.
Loans may be structured in different forms, including assignments and participations. In an assignment, a fund purchases an assignment of a portion of a lender's interest in a loan. In this case, the fund may be required generally to rely upon the assigning bank to demand payment and enforce its rights against the borrower, but would otherwise be entitled to all of such bank's rights in the loan.
The borrower of a loan may, either at its own election or pursuant to terms of the loan documentation, prepay amounts of the loan from time to time. There is no assurance that a fund will be able to reinvest the proceeds of any loan prepayment at the same interest rate or on the same terms as those of the original loan.
Corporate loans in which a fund may purchase a loan assignment are made generally to finance internal growth, mergers, acquisitions, recapitalizations, stock repurchases, leveraged buy-outs, dividend payments to sponsors and other corporate activities. Under current market conditions, most of the corporate loans purchased by the fund will represent loans made to highly leveraged corporate borrowers. The highly leveraged capital structure of the borrowers in such transactions may make such loans especially vulnerable to adverse changes in economic or market conditions. The fund may hold investments in loans for a very short period of time when opportunities to resell the investments that the investment manager believes are attractive arise.
Certain of the loans acquired by a fund may involve revolving credit facilities under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the fund would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan assignment. To the extent that the fund is committed to make additional loans under such an assignment, it will at all times designate cash or securities in an amount sufficient to meet such commitments.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 15
Notwithstanding its intention in certain situations to not receive material, non-public information with respect to its management of investments in floating rate loans, the investment manager may from time to time come into possession of material, non-public information about the issuers of loans that may be held in a fund's portfolio. Possession of such information may in some instances occur despite the investment manager's efforts to avoid such possession, but in other instances the investment manager may choose to receive such information (for example, in connection with participation in a creditors' committee with respect to a financially distressed issuer). As, and to the extent, required by applicable law, the investment manager's ability to trade in these loans for the account of the fund could potentially be limited by its possession of such information. Such limitations on the investment manager's ability to trade could have an adverse effect on the fund by, for example, preventing the fund from selling a loan that is experiencing a material decline in value. In some instances, these trading restrictions could continue in effect for a substantial period of time.
In some instances, other accounts managed by the investment manager may hold other securities issued by borrowers whose floating rate loans may be held in a fund's portfolio. These other securities may include, for example, debt securities that are subordinate to the floating rate loans held in the fund's portfolio, convertible debt or common or preferred equity securities. In certain circumstances, such as if the credit quality of the issuer deteriorates, the interests of holders of these other securities may conflict with the interests of the holders of the issuer's floating rate loans. In such cases, the investment manager may owe conflicting fiduciary duties to the fund and other client accounts. The investment manager will endeavor to carry out its obligations to all of its clients to the fullest extent possible, recognizing that in some cases certain clients may achieve a lower economic return, as a result of these conflicting client interests, than if the investment manager's client accounts collectively held only a single category of the issuer's securities.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with floating rate loans include: Credit Risk and Prepayment and Extension Risk.
FOREIGN CURRENCY TRANSACTIONS
Investments in foreign countries usually involve currencies of foreign
countries. In addition, a fund may hold cash and cash equivalent investments in
foreign currencies. As a result, the value of a fund's assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Also, a fund may incur costs in
connection with conversions between various currencies. Currency exchange rates
may fluctuate significantly over short periods of time causing a fund's NAV (Net
Asset Value) to fluctuate. Currency exchange rates are generally determined by
the forces of supply and demand in the foreign exchange markets, actual or
anticipated changes in interest rates, and other complex factors. Currency
exchange rates also can be affected by the intervention of U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments.
Spot Rates and Derivative Instruments. A fund may conduct its foreign currency exchange transactions either at the spot (cash) rate prevailing in the foreign currency exchange market or by entering into forward currency exchange contracts (forward contracts). (See also Derivative Instruments.) These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such derivative instruments, a fund could be disadvantaged by having to deal in the odd lot market for the underlying foreign currencies at prices that are less favorable than for round lots.
A fund may enter into forward contracts for a variety of reasons, but primarily it will enter into such contracts for risk management (hedging) or for investment purposes.
A fund may enter into forward contracts to settle a security transaction or handle dividend and interest collection. When a fund enters into a contract for the purchase or sale of a security denominated in a foreign currency or has been notified of a dividend or interest payment, it may desire to lock in the price of the security or the amount of the payment, usually in U.S. dollars, although it could desire to lock in the price of the security in another currency. By entering into a forward contract, a fund would be able to protect itself against a possible loss resulting from an adverse change in the relationship between different currencies from the date the security is purchased or sold to the date on which payment is made or received or when the dividend or interest is actually received.
A fund may enter into forward contracts when management of the fund believes the currency of a particular foreign country may decline in value relative to another currency. When selling currencies forward in this fashion, a fund may seek to hedge the value of foreign securities it holds against an adverse move in exchange rates. The precise matching of forward contract amounts and the value of securities involved generally will not be possible since the future value of securities in foreign currencies more than likely will change between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movements is extremely difficult and successful execution of a short-term hedging strategy is highly uncertain. Unless specifically permitted, a fund would not enter into such forward contracts or maintain a
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 16
net exposure to such contracts when consummating the contracts would obligate it to deliver an amount of foreign currency in excess of the value of its securities or other assets denominated in that currency.
This method of protecting the value of the fund's securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange that can be achieved at some point in time. Although forward contracts tend to minimize the risk of loss due to a decline in value of hedged currency, they tend to limit any potential gain that might result should the value of such currency increase.
A fund may also enter into forward contracts when its management believes the currency of a particular country will increase in value relative to another currency. A fund may buy currencies forward to gain exposure to a currency without incurring the additional costs of purchasing securities denominated in that currency.
The funds may also invest in a combination of forward currency contracts and U.S. dollar-denominated market instruments in an attempt to obtain an investment result that is substantially the same as a direct investment in a foreign currency-denominated instrument. For example, the combination of U.S. dollar- denominated instruments with long forward currency exchange contracts creates a position economically equivalent to a position in the foreign currency, in anticipation of an increase in the value of the foreign currency against the U.S. dollar. Conversely, the combination of U.S. dollar-denominated instruments with short forward currency exchange contracts is economically equivalent to borrowing the foreign currency for delivery at a specified date in the future, in anticipation of a decrease in the value of the foreign currency against the U.S. dollar. Unanticipated changes in the currency exchange results could result in poorer performance for funds that enter into these types of transactions.
A fund may designate cash or securities in an amount equal to the value of the fund's total assets committed to consummating forward contracts entered into under the circumstance set forth above. If the value of the securities declines, additional cash or securities will be designated on a daily basis so that the value of the cash or securities will equal the amount of the fund's commitments on such contracts.
At maturity of a forward contract, a fund may either deliver (if a contract to sell) or take delivery of (if a contract to buy) the foreign currency or terminate its contractual obligation by entering into an offsetting contract with the same currency trader, the same maturity date, and covering the same amount of foreign currency.
If a fund engages in an offsetting transaction, it would incur a gain or loss to the extent there has been movement in forward contract prices. If a fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to buy or sell the foreign currency.
Although a fund values its assets each business day in terms of U.S. dollars, it may not intend to convert its foreign currencies into U.S. dollars on a daily basis. It would do so from time to time, and shareholders should be aware of currency conversion costs. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (spread) between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a fund at one rate, while offering a lesser rate of exchange should a fund desire to resell that currency to the dealer.
Options on Foreign Currencies. A fund may buy put and call options and write covered call and cash-secured put options on foreign currencies for hedging purposes and to gain exposure to foreign currencies. For example, a decline in the dollar value of a foreign currency in which securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against the diminutions in the value of securities, a fund may buy put options on the foreign currency. If the value of the currency does decline, a fund would have the right to sell the currency for a fixed amount in dollars and would offset, in whole or in part, the adverse effect on its portfolio that otherwise would have resulted. Conversely, where a change in the dollar value of a currency would increase the cost of securities a fund plans to buy, or where a fund would benefit from increased exposure to the currency, a fund may buy call options on the foreign currency. The purchase of the options could offset, at least partially, the changes in exchange rates.
As in the case of other types of options, however, the benefit to a fund derived from purchases of foreign currency options would be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, a fund could sustain losses on transactions in foreign currency options that would require it to forego a portion or all of the benefits of advantageous changes in rates.
A fund may write options on foreign currencies for the same types of purposes. For example, when a fund anticipates a decline in the dollar value of foreign- denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option would most likely not be exercised and the diminution in value of securities would be fully or partially offset by the amount of the premium received.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 17
Similarly, instead of purchasing a call option when a foreign currency is expected to appreciate, a fund could write a put option on the relevant currency. If rates move in the manner projected, the put option would expire unexercised and allow the fund to hedge increased cost up to the amount of the premium.
As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the fund would be required to buy or sell the underlying currency at a loss that may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the fund also may be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on foreign currencies is covered if a fund holds currency sufficient to cover the option or has an absolute and immediate right to acquire that currency without additional cash consideration upon conversion of assets denominated in that currency or exchange of other currency held in its portfolio. An option writer could lose amounts substantially in excess of its initial investments, due to the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting as market-makers, although foreign currency options also are traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In an over-the- counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting a fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in certain foreign countries for that purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. A fund may enter into currency futures contracts to buy or sell currencies. It also may buy put and call options and write covered call and cash-secured put options on currency futures. Currency futures contracts are similar to currency forward contracts, except that they are traded on exchanges (and have margin requirements) and are standardized as to contract size and delivery date. Most currency futures call for payment of delivery in U.S. dollars. A fund may use currency futures for the same purposes as currency forward contracts, subject to CFTC limitations.
Currency futures and options on futures values can be expected to correlate with exchange rates, but will not reflect other factors that may affect the value of the fund's investments. A currency hedge, for example, should protect a Yen- denominated bond against a decline in the Yen, but will not protect a fund against price decline if the issuer's creditworthiness deteriorates. Because the value of a fund's investments denominated in foreign currency will change in response to many factors other than exchange rates, it may not be possible to match the amount of a forward contract to the value of a fund's investments denominated in that currency over time.
A fund will hold securities or other options or futures positions whose values are expected to offset its obligations.
The fund would not enter into an option or futures position that exposes the fund to an obligation to another party unless it owns either (i) an offsetting position in securities or (ii) cash, receivables and short-term debt securities with a value sufficient to cover its potential obligations. (See also Derivative Instruments and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign currency transactions include: Derivatives Risk, Interest Rate Risk, and Liquidity Risk.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 18
FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. Additionally, many foreign stock markets, while growing in
volume of trading activity, have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than the volume and liquidity in
the U.S. and, at times, volatility of price can be greater than in the U.S.
Further, foreign markets have different clearance, settlement, registration, and
communication procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in such
procedures could result in temporary periods when assets are uninvested and no
return is earned on them. The inability of an investor to make intended security
purchases due to such problems could cause the investor to miss attractive
investment opportunities. Payment for securities without delivery may be
required in certain foreign markets and, when participating in new issues, some
foreign countries require payment to be made in advance of issuance (at the time
of issuance, the market value of the security may be more or less than the
purchase price). Some foreign markets also have compulsory depositories (i.e.,
an investor does not have a choice as to where the securities are held). Fixed
commissions on some foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. Further, an investor may encounter difficulties
or be unable to pursue legal remedies and obtain judgments in foreign courts.
There is generally less government supervision and regulation of business and
industry practices, stock exchanges, brokers, and listed companies than in the
U.S. It may be more difficult for an investor's agents to keep currently
informed about corporate actions such as stock dividends or other matters that
may affect the prices of portfolio securities. Communications between the U.S.
and foreign countries may be less reliable than within the U.S., thus increasing
the risk of delays or loss of certificates for portfolio securities. In
addition, with respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of additional withholding or
confiscatory taxes, political, social, or economic instability, diplomatic
developments that could affect investments in those countries, or other
unforeseen actions by regulatory bodies (such as changes to settlement or
custody procedures).
The risks of foreign investing may be magnified for investments in emerging markets, which may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities.
The introduction of a single currency, the euro, on Jan. 1, 1999 for participating European nations in the Economic and Monetary Union (EU) presents unique uncertainties, including the legal treatment of certain outstanding financial contracts after Jan. 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates; the fluctuation of the euro relative to non-euro currencies; whether the interest rate, tax or labor regimes of European countries participating in the euro will converge over time; and whether the admission of other countries such as Poland, Latvia, and Lithuania as members of the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign securities include: Foreign/Emerging Markets Risk and Issuer Risk.
FUNDING AGREEMENTS
A fund may invest in funding agreements issued by domestic insurance companies.
Funding agreements are short-term, privately placed, debt obligations of
insurance companies that offer a fixed- or floating-rate of interest. These
investments are not readily marketable and therefore are considered to be
illiquid securities. (See also Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the largest risks associated with funding agreements include: Credit Risk and Liquidity Risk.
HIGH-YIELD DEBT SECURITIES (JUNK BONDS)
High yield (high-risk) debt securities are sometimes referred to as junk bonds.
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.
See Appendix A for a discussion of securities ratings. (See also Debt Obligations.)
All fixed rate interest-bearing securities typically experience appreciation when interest rates decline and depreciation when interest rates rise. The market values of lower-quality and comparable unrated securities tend to reflect individual corporate developments to a greater extent than do higher rated securities, which react primarily to fluctuations in the general level of interest rates. Lower-quality and comparable unrated securities also tend to be more sensitive to economic conditions than
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 19
are higher-rated securities. As a result, they generally involve more credit risks than securities in the higher-rated categories. During an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of lower-quality securities may experience financial stress and may not have sufficient revenues to meet their payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific corporate developments, the issuer's inability to meet specific projected business forecasts, or the unavailability of additional financing. The risk of loss due to default by an issuer of these securities is significantly greater than a default by issuers of higher-rated securities because such securities are generally unsecured and are often subordinated to other creditors. Further, if the issuer of a lower quality security defaulted, an investor might incur additional expenses to seek recovery.
Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of lower-quality securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the condition of the issuer that affect the market value of the securities. Consequently, credit ratings are used only as a preliminary indicator of investment quality.
An investor may have difficulty disposing of certain lower-quality and comparable unrated securities because there may be a thin trading market for such securities. Because not all dealers maintain markets in all lower quality and comparable unrated securities, there is no established retail secondary market for many of these securities. To the extent a secondary trading market does exist, it is generally not as liquid as the secondary market for higher- rated securities. The lack of a liquid secondary market may have an adverse impact on the market price of the security. The lack of a liquid secondary market for certain securities also may make it more difficult for an investor to obtain accurate market quotations. Market quotations are generally available on many lower-quality and comparable unrated issues only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales.
Legislation may be adopted from time to time designed to limit the use of certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with high-yield debt securities include: Credit Risk, Interest Rate Risk, and Prepayment and Extension Risk.
ILLIQUID AND RESTRICTED SECURITIES
Illiquid securities are securities that are not readily marketable. These
securities may include, but are not limited to, certain securities that are
subject to legal or contractual restrictions on resale, certain repurchase
agreements, and derivative instruments. To the extent a fund invests in illiquid
or restricted securities, it may encounter difficulty in determining a market
value for the securities. Disposing of illiquid or restricted securities may
involve time-consuming negotiations and legal expense, and it may be difficult
or impossible for a fund to sell the investment promptly and at an acceptable
price.
In determining the liquidity of all securities and derivatives, such as Rule 144A securities, which are unregistered securities offered to qualified institutional buyers, and interest-only and principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S. government or its agencies and instrumentalities the investment manager, under guidelines established by the Board, will consider any relevant factors including the frequency of trades, the number of dealers willing to purchase or sell the security and the nature of marketplace trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk.
INDEXED SECURITIES
The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile than the
underlying instrument itself and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the largest risks associated with indexed securities include: Liquidity Risk and Market Risk.
INFLATION PROTECTED SECURITIES
Inflation is a general rise in prices of goods and services. Inflation erodes
the purchasing power of an investor's assets. For example, if an investment
provides a total return of 7% in a given year and inflation is 3% during that
period, the inflation-adjusted, or real, return is 4%. Inflation-protected
securities are debt securities whose principal and/or interest payments are
adjusted for inflation, unlike debt securities that make fixed principal and
interest payments. One type of inflation-protected
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 20
debt security is issued by the U.S. Treasury. The principal of these securities is adjusted for inflation as indicated by the Consumer Price Index for Urban Consumers (CPI) and interest is paid on the adjusted amount. The CPI is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and energy.
If the CPI falls, the principal value of inflation-protected securities will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Conversely, if the CPI rises, the principal value of inflation-protected securities will be adjusted upward, and consequently the interest payable on these securities will be increased. Repayment of the original bond principal upon maturity is guaranteed in the case of U.S. Treasury inflation-protected securities, even during a period of deflation. However, the current market value of the inflation-protected securities is not guaranteed and will fluctuate. Other inflation-indexed securities include inflation-related bonds, which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
Other issuers of inflation-protected debt securities include other U.S. government agencies or instrumentalities, corporations and foreign governments. There can be no assurance that the CPI or any foreign inflation index will accurately measure the real rate of inflation in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States.
If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the bond's inflation measure.
Any increase in principal for an inflation-protected security resulting from inflation adjustments is considered by IRS regulations to be taxable income in the year it occurs. For direct holders of an inflation-protected security, this means that taxes must be paid on principal adjustments even though these amounts are not received until the bond matures. By contrast, a fund holding these securities distributes both interest income and the income attributable to principal adjustments in the form of cash or reinvested shares, which are taxable to shareholders.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with inflation-protected securities include: Interest Rate Risk and Market Risk.
INITIAL PUBLIC OFFERINGS (IPOS)
Companies issuing IPOs generally have limited operating histories, and their
prospects for future profitability are uncertain. These companies often are
engaged in new and evolving businesses and are particularly vulnerable to
competition and to changes in technology, markets and economic conditions. They
may be dependent on certain key managers and third parties, need more personnel
and other resources to manage growth and require significant additional capital.
They may also be dependent on limited product lines and uncertain property
rights and need regulatory approvals. Funds that invest in IPOs can be affected
by sales of additional shares and by concentration of control in existing
management and principal shareholders. Stock prices of IPOs can also be highly
unstable, due to the absence of a prior public market, the small number of
shares available for trading and limited investor information. Most IPOs involve
a high degree of risk not normally associated with offerings of more seasoned
companies.
Although one or more risks described in this SAI may apply, the largest risks associated with IPOs include: Small and Mid-Sized Company Risk and Initial Public Offering (IPO) Risk.
INVERSE FLOATERS
Inverse floaters or inverse floating rate securities are a type of derivative
long-term fixed income obligation with a floating or variable interest rate that
moves in the opposite direction of short-term interest rates. As short-term
interest rates go down, the holders of the inverse floaters receive more income
and, as short-term interest rates go up, the holders of the inverse floaters
receive less income. As with all long-term fixed income securities, the price of
the inverse floater moves inversely with long-term interest rates; as long-term
interest rates go down, the price of the inverse floater moves up and, when
long-term interest rates go up, the price of the inverse floater moves down.
While inverse floater securities tend to provide more income than similar term
and credit quality fixed-rate bonds, they also exhibit greater volatility in
price movement (both up and down).
In the municipal market an inverse floater is typically created when the owner of a municipal fixed rate bond transfers that bond to a trust in exchange for cash and a residual interest in the trust's assets and cash flows (inverse floater certificates). The trust funds the purchase of the bond by issuing two classes of certificates: short-term floating rate notes (typically sold to third parties) and the inverse floaters (also known as residual certificates). No additional income beyond that provided by the trust's underlying bond is created; rather, that income is merely divided-up between the two classes of certificates. The holder of the inverse floating rate securities typically has the right to (1) cause the holders of the short-term floating rate
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 21
notes to tender their notes at par ($100) and (2) to return the inverse floaters and withdraw the underlying bonds, thereby collapsing the trust. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the largest risks associated with transactions in inverse floaters include: Interest Rate Risk, Credit Risk, Liquidity Risk and Market Risk.
INVESTMENT COMPANIES
Investing in securities issued by registered and unregistered investment
companies may involve the duplication of advisory fees and certain other
expenses.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with the securities of other investment companies include: Market Risk.
LENDING OF PORTFOLIO SECURITIES
A fund may lend certain of its portfolio securities. The current policy of the
Board is to make these loans, either long- or short-term, to broker-dealers.
Loans will be structured in a manner that will enable a fund to call the loan in
order to vote in a proxy solicitation if the fund has knowledge of a material
event to be voted on that would affect the fund's investment in the loaned
security. In making loans, the lender receives the market price in cash, U.S.
government securities, letters of credit, or such other collateral as may be
permitted by regulatory agencies and approved by the Board. If the market price
of the loaned securities goes up, the lender will get additional collateral on a
daily basis. If the market price of the loaned securities goes down, the
borrower may request that some collateral be returned. The risks are that the
borrower may not provide additional collateral when required or return the
securities when due. During the existence of the loan, the lender receives cash
payments equivalent to all interest or other distributions paid on the loaned
securities. The lender may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or money market instruments held as collateral to the borrower or
placing broker. The lender will receive reasonable interest on the loan or a
flat fee from the borrower and amounts equivalent to any dividends, interest, or
other distributions on the securities loaned.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Credit Risk.
LOAN PARTICIPATIONS
Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with loan participations include: Credit Risk.
MORTGAGE- AND ASSET-BACKED SECURITIES
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement. Commercial mortgage-
backed securities (CMBS) are a specific type of mortgage-backed security
collateralized by a pool of mortgages on commercial real estate.
Stripped mortgage-backed securities are a type of mortgage-backed security that receive differing proportions of the interest and principal payments from the underlying assets. Generally, there are two classes of stripped mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder to receive distributions consisting of all or a portion of the interest on the underlying pool of mortgage loans or mortgage-backed securities. POs entitle the holder to receive distributions consisting of all or a portion of the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage- backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 22
POs. If prepayments of principal are greater than anticipated, an investor in IOs may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage-backed security.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans or other mortgage-related securities, such as mortgage pass through securities or stripped mortgage-backed securities. CMOs may be structured into multiple classes, often referred to as "tranches," with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than its stated maturity.
The yield characteristics of mortgage-backed securities differ from those of other debt securities. Among the differences are that interest and principal payments are made more frequently on mortgage-backed securities, usually monthly, and principal may be repaid at any time. These factors may reduce the expected yield.
Asset-backed securities have structural characteristics similar to mortgage- backed securities. Asset-backed debt obligations represent direct or indirect participation in, or secured by and payable from, assets such as motor vehicle installment sales contracts, other installment loan contracts, home equity loans, leases of various types of property, and receivables from credit card or other revolving credit arrangements. The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancement of the securities. Payments or distributions of principal and interest on asset-backed debt obligations may be supported by non-governmental credit enhancements including letters of credit, reserve funds, overcollateralization, and guarantees by third parties. The market for privately issued asset-backed debt obligations is smaller and less liquid than the market for government sponsored mortgage-backed securities. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage- and asset-backed securities include:
Credit Risk, Interest Rate Risk, Liquidity Risk, and Prepayment and Extension
Risk.
MORTGAGE DOLLAR ROLLS
Mortgage dollar rolls are investments in which an investor sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
purchase substantially similar securities on a specified future date. While an
investor foregoes principal and interest paid on the mortgage-backed securities
during the roll period, the investor is compensated by the difference between
the current sales price and the lower price for the future purchase as well as
by any interest earned on the proceeds of the initial sale. The investor also
could be compensated through the receipt of fee income equivalent to a lower
forward price.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage dollar rolls include: Credit Risk and Interest Rate Risk.
MUNICIPAL OBLIGATIONS
Municipal obligations include debt obligations issued by or on behalf of states,
territories, possessions, or sovereign nations within the territorial boundaries
of the United States (including the District of Columbia and Puerto Rico). The
interest on these obligations is generally exempt from federal income tax.
Municipal obligations are generally classified as either "general obligations"
or "revenue obligations."
General obligation bonds are secured by the issuer's pledge of its full faith, credit, and taxing power for the payment of interest and principal. Revenue bonds are payable only from the revenues derived from a project or facility or from the proceeds of a specified revenue source. Industrial development bonds are generally revenue bonds secured by payments from and the credit of private users. Municipal notes are issued to meet the short-term funding requirements of state, regional, and local governments. Municipal notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes, tax and revenue anticipation notes, construction loan notes, short-term discount notes, tax- exempt commercial paper, demand notes, and similar instruments.
Municipal lease obligations may take the form of a lease, an installment purchase, or a conditional sales contract. They are issued by state and local governments and authorities to acquire land, equipment, and facilities. An investor may purchase these obligations directly, or it may purchase participation interests in such obligations. Municipal leases may be subject to greater risks than general obligation or revenue bonds. State constitutions and statutes set forth requirements that states or municipalities must meet in order to issue municipal obligations. Municipal leases may contain a covenant by the state or municipality to budget for and make payments due under the obligation. Certain municipal leases may, however, provide that the issuer is not obligated to make payments on the obligation in future years unless funds have been appropriated for this purpose each year.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 23
Yields on municipal bonds and notes depend on a variety of factors, including money market conditions, municipal bond market conditions, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The municipal bond market has a large number of different issuers, many having smaller sized bond issues, and a wide choice of different maturities within each issue. For these reasons, most municipal bonds do not trade on a daily basis and many trade only rarely. Because many of these bonds trade infrequently, the spread between the bid and offer may be wider and the time needed to develop a bid or an offer may be longer than other security markets. See Appendix A for a discussion of securities ratings. (See also Debt Obligations.)
Taxable Municipal Obligations. There is another type of municipal obligation that is subject to federal income tax for a variety of reasons. These municipal obligations do not qualify for the federal income exemption because (a) they did not receive necessary authorization for tax-exempt treatment from state or local government authorities, (b) they exceed certain regulatory limitations on the cost of issuance for tax-exempt financing or (c) they finance public or private activities that do not qualify for the federal income tax exemption. These non- qualifying activities might include, for example, certain types of multi-family housing, certain professional and local sports facilities, refinancing of certain municipal debt, and borrowing to replenish a municipality's underfunded pension plan.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with municipal obligations include: Credit Risk, Inflation Risk, Interest Rate Risk, and Market Risk.
PREFERRED STOCK
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of products or services, projected growth rates, experience of management, liquidity, and general market conditions of the markets on which the stock trades.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with preferred stock include: Issuer Risk and Market Risk.
REAL ESTATE INVESTMENT TRUSTS
Real estate investment trusts (REITs) are pooled investment vehicles that manage
a portfolio of real estate or real estate related loans to earn profits for
their shareholders. REITs are generally classified as equity REITs, mortgage
REITs or a combination of equity and mortgage REITs. Equity REITs invest the
majority of their assets directly in real property, such as shopping centers,
nursing homes, office buildings, apartment complexes, and hotels, and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs can be subject to extreme
volatility due to fluctuations in the demand for real estate, changes in
interest rates, and adverse economic conditions. Similar to investment
companies, REITs are not taxed on income distributed to shareholders provided
they comply with certain requirements under the tax law. The failure of a REIT
to continue to qualify as a REIT for tax purposes can materially affect its
value. A fund will indirectly bear its proportionate share of any expenses paid
by a REIT in which it invests.
REITs often do not provide complete tax information until after the calendar year-end. Consequently, because of the delay, it may be necessary for a fund investing in REITs to request permission to extend the deadline for issuance of Forms 1099-DIV beyond January 31. In the alternative, amended Forms 1099-DIV may be sent.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with REITs include: Interest Rate Risk, Issuer Risk and Market Risk.
REPURCHASE AGREEMENTS
Repurchase agreements may be entered into with certain banks or non-bank
dealers. In a repurchase agreement, the purchaser buys a security at one price,
and at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve certain risks in the event of a
default or insolvency of the other party to the agreement, including possible
delays or restrictions upon the purchaser's ability to dispose of the underlying
securities.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with repurchase agreements include: Credit Risk.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 24
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, an investor sells a security and enters into
an agreement to repurchase the security at a specified future date and price.
The investor generally retains the right to interest and principal payments on
the security. Since the investor receives cash upon entering into a reverse
repurchase agreement, it may be considered a borrowing. (See also Derivative
Instruments.)
Although one or more of the other risks described in this SAI may apply, the largest risks associated with reverse repurchase agreements include: Credit Risk and Interest Rate Risk.
SHORT SALES
In short selling transactions, a fund sells a security it does not own in anticipation of a decline in the market value of the security. To complete the transaction, a fund must borrow the security to make delivery to the buyer. A fund is obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by a fund, which may result in a loss or gain, respectively. Unlike taking a long position in a security by purchasing the security, where potential losses are limited to the purchase price, short sales have no cap on maximum losses, and gains are limited to the price of the security at the time of the short sale.
Short sales of forward commitments and derivatives do not involve borrowing a security. These types of short sales may include futures, options, contracts for differences, forward contracts on financial instruments and options such as contracts, credit linked instruments, and swap contracts.
A fund may not always be able to borrow a security it wants to sell short. A fund also may be unable to close out an established short position at an acceptable price and may have to sell long positions at disadvantageous times to cover its short positions. The value of your investment in a fund will fluctuate in response to the movements in the market. Fund performance also will depend on the effectiveness of the investment manager's research and the management team's investment decisions.
Short sales also involve other costs. A fund must repay to the lender an amount equal to any dividends or interest that accrues while the loan is outstanding. To borrow the security, a fund may be required to pay a premium. A fund also will incur truncation costs in effecting short sales. The amount of any ultimate gain for a fund resulting from a short sale will be decreased and the amount of any ultimate loss will be increased, by the amount of premiums, interest or expenses a fund may be required to pay in connection with the short sale. Until a fund closes the short position, it will earmark and reserve fund assets, in cash or liquid securities to offset a portion of the leverage risk. Realized gains from short sales are typically treated as short-term gains/losses.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with short sales include: Market Risk and Short Sales Risk.
SOVEREIGN DEBT
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be aware that certain emerging market countries are among the largest debtors to commercial banks and foreign governments. At times, certain emerging market countries have declared moratoria on the payment of principal and interest on external debt.
Certain emerging market countries have experienced difficulty in servicing their sovereign debt on a timely basis that led to defaults and the restructuring of certain indebtedness.
Sovereign debt includes Brady Bonds, which are securities issued under the framework of the Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external commercial bank indebtedness.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with sovereign debt include: Credit Risk and Foreign/Emerging Markets Risk.
STRUCTURED INVESTMENTS
A structured investment is a security whose return is tied to an underlying
index or to some other security or pool of assets. Structured investments
generally are individually negotiated agreements and may be traded over-the-
counter. Structured
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 25
investments are created and operated to restructure the investment characteristics of the underlying security. This restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments, such as commercial bank loans, and the issuance by that entity of one or more classes of debt obligations ("structured securities") backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics, such as varying maturities, payment priorities, and interest rate provisions. The extent of the payments made with respect to structured securities is dependent on the extent of the cash flow on the underlying instruments. Because structured securities typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. Structured securities are often offered in different classes. As a result a given class of a structured security may be either subordinated or unsubordinated to the right of payment of another class. Subordinated structured securities typically have higher yields and present greater risks than unsubordinated structured securities. Structured securities are typically sold in private placement transactions, and at any given time there may be no active trading market for a particular structured security.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with structured investments include: Credit Risk and Liquidity Risk.
SWAP AGREEMENTS
Swap agreements are typically individually negotiated agreements that obligate
two parties to exchange payments based on a reference to a specified asset,
reference rate or index. Swap agreements will tend to shift a party's investment
exposure from one type of investment to another. A swap agreement can increase
or decrease the volatility of a fund's investments and its net asset value.
Swap agreements are traded in the over-the-counter market and may be considered to be illiquid. Swap agreements entail the risk that a party will default on its payment obligations. A fund will enter into a swap agreement only if the claims- paying ability of the other party or its guarantor is considered to be investment grade by the investment manager. Generally, the unsecured senior debt or the claims-paying ability of the other party or its guarantor must be rated in one of the three highest rating categories of at least one Nationally Recognized Statistical Rating Organization (NRSRO) at the time of entering into the transaction. If there is a default by the other party to such a transaction, a fund will have to rely on its contractual remedies (which may be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements related to the transaction. In certain circumstances, a fund may seek to minimize counterparty risk by requiring the counterparty to post collateral.
Swap agreements are usually entered into without an upfront payment because the value of each party's position is the same. The market values of the underlying commitments will change over time resulting in one of the commitments being worth more than the other and the net market value creating a risk exposure for one counterparty or the other.
Interest Rate Swaps. Interest rate swap agreements are often used to obtain or preserve a desired return or spread at a lower cost than through a direct investment in an instrument that yields the desired return or spread. They are financial instruments that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future. In a standard interest rate swap transaction, two parties agree to exchange their respective commitments to pay fixed or floating rates on a predetermined specified (notional) amount. The swap agreement notional amount is the predetermined basis for calculating the obligations that the swap counterparties have agreed to exchange. Under most swap agreements, the obligations of the parties are exchanged on a net basis. The two payment streams are netted out, with each party receiving or paying, as the case may be, only the net amount of the two payments. Interest rate swaps can be based on various measures of interest rates, including LIBOR, swap rates, treasury rates and other foreign interest rates.
Cross Currency Swaps. Cross currency swaps are similar to interest rate swaps, except that they involve multiple currencies. A fund may enter into a currency swap when it has exposure to one currency and desires exposure to a different currency. Typically the interest rates that determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal amounts are exchanged at the beginning of the contract and returned at the end of the contract. In addition to paying and receiving amounts at the beginning and termination of the agreements, both sides will also have to pay in full periodically based upon the currency they have borrowed. Change in foreign exchange rates and changes in interest rates, as described above, may negatively affect currency swaps.
Total Return Swaps. Total return swaps are contracts in which one party agrees to make periodic payments based on the change in market value of the underlying assets, which may include a specified security, basket of securities or security indexes during the specified period, in return for periodic payments based on a fixed or variable interest rate of the total return from other underlying assets. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking physical custody of such security or market. For example, CMBS total return swaps are bilateral financial contracts designed to replicate synthetically the total returns of commercial mortgage- backed securities. In a typical total return equity swap, payments made by the fund or the counterparty are based on the total return of a particular
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 26
reference asset or assets (such as an equity security, a combination of such securities, or an index). That is, one party agrees to pay another party the return on a stock, basket of stocks, or stock index in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the index of securities without actually purchasing those stocks. Total return swaps involve not only the risk associated with the investment in the underlying securities, but also the risk of the counterparty not fulfilling its obligations under the agreement.
Swaption Transaction. A swaption is an option on a swap agreement and a contract
that gives a counterparty the right (but not the obligation) to enter into a new
swap agreement or to shorten, extend, cancel or otherwise modify an existing
swap agreement, at some designated future time on specified terms, in return for
payment of the purchase price (the "premium") of the option. The fund may write
(sell) and purchase put and call swaptions to the same extent it may make use of
standard options on securities or other instruments. The writer of the contract
receives the premium and bears the risk of unfavorable changes in the market
value on the underlying swap agreement.
Swaptions can be bundled and sold as a package. These are commonly called interest rate caps, floors and collars. In interest rate cap transactions, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or cap. Interest rate floor transactions require one party, in exchange for a premium to agree to make payments to the other to the extent that interest rates fall below a specified level, or floor. In interest rate collar transactions, one party sells a cap and purchases a floor, or vice versa, in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels or collar amounts.
Credit Default Swaps. Credit default swaps are contracts in which third party credit risk is transferred from one party to another party by one party, the protection buyer, making payments to the other party, the protection seller, in return for the ability of the protection buyer to deliver a reference obligation, or portfolio of reference obligations, to the protection seller upon the occurrence of certain credit events relating to the issuer of the reference obligation and receive the notional amount of the reference obligation from the protection seller. A fund may use credit default swaps for various purposes including to increase or decrease its credit exposure to various issuers. For example, as a seller in a transaction, a fund could use credit default swaps as a way of increasing investment exposure to a particular issuer's bonds in lieu of purchasing such bonds directly. Similarly, as a buyer in a transaction, a fund may use credit default swaps to hedge its exposure on bonds that it owns or in lieu of selling such bonds. A credit default swap agreement may have as reference obligations one or more securities that are not currently held by the fund. The fund may be either the buyer or seller in the transaction. Credit default swaps may also be structured based on the debt of a basket of issuers, rather than a single issuer, and may be customized with respect to the default event that triggers purchase or other factors. As a seller, the fund generally receives an up front payment or a fixed rate of income throughout the term of the swap, which typically is between six months and three years, provided that there is no credit event. If a credit event occurs, generally the seller must pay the buyer the full face amount of deliverable obligations of the reference obligations that may have little or no value. If the fund is a buyer and no credit event occurs, the fund recovers nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference obligation that may have little or no value.
Credit default swap agreements can involve greater risks than if a fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to counterparty credit risk, leverage risk, hedging risk, correlation risk and liquidity risk. A fund will enter into credit default swap agreements only with counterparties that meet certain standards of creditworthiness. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the seller, coupled with the upfront or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. A fund's obligations under a credit default swap agreement will be accrued daily (offset against any amounts owing to the fund). In connection with credit default swaps in which a fund is the buyer, the fund will segregate or "earmark" cash or other liquid assets, or enter into certain offsetting positions, with a value at least equal to the fund's exposure (any accrued but unpaid net amounts owed by the fund to any counterparty), on a marked-to-market basis. In connection with credit default swaps in which a fund is the seller, the fund will segregate or "earmark" cash or other liquid assets, or enter into offsetting positions, with a value at least equal to the full notional amount of the swap (minus any amounts owed to the fund). Such segregation or "earmarking" will ensure that the fund has assets available to satisfy its obligations with respect to the transaction. Such segregation or "earmarking" will not limit the fund's exposure to loss.
The use of swap agreements by a fund entails certain risks, which may be different from, or possibly greater than, the risks associated with investing directly in the securities and other investments that are the referenced asset for the swap agreement. Swaps are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with stocks, bonds, and other traditional investments. The use of a swap requires an understanding not only of the referenced asset, reference rate, or index, but also of the swap itself, without the benefit of observing the performance of the
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 27
swap under all the possible market conditions. Because some swap agreements have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the swap itself. Certain swaps have the potential for unlimited loss, regardless of the size of the initial investment.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with swaps include: Credit Risk, Liquidity Risk and Market Risk.
VARIABLE- OR FLOATING-RATE SECURITIES
Variable-rate securities provide for automatic establishment of a new interest
rate at fixed intervals (daily, monthly, semiannually, etc.). Floating-rate
securities generally provide for automatic adjustment of the interest rate
whenever some specified interest rate index changes. Variable- or floating-rate
securities frequently include a demand feature enabling the holder to sell the
securities to the issuer at par. In many cases, the demand feature can be
exercised at any time. Some securities that do not have variable or floating
interest rates may be accompanied by puts producing similar results and price
characteristics. Variable-rate demand notes include master demand notes that are
obligations that permit the investor to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the
investor as lender, and the borrower. The interest rates on these notes
fluctuate from time to time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. Because
these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded.
There generally is not an established secondary market for these obligations.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, the lender's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and may involve
heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk.
WARRANTS
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with warrants include: Market Risk.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
When-issued securities and forward commitments involve a commitment to purchase
or sell specific securities at a predetermined price or yield in which payment
and delivery take place after the customary settlement period for that type of
security. Normally, the settlement date occurs within 45 days of the purchase
although in some cases settlement may take longer. The investor does not pay for
the securities or receive dividends or interest on them until the contractual
settlement date. Such instruments involve the risk of loss if the value of the
security to be purchased declines prior to the settlement date and the risk that
the security will not be issued as anticipated. If the security is not issued as
anticipated, a fund may lose the opportunity to obtain a price and yield
considered to be advantageous.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with when-issued securities and forward commitments include: Credit Risk.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See Appendix A for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the largest risks associated with zero-coupon, step-coupon, and pay-in-kind securities include: Credit Risk and Interest Rate Risk.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 28
A fund cannot issue senior securities but this does not prohibit certain investment activities for which assets of the fund are set aside, or margin, collateral or escrow arrangements are established, to cover the related obligations. Examples of those activities include borrowing money, delayed- delivery and when-issued securities transactions, and contracts to buy or sell options, derivatives, and hedging instruments.
SECURITIES TRANSACTIONS
Except as otherwise noted, the description of policies and procedures in this section also applies to any fund subadviser. Subject to policies set by the Board, as well as the terms of the investment management agreements, the investment manager or subadviser is authorized to determine, consistent with a fund's investment objective and policies, which securities will be purchased, held, or sold. In determining where the buy and sell orders are to be placed, the investment manager has been directed to use its best efforts to obtain the best available price and the most favorable execution except where otherwise authorized by the Board.
Each fund, the investment manager, any subadviser and RiverSource Distributors, Inc. (principal underwriter and distributor of the funds) has a strict Code of Ethics that prohibits affiliated personnel from engaging in personal investment activities that compete with or attempt to take advantage of planned portfolio transactions for the fund.
A fund's securities may be traded on an agency basis with brokers or dealers or on a principal basis with dealers. In an agency trade, the broker-dealer generally is paid a commission. In a principal trade, the investment manager will trade directly with the issuer or with a dealer who buys or sells for its own account, rather than acting on behalf of another client. The investment manager may pay the dealer a commission or instead, the dealer's profit, if any, is the difference, or spread, between the dealer's purchase and sale price for the security.
BROKER-DEALER SELECTION
In selecting broker-dealers to execute transactions, the investment manager and
each subadviser will consider from among such factors as the ability to minimize
trading costs, trading expertise, infrastructure, ability to provide information
or services, financial condition, confidentiality, competitiveness of commission
rates, evaluations of execution quality, promptness of execution, past history,
ability to prospect for and find liquidity, difficulty of trade, security's
trading characteristics, size of order, liquidity of market, block trading
capabilities, quality of settlement, specialized expertise, overall
responsiveness, willingness to commit capital and research services provided.
The Board has adopted a policy prohibiting the investment manager, or any subadviser, from considering sales of shares of the funds as a factor in the selection of broker-dealers through which to execute securities transactions.
On a periodic basis, the investment manager makes a comprehensive review of the broker-dealers and the overall reasonableness of their commissions, including review by an independent third-party evaluator. The review evaluates execution, operational efficiency, and research services.
COMMISSION DOLLARS
Broker-dealers typically provide a bundle of services including research and
execution of transactions. The research provided can be either proprietary
(created and provided by the broker-dealer) or third party (created by a third
party but provided by the broker-dealer). Consistent with the interests of the
fund, the investment manager and each subadviser may use broker-dealers who
provide both types of research products and services in exchange for
commissions, known as "soft dollars," generated by transactions in fund
accounts.
The receipt of research and brokerage products and services is used by the investment manager, and by each subadviser, to the extent it engages in such transactions, to supplement its own research and analysis activities, by receiving the views and information of individuals and research staffs of other securities firms, and by gaining access to specialized expertise on individual companies, industries, areas of the economy and market factors. Research and brokerage products and services may include reports on the economy, industries, sectors and individual companies or issuers; statistical information; accounting and tax law interpretations; political analyses; reports on legal developments affecting portfolio securities; information on technical market actions; credit analyses; on-line quotation systems; risk measurement; analyses of corporate responsibility issues; on-line news services; and financial and market database services. Research services may be used by the investment manager in providing advice to multiple RiverSource accounts, including the funds (or by any subadviser to any other client of the subadviser) even though it is not possible to relate the benefits to any particular account or fund.
On occasion, it may be desirable to compensate a broker for research services or for brokerage services by paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge. The Board has adopted a policy authorizing the investment manager to do so, to the extent authorized by law, if the investment
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 29
manager or subadviser determines, in good faith, that such commission is reasonable in relation to the value of the brokerage or research services provided by a broker or dealer, viewed either in the light of that transaction or the investment manager's or subadviser's overall responsibilities with respect to a fund and the other funds or accounts for which it acts as investment manager (or by any subadviser to any other client of that subadviser).
As a result of these arrangements, some portfolio transactions may not be effected at the lowest commission, but overall execution may be better. The investment manager and each subadviser have represented that under its procedures the amount of commission paid will be reasonable and competitive in relation to the value of the brokerage services and research products and services provided.
The investment manager or a subadviser may use step-out transactions. A "step- out" is an arrangement in which the investment manager or subadviser executes a trade through one broker-dealer but instructs that broker-dealer to step-out all or a part of the trade to another broker-dealer. The second broker-dealer will clear and settle, and receive commissions for, the stepped-out portion. The investment manager or subadviser may receive research products and services in connection with step-out transactions.
Use of fund commissions may create potential conflicts of interest between the investment manager or subadviser and a fund. However, the investment manager and each subadviser has policies and procedures in place intended to mitigate these conflicts and ensure that the use of fund commissions falls within the "safe harbor" of Section 28(e) of the Securities Exchange Act of 1934. Some products and services may be used for both investment decision-making and non-investment decision-making purposes ("mixed use" items). The investment manager and each subadviser, to the extent it has mixed use items, has procedures in place to assure that fund commissions pay only for the investment decision-making portion of a mixed-use item.
TRADE AGGREGATION AND ALLOCATION
Generally, orders are processed and executed in the order received. When a fund
buys or sells the same security as another portfolio, fund, or account, the
investment manager or subadviser carries out the purchase or sale pursuant to
policies and procedures designed in such a way believed to be fair to the fund.
Purchase and sale orders may be combined or aggregated for more than one account
if it is believed it would be consistent with best execution. Aggregation may
reduce commission costs or market impact on a per-share and per-dollar basis,
although aggregation may have the opposite effect. There may be times when not
enough securities are received to fill an aggregated order, including in an
initial public offering, involving multiple accounts. In that event, the
investment manager and each subadviser has policies and procedures designed in
such a way believed to result in a fair allocation among accounts, including the
fund.
From time to time, different portfolio managers with the investment manager may make differing investment decisions related to the same security. However, with certain exceptions for funds managed using strictly quantitative methods, a portfolio manager or portfolio management team may not sell a security short if the security is owned in another portfolio managed by that portfolio manager or portfolio management team. On occasion, a fund may purchase and sell a security simultaneously in order to profit from short-term price disparities.
The investment manager has portfolio management teams in its Minneapolis and Los Angeles offices that may share research information regarding leveraged loans. The investment manager operates separate and independent trading desks in these locations for the purpose of purchasing and selling leveraged loans. As a result, the investment manager does not aggregate orders in leveraged loans across portfolio management teams. For example, funds and other client accounts being managed by these portfolio management teams may purchase and sell the same leveraged loan in the secondary market on the same day at different times and at different prices. There is also the potential for a particular account or group of accounts, including a fund, to forego an opportunity or to receive a different allocation (either larger or smaller) than might otherwise be obtained if the investment manager were to aggregate trades in leveraged loans across the portfolio management teams. Although the investment manager does not aggregate orders in leveraged loans across its portfolio management teams in Minneapolis and Los Angeles, it operates in this structure subject to its duty to seek best execution.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE INVESTMENT MANAGER
Affiliates of the investment manager may engage in brokerage and other securities transactions on behalf of a fund according to procedures adopted by the Board and to the extent consistent with applicable provisions of the federal securities laws. Subject to approval by the Board, the same conditions apply to transactions with broker-dealer affiliates of any subadviser. The investment manager will use an affiliate only if (i) the investment manager determines that the fund will receive prices and executions at least as favorable as those offered by qualified independent brokers performing similar brokerage and other
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 30
services for the fund and (ii) the affiliate charges the fund commission rates consistent with those the affiliate charges comparable unaffiliated customers in similar transactions and if such use is consistent with terms of the Investment Management Services Agreement.
VALUING FUND SHARES
In determining net assets before shareholder transactions, a fund's securities are valued as follows as of the close of business of the New York Stock Exchange (the "Exchange"):
- Securities traded on a securities exchange for which a last-quoted sales price is readily available are valued at the last-quoted sales price on the exchange where such security is primarily traded.
- Securities traded on a securities exchange for which a last-quoted sales price is not readily available are valued at the mean of the closing bid and asked prices, looking first to the bid and asked prices on the exchange where the security is primarily traded and, if none exist, to the over-the-counter market.
- Securities included in the NASDAQ National Market System are valued at the last-quoted sales price in this market.
- Securities included in the NASDAQ National Market System for which a last- quoted sales price is not readily available, and other securities traded over-the-counter but not included in the NASDAQ National Market System are valued at the mean of the closing bid and asked prices.
- Futures and options traded on major exchanges are valued at the last- quoted sales price on their primary exchange.
- Foreign securities traded outside the United States are generally valued as of the time their trading is complete, which is usually different from the close of the Exchange. Foreign securities quoted in foreign currencies are translated into U.S. dollars utilizing spot exchange rates at the close of regular trading on the NYSE.
- Occasionally, events affecting the value of securities occur between the time the primary market on which the securities are traded closes and the close of the Exchange. If events materially affect the value of securities, the securities will be valued at their fair value according to procedures decided upon in good faith by the Board. This occurs most commonly with foreign securities, but may occur in other cases. The fair value of a security is likely to be different from the quoted or published price.
- Short-term securities maturing more than 60 days from the valuation date are valued at the readily available market price or approximate market value based on current interest rates. Short-term securities maturing in 60 days or less that originally had maturities of more than 60 days at acquisition date are valued at amortized cost using the market value on the 61st day before maturity. Short-term securities maturing in 60 days or less at acquisition date are valued at amortized cost. Amortized cost is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date.
- Securities without a readily available market price and securities for which the price quotations or valuations received from other sources are deemed unreliable or not reflective of market value are valued at fair value as determined in good faith by the Board. The Board is responsible for selecting methods it believes provide fair value.
- When possible, bonds are valued by a pricing service independent from the funds. If a valuation of a bond is not available from a pricing service, the bond will be valued by a dealer knowledgeable about the bond if such a dealer is available.
The assets of funds-of-funds consist primarily of shares of the underlying funds, which are valued at their NAVs. Other securities held by funds-of-funds are valued as described above.
PORTFOLIO HOLDINGS DISCLOSURE
Each fund's Board and the investment manager believe that the investment ideas of the investment manager with respect to management of a fund should benefit the fund and its shareholders, and do not want to afford speculators an opportunity to profit by anticipating fund trading strategies or by using fund portfolio holdings information for stock picking. However, each fund's Board also believes that knowledge of the fund's portfolio holdings can assist shareholders in monitoring their investments, making asset allocation decisions, and evaluating portfolio management techniques.
Each fund's Board has therefore adopted the investment manager's policies and approved the investment manager's procedures, including the investment manager's oversight of subadviser practices relating to disclosure of the fund's portfolio
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 31
securities. These policies and procedures are intended to protect the confidentiality of fund portfolio holdings information and generally prohibit the release of such information until such information is made public, unless such persons have been authorized to receive such information on a selective basis, as described below. It is the policy of the fund not to provide or permit others to provide holdings information on a selective basis, and the investment manager does not intend to selectively disclose holdings information or expect that such holdings information will be selectively disclosed, except where necessary for the fund's operation or where there are legitimate business purposes for doing so and, in any case, where conditions are met that are designed to protect the interests of the fund and its shareholders. Although the investment manager seeks to limit the selective disclosure of portfolio holdings information and such selective disclosure is monitored under the fund's compliance program for conformity with the policies and procedures, there can be no assurance that these policies will protect the fund from the potential misuse of holdings information by individuals or firms in possession of that information. Under no circumstances may the investment manager, its affiliates or any employee thereof receive any consideration or compensation for disclosing such holdings information.
A complete schedule of each fund's portfolio holdings is available semi-annually and annually in shareholder reports filed on Form N-CSR and, after the first and third fiscal quarters, in regulatory filings on Form N-Q. These shareholder reports and regulatory filings are filed with the SEC in accordance with federal securities laws and are generally available within sixty (60) days of the end of a fund's fiscal quarter, on the SEC's website. Once holdings information is filed with the SEC, it will also be posted on the fund's website (riversource.com/funds), and it may be mailed, e-mailed or otherwise transmitted to any person.
In addition, the investment manager makes publicly available, information regarding a fund's top ten holdings (including name and percentage of a fund's assets invested in each such holding) and the percentage breakdown of a fund's investments by country, sector and industry, as applicable. This holdings information is generally made available through the website, marketing communications (including printed advertisements and sales literature), and/or telephone customer service centers that support the fund. This holdings information is generally as of a month-end and is not released until it is at least fifteen (15) days old.
From time to time, the investment manager may make partial or complete fund holdings information that is not publicly available on the website or otherwise available in advance of the time restrictions noted above (1) to its affiliated and unaffiliated service providers that require the information in the normal course of business in order to provide services to the fund (including, without limitation entities identified by name in the fund's prospectus or this SAI), such as custodians, auditors, subadvisers, financial printers (Cenveo, Inc., Vestek, Data Communique, Inc.), pricing services (including Reuters Pricing Service, FT Interactive Data Corporation, Bear Stearns Pricing Service, and Kenny S&P), proxy voting services (Institutional Shareholder Services), and companies that deliver or support systems that provide analytical or statistical information (including Factset Research Systems, Bloomberg, L.P.), (2) to facilitate the review and/or rating of the fund by ratings and rankings agencies (including Morningstar, Inc., Thomson Financial and Lipper Inc.), (3) entities that provide trading, research or other investment related services (including Citigroup, Lehman Brothers Holdings, Merrill Lynch & Co., and Morgan Stanley) and (4) fund intermediaries that include the funds in discretionary wrap or other investment programs that request such information in order to support the services provided to investors in the programs. In such situations, the information is released subject to confidentiality agreements, duties imposed under applicable policies and procedures (for example, applicable codes of ethics) designed to prevent the misuse of confidential information, general duties under applicable laws and regulations, or other such duties of confidentiality. In addition, the fund discloses holdings information as required by federal, state or international securities laws, and may disclose holdings information in response to requests by governmental authorities, or in connection with litigation or potential litigation, a restructuring of a holding, where such disclosure is necessary to participate or explore participation in a restructuring of the holding (e.g., as part of a bondholder group), or to the issuer of a holding, pursuant to a request of the issuer or any other party who is duly authorized by the issuer.
Each fund's Board has adopted the policies of the investment manager and approved the procedures Ameriprise Financial has established to ensure that the fund's holdings information is only disclosed in accordance with these policies. Before any selective disclosure of holdings information is permitted, the person seeking to disclose such holdings information must submit a written request to the Portfolio Holdings Committee ("PHC"). The PHC is comprised of members from the investment manager's General Counsel's Office, Compliance, and Communications. The PHC has been authorized by the fund's Board to perform an initial review of requests for disclosure of holdings information to evaluate whether there is a legitimate business purpose for selective disclosure, whether selective disclosure is in the best interests of a fund and its shareholders, to consider any potential conflicts of interest between the fund, the investment manager, and its affiliates, and to safeguard against improper use of holdings information. Factors considered in this analysis are whether the recipient has agreed to or has a duty to keep the holdings information confidential and whether risks have been mitigated such that the recipient has agreed or has a duty to use the holdings information only as necessary to effectuate the purpose for which selective disclosure was authorized, including a duty not to trade on such information. Before portfolio holdings may be
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 32
selectively disclosed, requests approved by the PHC must also be authorized by a fund's Chief Compliance Officer or the fund's General Counsel. On at least an annual basis the PHC reviews the approved recipients of selective disclosure and, where appropriate, requires a resubmission of the request, in order to re- authorize any ongoing arrangements. These procedures are intended to be reasonably designed to protect the confidentiality of fund holdings information and to prohibit their release to individual investors, institutional investors, intermediaries that distribute the fund's shares, and other parties, until such holdings information is made public or unless such persons have been authorized to receive such holdings information on a selective basis, as set forth above.
Although the investment manager has set up these procedures to monitor and control selective disclosure of holdings information, there can be no assurance that these procedures will protect a fund from the potential misuse of holdings information by individuals or firms in possession of that information.
PROXY VOTING
GENERAL GUIDELINES, POLICIES AND PROCEDURES
The funds uphold a long tradition of supporting sound and principled corporate governance. For over 30 years, the Board, which consists of a majority of independent Board members, has determined policies and voted proxies. The funds' investment manager, RiverSource Investments, and the funds' administrator, Ameriprise Financial, provide support to the Board in connection with the proxy voting process.
GENERAL GUIDELINES
CORPORATE GOVERNANCE MATTERS -- The Board supports proxy proposals that it believes are tied to the interests of shareholders and votes against proxy proposals that appear to entrench management. For example:
- The Board generally votes in favor of proposals for an independent chairman or, if the chairman is not independent, in favor of a lead independent director.
- The Board supports annual election of all directors and proposals to eliminate classes of directors.
- In a routine election of directors, the Board will generally vote with management's recommendations because the Board believes that management and nominating committees of independent directors are in the best position to know what qualifications are required of directors to form an effective board. However, the Board will generally vote against a nominee who has been assigned to the audit, compensation or nominating committee if the nominee is not independent of management based on established criteria. The Board will also withhold support for any director who fails to attend 75% of meetings or has other activities that appear to interfere with his or her ability to commit sufficient attention to the company and, in general, will vote against nominees who are determined to have been involved in options backdating.
- The Board generally supports proposals requiring director nominees to receive a majority of affirmative votes cast in order to be elected to the board, and opposes cumulative voting based on the view that each director elected should represent the interests of all shareholders.
- Votes in a contested election of directors are evaluated on a case-by-case basis. In general, the Board believes that incumbent management and nominating committees, with access to more and better information, are in the best position to make strategic business decisions. However, the Board will consider an opposing slate if it makes a compelling business case for leading the company in a new direction.
SHAREHOLDER RIGHTS PLANS -- The Board generally supports shareholder rights plans based on a belief that such plans force uninvited bidders to negotiate with a company's board. The Board believes these negotiations allow time for the company to maximize value for shareholders by forcing a higher premium from a bidder, attracting a better bid from a competing bidder or allowing the company to pursue its own strategy for enhancing shareholder value. The Board supports proposals to submit shareholder rights plans to shareholders and supports limiting the vote required for approval of such plans to a majority of the votes cast.
AUDITORS -- The Board values the independence of auditors based on established criteria. The Board supports a reasonable review of matters that may raise concerns regarding an auditor's service that may cause the Board to vote against a management recommendation, including, for example, auditor involvement in significant financial restatements, options backdating, material weaknesses in control, attempts to limit auditor liability or situations where independence has been compromised.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 33
STOCK OPTION PLANS AND OTHER MANAGEMENT COMPENSATION ISSUES -- The Board expects company management to give thoughtful consideration to providing competitive long-term employee incentives directly tied to the interest of shareholders. The Board votes against proxy proposals that it believes dilute shareholder value excessively.
The Board believes that equity compensation awards can be a useful tool, when not abused, for retaining employees and giving them incentives to engage in conduct that will improve the performance of the company. In this regard, the Board generally favors minimum holding periods of stock obtained by senior management pursuant to an option plan and will vote against compensation plans for executives that it deems excessive.
SOCIAL AND CORPORATE POLICY ISSUES -- The Board believes proxy proposals should address the business interests of the corporation. Shareholder proposals sometime seek to have the company disclose or amend certain business practices based purely on social or environmental issues rather than compelling business arguments. In general, the Board recognizes our fund shareholders are likely to have differing views of social and environmental issues and believes that these matters are primarily the responsibility of a company's management and its board of directors.
POLICIES AND PROCEDURES
The policy of the Board is to vote all proxies of the companies in which a fund holds investments. Because of the volume and complexity of the proxy voting process, including inherent inefficiencies in the process that are outside the control of the Board or the Proxy Team (below), not all proxies may be voted. The Board has implemented policies and procedures that have been reasonably designed to vote proxies and to ensure that there are no conflicts between interests of a fund's shareholders and those of the funds' principal underwriters, RiverSource Investments, or other affiliated persons. In exercising its proxy voting responsibilities, the Board may rely upon the research or recommendations of one or more third party service providers.
The administration of the proxy voting process is handled by the RiverSource Proxy Administration Team ("Proxy Team"). In exercising its responsibilities, the Proxy Team may rely upon one or more third party service providers. The Proxy Team assists the Board in identifying situations where its guidelines do not clearly require a vote in a particular manner and assists in researching matters and making voting recommendations. RiverSource Investments may recommend that a proxy be voted in a manner contrary to the Board's guidelines. In making recommendations to the Board about voting on a proposal, the investment manager relies on its own investment personnel (or the investment personnel of a fund's subadviser(s)) and information obtained from an independent research firm. The investment manager makes the recommendation in writing. The process requires that Board members who are independent from the investment manager consider the recommendation and decide how to vote the proxy proposal or establish a protocol for voting the proposal.
On an annual basis, or more frequently as determined necessary, the Board reviews recommendations to revise the existing guidelines or add new guidelines. Recommendations are based on, among other things, industry trends and the frequency that similar proposals appear on company ballots.
The Board considers management's recommendations as set out in the company's proxy statement. In each instance in which a fund votes against management's recommendation (except when withholding votes from a nominated director), the Board sends a letter to senior management of the company explaining the basis for its vote. This permits both the company's management and the Board to have an opportunity to gain better insight into issues presented by the proxy proposal(s).
VOTING IN COUNTRIES OUTSIDE THE UNITED STATES (NON-U.S. COUNTRIES) -- Voting proxies for companies not domiciled in the United States may involve greater effort and cost due to the variety of regulatory schemes and corporate practices. For example, certain non-U.S. countries require securities to be blocked prior to a vote, which means that the securities to be voted may not be traded within a specified number of days before the shareholder meeting. The Board typically will not vote securities in non-U.S. countries that require securities to be blocked as the need for liquidity of the securities in the funds will typically outweigh the benefit of voting. There may be additional costs associated with voting in non-U.S. countries such that the Board may determine that the cost of voting outweighs the potential benefit.
SECURITIES ON LOAN -- The Board will generally refrain from recalling securities on loan based upon its determination that the costs and lost revenue to the funds, combined with the administrative effects of recalling the securities, generally outweigh the benefit of voting the proxy. While neither the Board nor the funds' administrator assesses the economic impact and benefits of voting loaned securities on a case-by-case basis, situations may arise where the Board requests that loaned securities be recalled in order to vote a proxy. In this regard, if a proxy relates to matters that may impact the nature of a company, such as a proposed merger or acquisition, and the funds' ownership position is more significant, the Board has established a guideline to direct the funds' administrator to use its best efforts to recall such securities based upon its determination that, in these situations, the benefits of voting such proxies generally outweigh the costs or lost revenue to the funds, or any potential adverse administrative effects to the funds, of not recalling such securities.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 34
INVESTMENT IN AFFILIATED FUNDS -- Certain RiverSource funds may invest in shares of other RiverSource funds (referred to in this context as "underlying funds") and may own substantial portions of these underlying funds. The proxy policy of the funds is to ensure that direct public shareholders of underlying funds control the outcome of any shareholder vote. To help manage this potential conflict of interest, recognizing that the direct public shareholders of these underlying funds may represent only a minority interest, the policy of the funds is to vote proxies of the underlying funds in the same proportion as the vote of the direct public shareholders. If there are no direct public shareholders of an underlying fund, the policy is to cast votes in accordance with instructions from the independent members of the Board.
OBTAIN A PROXY VOTING RECORD
Each year the RiverSource funds file their proxy voting records with the SEC and make them available by August 31 for the 12-month period ending June 30 of that year. The records can be obtained without charge through riversource.com/funds or searching the website of the SEC at www.sec.gov.
SELLING SHARES
A fund will sell any shares presented by the shareholders (variable accounts or subaccounts) for sale. The policies on when or whether to buy or sell shares are described in your annuity or life insurance prospectus.
During an emergency the Board can suspend the computation of net asset value, stop accepting payments for purchase of shares, or suspend the duty of a fund to sell shares for more than seven days. Such emergency situations would occur if:
- The Exchange closes for reasons other than the usual weekend and holiday closings or trading on the Exchange is restricted, or
- Disposal of a fund's securities is not reasonably practicable or it is not reasonably practicable for the fund to determine the fair value of its net assets, or
- The SEC, under the provisions of the 1940 Act, declares a period of emergency to exist.
Should a fund stop selling shares, the Board may make a deduction from the value of the assets held by the fund to cover the cost of future liquidations of the assets so as to distribute these costs fairly among all contract owners.
REJECTION OF BUSINESS
Each fund and RiverSource Distributors, Inc. reserve the right to reject any business, in its sole discretion.
TAXES
Each Fund intends to qualify for and elect the tax treatment applicable to a regulated investment company (RIC) under Subchapter M of the Code. Under federal tax law, by the end of a calendar year a fund that is a RIC must declare and pay dividends representing 98% of ordinary income for that calendar year and 98% of net capital gains (both long-term and short-term) for the 12-month period ending Oct. 31 of that calendar year. Such a fund is subject to an excise tax equal to 4% of the excess, if any, of the amount required to be distributed over the amount actually distributed. Each Fund intends to comply with this federal tax law related to annual distributions and avoid any excise tax. For purposes of the excise tax distributions, section 988 ordinary gains and losses (i.e. certain foreign currency gains and losses) are distributable based on an Oct. 31 year end. This is an exception to the general rule that ordinary income is paid based on a calendar year end.
The Funds intend to comply with the requirements of Section 817(h) and the
related regulations issued thereunder by the Treasury Department. These
provisions impose certain diversification requirements in order for
participating insurance companies and their "separate accounts" which hold
shares in the Fund to qualify for special tax treatment described below. Under a
Section 817(h) safe harbor for separate accounts, (a) at least 50% of the market
value of the Fund's total assets must be represented by cash, U.S. government
securities, securities of other regulated investment companies, and other
securities limited in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. government
securities and securities of other regulated investment companies), the
securities of two or more issuers which the Fund controls and which are engaged
in the same, similar or related trades or businesses, or in the securities of
one or more publicly traded partnerships. In addition, no more than 55% of the
assets of the separate account which owns shares in the Fund, including the
separate account's proportionate share of the assets of the Fund, can be in
cash, cash items, Government securities and securities of other regulated
investment companies pursuant to Sec 817(h)
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 35
of the Code. For purposes of the latter diversification requirement, the Fund's beneficial interest in a regulated investment company, a real estate investment trust, a partnership or a grantor trust will not be treated as a single investment of a segregated asset account if the Fund meets certain requirements related to its ownership and access. Instead, a pro rata portion of each asset of the investment company, partnership, or trust will be treated as an asset of the segregated asset account. The Funds intend to meet such requirements.
The Funds may be subject to U.S. taxes resulting from holdings in a passive foreign investment company (PFIC). To avoid taxation, a Fund may make an election to mark to market its PFIC stock. A foreign corporation is a PFIC when 75% or more of its gross income for the taxable year is passive income or 50% or more of the average value of its assets consists of assets that produce or could produce passive income.
Income earned by a Fund may have had foreign taxes imposed and withheld on it in foreign countries. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes.
This is a brief summary that relates to federal income taxation only. Shareholders should consult their tax advisor as to the application of federal, state, and local income tax laws to fund distributions.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 36
SERVICE PROVIDERS
INVESTMENT MANAGEMENT SERVICES
RiverSource Investments is the investment manager for each fund. Under the Investment Management Services Agreement, the investment manager, subject to the policies set by the Board, provides investment management services.
The funds do not pay the investment manager a direct fee for investment management services. Under the agreement, the funds will pay taxes, brokerage commissions and nonadvisory expenses, which include custodian fees and charges; fidelity bond premiums; registration fees for public sale of securities; certain legal fees; consultants' fees; compensation or Board members, officers and employees not employed by the investment manager or its affiliates; corporate filing fees; organizational expenses; expenses incurred in connection with lending securities; interest and fee expenses related to a fund's participation in inverse floater structures; and expense properly payable by a fund, approved by the Board.
MANAGER OF MANAGERS EXEMPTION
The RiverSource funds have received an order from the SEC that permits
RiverSource Investments, subject to the approval of the Board, to appoint a
subadviser or change the terms of a subadvisory agreement for a fund without
first obtaining shareholder approval. The order permits the fund to add or
change unaffiliated subadvisers or the fees paid to subadvisers from time to
time without the expense and delays associated with obtaining shareholder
approval of the change.
PORTFOLIO MANAGERS. For all funds the following provides information about the funds' portfolio managers as of December 31, 2007.
TABLE 3. PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND)
------------------------------------------------------------- OWNERSHIP POTENTIAL
PORTFOLIO NUMBER AND TYPE APPROXIMATE PERFORMANCE BASED OF FUND CONFLICTS STRUCTURE OF
FUND MANAGER OF ACCOUNT(A) TOTAL NET ASSETS ACCOUNTS(B) SHARES OF INTEREST COMPENSATION
-----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
-----------------------------------------------------------------------------------------------------------------------------------
Dimitris
Aggressive Bertsimas 19 RICs $7.62 billion 7 RICs ($6.14 B)
3 PIVs $68.44 million
16 other accounts $3.05 billion
-----------------------------------------------------------------------------
Tao Qiu None None None None (1) (2)
-----------------------------------------------------------------------------
Colin Lundgren 13 RICs $2.09 billion None
--------------
Erol
Sonderegger
-----------------------------------------------------------------------------------------------------------------------------------
Dimitris
Conservative Bertsimas 19 RICs $7.62 billion 7 RICs ($6.14 B)
3 PIVs $68.44 million
16 other accounts $3.05 billion
-----------------------------------------------------------------------------
Tao Qiu None None None None (1) (2)
-----------------------------------------------------------------------------
Colin Lundgren 13 RICs $2.09 billion None
--------------
Erol
Sonderegger
-----------------------------------------------------------------------------------------------------------------------------------
Dimitris
Moderate Bertsimas 19 RICs $7.62 billion 7 RICs ($6.14 B)
3 PIVs $68.44 million
16 other accounts $3.05 billion
-----------------------------------------------------------------------------
Tao Qiu None None None None (1) (2)
-----------------------------------------------------------------------------
Colin Lundgren 13 RICs $2.09 billion None
--------------
Erol
Sonderegger
-----------------------------------------------------------------------------------------------------------------------------------
Moderately Dimitris
Aggressive Bertsimas 19 RICs $7.62 billion 7 RICs ($6.14 B)
3 PIVs $68.44 million
16 other accounts $3.05 billion
-----------------------------------------------------------------------------
Tao Qiu None None None None (1) (2)
-----------------------------------------------------------------------------
Colin Lundgren 13 RICs $2.09 billion None
--------------
Erol
Sonderegger
-----------------------------------------------------------------------------------------------------------------------------------
Moderately Dimitris
Conservative Bertsimas 19 RICs $7.62 billion 7 RICs ($6.14 B)
3 PIVs $68.44 million
16 other accounts $3.05 billion
-----------------------------------------------------------------------------
Tao Qiu None None None None (1) (2)
-----------------------------------------------------------------------------
Colin Lundgren 13 RICs $2.09 billion None
--------------
Erol
Sonderegger
-----------------------------------------------------------------------------------------------------------------------------------
|
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 37
(a) RIC refers to a Registered Investment Company; PIV refers to a Pooled Investment Vehicle.
(b) Number of accounts for which the advisory fee paid is based in part or wholly on performance and the aggregate net assets in those accounts.
POTENTIAL CONFLICTS OF INTEREST
(1) Management of the Disciplined Asset Allocation Portfolio fund-of-funds differs from that of the other RiverSource funds. The portfolio management process is set forth generally below and in more detail in the funds' prospectus. Management of the portfolios is based on proprietary, quantitative techniques and qualitative review of the quantitative output. Using these methodologies, a group of RiverSource investment professionals allocates each fund's assets within and across different asset classes in an effort to achieve the fund's objective of providing a high level of current income and growth of capital. After the initial allocation, the fund will be rebalanced monthly in an effort to maximize the level of income and capital growth, incorporating various measures of relative value subject to constraints that set minimum or maximum exposure within asset classes, as set forth in the prospectus. Within the equity and fixed income asset classes, the quantitative model establishes allocations for the funds, seeking to achieve each fund's objective by investing in defined investment categories. The target allocation range constraints are intended, in part, to promote diversification within the asset classes.
Because of the structure of the fund-of-funds, the potential conflicts of interest for the portfolio managers may be different than the potential conflicts of interest for portfolio managers who manage other funds. These potential conflicts of interest include:
- In certain cases, the portfolio managers of the underlying funds are the same as the portfolio managers of the Disciplined Asset Allocation Portfolios, and could influence the allocation of funds-of-funds assets to or away from the underlying funds that they manage.
- RiverSource Investments, LLC and its affiliates may receive higher compensation as a result of allocations to underlying funds with higher fees.
- RiverSource Investments, LLC monitors the performance of the underlying funds and may, from time to time, recommend to the board of directors of the funds a change in portfolio management or fund strategy or the closure or merger of an underlying fund. In addition, RiverSource Investments, LLC may believe that certain RiverSource funds may benefit from additional assets or could be harmed by redemptions. All of these factors may also influence decisions in connection with the allocation of funds-of-funds assets to or away from certain underlying funds.
In addition to the accounts above, portfolio managers may manage accounts in a personal capacity that may include holdings that are similar to, or the same as, those of the fund. The investment manager has in place a Code of Ethics that is designed to address conflicts and that, among other things, imposes restrictions on the ability of the portfolio managers and other "investment access persons" to invest in securities that may be recommended or traded in the fund and other client accounts.
STRUCTURE OF COMPENSATION
(2) Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and may include (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual bonus is paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, wrap accounts, institutional portfolios and hedge funds. Funding for the bonus pool for equity portfolio managers is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, and by the short term (typically one-year) and long-term (typically three- year) performance of those accounts in relation to the relevant peer group universe. Funding for the bonus pool for fixed income portfolio managers is determined by the aggregate market competitive bonus targets for the teams of which the portfolio manager is a member and by the short-term (typically one-year) and long-term (typically three-year) performance of those accounts in relation to applicable benchmarks or the relevant peer group universe. With respect to hedge funds and separately managed accounts that follow a hedge fund mandate, funding for the bonus pool is a percentage of performance fees earned on the hedge funds or accounts managed by the portfolio managers.
Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. In addition, where portfolio managers invest in a hedge fund managed by the investment manager, they receive a cash reimbursement for the investment management fees charged on their hedge fund investments. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in company 401(k) plan, comparable to that received by other RiverSource Investments employees. Certain investment personnel are also eligible to defer a portion of their compensation. An individual making this type of election can allocate the deferral to the returns associated with one or
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 38
more products they manage or support or to certain other products managed by their investment team. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level.
ADMINISTRATIVE SERVICES
Each fund has an Administrative Services Agreement with Ameriprise Financial. Under this agreement, the fund pays Ameriprise Financial for providing administration and accounting services. The fees are calculated as follows:
TABLE 4. ADMINISTRATIVE SERVICES AGREEMENT FEE SCHEDULE
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES
-------------------------------------------------------------------------------------------
$500,000,001 - $1,000,000,001 - $3,000,000,001 -
FUND $0 - 500,000,000 1,000,000,000 3,000,000,000 12,000,000,000 $12,000,000,001 +
-------------------------------------------------------------------------------------------------------------------------------
Aggressive 0.020 0.020 0.020 0.020 0.020
Conservative
Moderate
Moderately Aggressive
Moderately Conservative
-------------------------------------------------------------------------------------------------------------------------------
|
The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding day.
Third parties with which Ameriprise Financial contracts to provide services for the fund or its shareholders may pay a fee to Ameriprise Financial to help defray the cost of providing administrative and accounting services. The amount of any such fee is negotiated separately with each service provider and does not constitute compensation for investment advisory, distribution, or other services. Payment of any such fee neither increases nor reduces fees or expenses paid by shareholders of the fund.
TRANSFER AGENCY SERVICES
Each fund has a Transfer Agency and Servicing Agreement with RiverSource Service Corporation located at 734 Ameriprise Financial Center, Minneapolis, MN 55474. This agreement governs RiverSource Service Corporation's responsibility for administering and/or performing transfer agent functions and for acting as service agent in connection with dividend and distribution functions in connection with the sale and redemption of the fund's shares. Under the agreement, RiverSource Service Corporation will earn a fee equal to 0.06% of the average daily net assets of the fund. The transfer agent may hire third parties to perform services under this agreement. The fees paid to RiverSource Service Corporation may be changed by the Board without shareholder approval.
DISTRIBUTION SERVICES
RiverSource Distributors, Inc. (RiverSource Distributors), 50611 Ameriprise Financial Center, Minneapolis, MN 55474, a wholly-owned subsidiary of Ameriprise Financial, Inc., is the funds' principal underwriter. Each fund's shares are offered on a continuous basis.
PLAN AND AGREEMENT OF DISTRIBUTION
To help defray the cost of distribution and servicing, each fund approved a Plan of Distribution (the "Plan") and entered into an agreement under the Plan pursuant to Rule 12b-1 under the 1940 Act with RiverSource Distributors. Under the Plan, of the type known as a reimbursement plan, the fund pays a fee up to actual expenses incurred at an annual rate of up to 0.25% of the fund's average daily net assets.
Expenses covered under this Plan include sales commissions; business, employee and financial advisor expenses charged to distribution of shares; and overhead appropriately allocated to the sale of shares. These expenses also include costs of providing personal service to contract owners. A substantial portion of the costs are not specifically identified to any one of the RiverSource Variable Portfolio Funds. The fee is not allocated to any one service (such as advertising, payments to underwriters, or other uses). However, a significant portion of the fee is generally used for sales and promotional expenses. Payments under the Plan are intended to result in an increase in fund assets and thus potentially result in economies of scale and lower costs for all shareholders.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 39
The Plan must be approved annually by the Board, including a majority of the disinterested Board members, if it is to continue for more than a year. At least quarterly, the Board reviews written reports concerning the amounts expended under the Plan and the purposes for which such expenditures were made. The Plan and any agreement related to it may be terminated at any time by vote of a majority of Board members who are not interested persons of the fund and have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan, or by vote of a majority of the outstanding voting securities of the fund or by RiverSource Distributors. Any agreement related to the Plan will terminate in the event of its assignment, as that term is defined in the 1940 Act. The Plan may not be amended to increase the amount to be spent for distribution without shareholder approval, and all material amendments to the Plan must be approved by a majority of the Board members, including a majority of the Board members who are not interested persons of the fund and who do not have a financial interest in the operation of the Plan or any agreement related to it. The selection and nomination of disinterested Board members is the responsibility of the other disinterested Board members. No Board member who is not an interested person has any direct or indirect financial interest in the operation of the Plan or any related agreement.
CUSTODIAN SERVICES
The fund's securities and cash are held by Ameriprise Trust Company, 200 Ameriprise Financial Center, Minneapolis, MN 55474, through a custodian agreement. The custodian is permitted to deposit some or all of its securities in central depository systems as allowed by federal law. For its services, the fund pays the custodian a maintenance charge and a charge per transaction in addition to reimbursing the custodian's out-of-pocket expenses.
The custodian has entered into a subcustodian agreement with The Bank of New York, 90 Washington Street, New York, NY 10286. As part of this arrangement, securities purchased outside the United States are maintained in the custody of various foreign branches of The Bank of New York or in other financial institutions as permitted by law and by the fund's subcustodian agreement.
BOARD SERVICES CORPORATION
The funds have an agreement with Board Services Corporation (Board Services) located at 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402. This agreement sets forth the terms of Board Services' responsibility to serve as an agent of the funds for purposes of administering the payment of compensation to each in dependent Board member, to provide office space for use by the funds and their boards, and to provide any other services to the boards or the independent members, as may be reasonably requested.
ORGANIZATIONAL INFORMATION
Each fund is an open-end management investment company. The fund's headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.
SHARES
Each fund is owned by subaccounts, its shareholders. The shares of a fund represent an interest in that fund's assets only (and profits or losses), and, in the event of liquidation, each share of a fund would have the same rights to dividends and assets as every other share of that fund.
VOTING RIGHTS
For a discussion of the rights of contract owners concerning the voting of shares held by the subaccounts, please see your annuity or life insurance contract prospectus. All shares have voting rights over the fund's management and fundamental policies. Each share is entitled to vote based on the total dollar interest in the fund. All shares have cumulative voting rights with respect to the election of Board members. This means that shareholders have as many votes as the dollar amount owned, including the fractional amount, multiplied by the number of members to be elected.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders of a Massachusetts business trust may, under certain circumstances, be held personally liable as partners for its obligation. However, the Declaration of Trust that establishes a trust, a copy of which, together with all amendments thereto (the "Declaration of Trust"), is on file with the office of the Secretary of the Commonwealth of Massachusetts for each applicable fund, contains an express disclaimer of shareholder liability for acts or
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 40
obligations of the Trust, or of any fund in the Trust. The Declaration of Trust provides that, if any shareholder (or former shareholder) of a fund in the Trust is charged or held to be personally liable for any obligation or liability of the Trust, or of any fund in the Trust, solely by reason of being or having been a shareholder and not because of such shareholder's acts or omissions or for some other reason, the Trust (upon request of the shareholder) shall assume the defense against such charge and satisfy any judgment thereon, and the shareholder or former shareholder (or the heirs, executors, administrators or other legal representatives thereof, or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled (but solely out of the assets of the fund of which such shareholder or former shareholder is or was the holder of shares) to be held harmless from and indemnified against all loss and expense arising from such liability.
The Declaration of Trust also provides that the Trust may maintain appropriate insurance (for example, fidelity bond and errors and omissions insurance) for the protection of the Trust, its shareholders, Trustees, officers, employees and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are not binding upon the Trustees individually, but only upon the assets and property of the Trust, and that the Trustees will not be liable for any action or failure to act, errors of judgment, or mistakes of fact or law, but nothing in the Declaration of Trust or other agreement with a Trustee protects a Trustee against any liability to which he or she would otherwise be subject by reason of his or her willful bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. By becoming a shareholder of the fund, each shareholder shall be expressly held to have assented to and agreed to be bound by the provisions of the Declaration of Trust.
TABLE 5. FUND HISTORY TABLE FOR RIVERSOURCE FUNDS
FISCAL
DATE OF DATE BEGAN FORM OF STATE OF YEAR
FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED**
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE BOND SERIES, INC.(2) 4/29/81, 6/13/86(1) Corporation NV/MN 7/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Floating Rate Fund 2/16/06 Yes
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Income Opportunities Fund 6/19/03 Yes
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Inflation Protected 3/4/04 No
Securities Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Limited Duration Bond Fund 6/19/03 Yes
---------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT TRUST 4/7/86 Business Trust MA 8/31(10)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund 8/18/86 No
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE DIMENSIONS SERIES, INC. 2/20/68, 6/13/86(1) Corporation NV/MN 7/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Disciplined Small and Mid 5/18/06 Yes
Cap Equity Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Disciplined Small Cap Value 2/16/06 Yes
Fund
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED INCOME SERIES, 6/27/74, 6/31/86(1)
INC.(2) Corporation NV/MN 8/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Diversified Bond Fund(3) 10/3/74 Yes
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE EQUITY SERIES, INC. 3/18/57, 6/13/86(1) Corporation NV/MN 11/30
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Mid Cap Growth Fund(4) 6/4/57 Yes
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE GLOBAL SERIES, INC. 10/28/88 Corporation MN 10/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Absolute Return Currency 6/15/06 No
and Income Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Emerging Markets Bond Fund 2/16/06 No
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Global Bond Fund 3/20/89 No
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Global Technology Fund 11/13/96 Yes
---------------------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 11/13/96 Yes
Fund(4),(5),(11)
---------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 5/29/90 Yes
Fund(5),(6),(11)
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE GOVERNMENT INCOME SERIES, 3/12/85
INC. Corporation MN 5/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Short Duration U.S. 8/19/85 Yes
Government Fund(3)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource U.S. Government Mortgage 2/14/02 Yes
Fund
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE HIGH YIELD INCOME SERIES, 8/17/83
INC. Corporation MN 5/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource High Yield Bond Fund(3) 12/8/83 Yes
---------------------------------------------------------------------------------------------------------------------------------
|
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 41
FISCAL
DATE OF DATE BEGAN FORM OF STATE OF YEAR
FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED**
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE INCOME SERIES, INC.(7) 2/10/45, 6/13/86(1) Corporation NV/MN 1/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Income Builder Basic Income 2/16/06 No
Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Income Builder Enhanced 2/16/06 No
Income Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Income Builder Moderate 2/16/06 No
Income Fund
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE INTERNATIONAL MANAGERS 5/9/01
SERIES, INC.(2) Corporation MN 10/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners International 9/28/01 Yes
Select Growth Fund(11)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners International 9/28/01 Yes
Select Value Fund(11)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners International 10/3/02 Yes
Small Cap Fund(11)
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE INTERNATIONAL SERIES, 7/18/84
INC.(2) Corporation MN 10/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Disciplined International 5/18/06 Yes
Equity Fund
---------------------------------------------------------------------------------------------------------------------------------
Threadneedle European Equity 6/26/00 Yes
Fund(5),(11)
---------------------------------------------------------------------------------------------------------------------------------
Threadneedle International Opportunity 11/15/84 Yes
Fund(4),(5),(11)
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE INVESTMENT SERIES, INC. 1/18/40, 6/13/86(1) Corporation NV/MN 9/30
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Balanced Fund(4) 4/16/40 Yes
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Disciplined Large Cap 5/17/07 Yes
Growth Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Diversified Equity Income 10/15/90 Yes
Fund
RiverSource Mid Cap Value Fund 2/14/02 Yes
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE LARGE CAP SERIES, INC.(2) 5/21/70, 6/13/86(1) Corporation NV/MN 7/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Disciplined Equity Fund(4) 4/24/03 Yes
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Growth Fund 3/1/72 Yes
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Large Cap Equity Fund 3/28/02 Yes
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Large Cap Value Fund 6/27/02 Yes
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE MANAGERS SERIES, INC.(2) 3/20/01 Corporation MN 5/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners Aggressive Growth 4/24/03 Yes
Fund(11)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners Fundamental Value 6/18/01 Yes
Fund(11)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners Select Value 3/8/02 Yes
Fund(11)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners Small Cap Equity 3/8/02 Yes
Fund(4),(11)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners Small Cap Value 6/18/01 Yes
Fund(11)
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE MARKET ADVANTAGE SERIES, 8/25/89
INC. Corporation MN 1/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder 3/4/04 Yes
Conservative Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder Moderate 3/4/04 Yes
Conservative Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder Moderate 3/4/04 Yes
Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder Moderate 3/4/04 Yes
Aggressive Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder 3/4/04 Yes
Aggressive Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder Total 3/4/04 Yes
Equity Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource S&P 500 Index Fund 10/25/99 Yes
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Small Company Index Fund 8/19/96 Yes
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE MONEY MARKET SERIES, INC. 8/22/75, 6/13/86(1) Corporation NV/MN 7/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Cash Management Fund 10/6/75 Yes
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE SECTOR SERIES, INC. 3/25/88 Corporation MN 6/30
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Dividend Opportunity 8/1/88 Yes
Fund(8)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Real Estate Fund 3/4/04 Yes
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE SELECTED SERIES, INC. 10/5/84 Corporation MN 3/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Precious Metals and Mining 4/22/86 No
Fund(9)
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE SERIES TRUST 1/27/06 Business Trust MA 4/30
---------------------------------------------------------------------------------------------------------------------------------
RiverSource 120/20 Contrarian Equity 10/18/07 Yes
---------------------------------------------------------------------------------------------------------------------------------
RiverSource 130/30 U.S. Equity 10/18/07 Yes
---------------------------------------------------------------------------------------------------------------------------------
|
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 42
FISCAL
DATE OF DATE BEGAN FORM OF STATE OF YEAR
FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED**
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 2010 Fund 5/18/06 No
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 2015 Fund 5/18/06 No
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 2020 Fund 5/18/06 No
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 2025 Fund 5/18/06 No
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 2030 Fund 5/18/06 No
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 2035 Fund 5/18/06 No
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 2040 Fund 5/18/06 No
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 2045 Fund 5/18/06 No
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE SHORT TERM INVESTMENTS 4/23/68, 6/13/86(1)
SERIES, INC. Corporation NV/MN 7/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Short-Term Cash Fund 9/26/06 Yes
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE SPECIAL TAX-EXEMPT SERIES 4/7/86
TRUST Business Trust MA 8/31(10)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund 8/18/86 Yes
---------------------------------------------------------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund 8/18/86 No
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE STRATEGIC ALLOCATION SERIES, 10/9/84
INC.(2) Corporation MN 9/30
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Strategic Allocation 1/23/85 Yes
Fund(4)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Strategic Income Allocation 5/17/07 Yes
Fund
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE STRATEGY SERIES, INC. 1/24/84 Corporation MN 3/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Equity Value Fund 5/14/84 Yes
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners Small Cap Growth 1/24/01 Yes
Fund(11)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Small Cap Advantage Fund 5/4/99 Yes
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT INCOME SERIES, 12/21/78, 6/13/86(1)
INC.(2) Corporation NV/MN 11/30
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Tax-Exempt High Income 5/7/79 Yes
Fund(4)
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT MONEY MARKET 2/29/80, 6/13/86(1)
SERIES, INC.(2) Corporation NV/MN 12/31
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Tax-Exempt Money Market 8/5/80 Yes
Fund(4)
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT SERIES, INC. 9/30/76, 6/13/86(1) Corporation NV/MN 11/30
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Intermediate Tax-Exempt 11/13/96 Yes
Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Tax-Exempt Bond Fund 11/24/76 Yes
---------------------------------------------------------------------------------------------------------------------------------
RIVERSOURCE VARIABLE SERIES TRUST(12) 9/07 Business Trust MA 12/31
---------------------------------------------------------------------------------------------------------------------------------
Disciplined Asset Allocation -- Yes
Portfolios -- Aggressive
---------------------------------------------------------------------------------------------------------------------------------
Disciplined Asset Allocation -- Yes
Portfolios -- Conservative
---------------------------------------------------------------------------------------------------------------------------------
Disciplined Asset Allocation -- Yes
Portfolios -- Moderate
---------------------------------------------------------------------------------------------------------------------------------
Disciplined Asset Allocation -- Yes
Portfolios -- Moderately Aggressive
---------------------------------------------------------------------------------------------------------------------------------
Disciplined Asset Allocation -- Yes
Portfolios -- Moderately Conservative
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners Variable 5/1/06 Yes
Portfolio -- Fundamental Value
Fund(11)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners Variable 2/4/04 Yes
Portfolio -- Select Value Fund(11)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Partners Variable 8/14/01 Yes
Portfolio -- Small Cap Value Fund(11)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable 4/30/86 Yes
Portfolio -- Balanced Fund(4)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable Portfolio -- Cash 10/31/81 Yes
Management Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable Portfolio -- Core 9/10/04 Yes
Equity Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable 10/13/81 Yes
Portfolio -- Diversified Bond Fund(3)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable 9/15/99 Yes
Portfolio -- Diversified Equity Income
Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable 5/1/96 No
Portfolio -- Global Bond Fund
---------------------------------------------------------------------------------------------------------------------------------
|
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 43
FISCAL
DATE OF DATE BEGAN FORM OF STATE OF YEAR
FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED**
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable 9/13/04 No
Portfolio -- Global Inflation
Protected Securities Fund(13)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable 9/15/99 Yes
Portfolio -- Growth Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable Portfolio -- High 5/1/96 Yes
Yield Bond Fund(3)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable 6/1/04 Yes
Portfolio -- Income Opportunities Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable Portfolio -- Large 10/13/81 Yes
Cap Equity Fund(5)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable Portfolio -- Large 02/4/04 Yes
Cap Value Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable Portfolio -- Mid 5/1/01 Yes
Cap Growth Fund(4)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable Portfolio -- Mid 5/2/05 Yes
Cap Value Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable Portfolio -- S&P 5/1/00 Yes
500 Index Fund
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable Portfolio -- Short 9/15/99 Yes
Duration U.S. Government Fund(3)
---------------------------------------------------------------------------------------------------------------------------------
RiverSource Variable Portfolio -- Small 9/15/99 Yes
Cap Advantage Fund
---------------------------------------------------------------------------------------------------------------------------------
Threadneedle Variable 5/1/00 Yes
Portfolio -- Emerging Markets
Fund(4),(5),(11)
---------------------------------------------------------------------------------------------------------------------------------
Threadneedle Variable Portfolio -- 1/13/92 Yes
International Opportunity
Fund(4),(5),(11)
---------------------------------------------------------------------------------------------------------------------------------
|
* Effective Oct. 1, 2005 American Express Funds changed its name to RiverSource funds and the names Threadneedle and Partners were removed from fund names.
** If a non-diversified fund is managed as if it were a diversified fund for a period of three years, its status under the 1940 Act will convert automatically from non-diversified to diversified. A diversified fund may convert to non-diversified status only with shareholder approval.
(1) Date merged into a Minnesota corporation incorporated on April 7, 1986.
(2) Effective April 21, 2006, AXP Discovery Series, Inc. changed its name to RiverSource Bond Series, Inc.; AXP Fixed Income Series, Inc. changed its name to RiverSource Diversified Income Series, Inc.; AXP Growth Series, Inc. changed its name to RiverSource Large Cap Series, Inc.; AXP High Yield Tax-Exempt Series, Inc. changed its name to RiverSource Tax-Exempt Income Series, Inc.; AXP Managed Series, Inc. changed its name to RiverSource Strategic Allocation Series, Inc.; AXP Partners International Series, Inc. changed its name to RiverSource International Managers Series, Inc.; AXP Partners Series, Inc. changed its name to RiverSource Managers Series, Inc.; AXP Tax-Free Money Series, Inc. changed its name to RiverSource Tax-Exempt Money Market Series, Inc.; and for all other corporations and business trusts, AXP was replaced with RiverSource in the registrant name.
(3) Effective June 27, 2003, Bond Fund changed its name to Diversified Bond Fund, Federal Income Fund changed its name to Short Duration U.S. Government Fund and Extra Income Fund changed its name to High Yield Bond Fund, Variable Portfolio -- Bond Fund changed its name to Variable Portfolio -- Diversified Bond Fund, Variable Portfolio -- Extra Income Fund changed its name to Variable Portfolio -- High Yield Bond Fund and Variable Portfolio -- Federal Income Fund changed its name to Variable Portfolio -- Short Duration U.S. Government Fund.
(4) Effective Oct. 1, 2005, Equity Select Fund changed its name to Mid Cap Growth Fund, High Yield Tax-Exempt Fund changed its name to Tax- Exempt High Income Fund, Managed Allocation Fund changed its name to Strategic Allocation Fund, Mutual changed its name to Balanced Fund, Partners Growth Fund changed its name to Fundamental Growth Fund, Partners International Core Fund changed its name to International Equity Fund, Partners Small Cap Core Fund changed its name to Small Cap Equity Fund, Quantitative Large Cap Equity Fund changed its name to Disciplined Equity Fund, Tax-Free Money Fund changed its name to Tax-Exempt Money Market Fund, and Threadneedle International Fund changed its name to International Opportunity Fund. Variable Portfolio -- Equity Select Fund changed its name to Variable Portfolio -- Mid Cap Growth Fund, Variable Portfolio -- Threadneedle Emerging Markets Fund changed its name to Variable Portfolio -- Emerging Markets Fund, Variable Portfolio -- Threadneedle International Fund changed its name to Variable Portfolio -- International Opportunity Fund, and Variable Portfolio -- Managed Fund changed its name to Variable Portfolio -- Balanced Fund.
(5) Effective July 9, 2004, Emerging Markets Fund changed its name to Threadneedle Emerging Markets Fund, European Equity Fund changed its name to Threadneedle European Equity Fund, Global Equity Fund changed its name to Threadneedle Global Equity Fund, and International Fund changed its name to Threadneedle International Fund, Variable Portfolio -- Capital Resource Fund changed its name to Variable Portfolio -- Large Cap Equity Fund, Variable Portfolio -- Emerging Markets Fund changed its name to Variable Portfolio -- Threadneedle Emerging Markets Fund and Variable Portfolio -- International Fund changed its name to Variable Portfolio -- Threadneedle International Fund.
(6) Effective Oct. 20, 2003, Global Growth Fund changed its name to Global Equity Fund.
(7) Effective Jan. 31, 2008, the fiscal year end was changed from May 31 to Jan. 31.
(8) Effective Feb. 18, 2004, Utilities Fund changed its name to Dividend Opportunity Fund.
(9) Effective Nov. 1, 2006, Precious Metals Fund changed its name to Precious Metals and Mining Fund.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 44
(10) Effective April 13, 2006, the fiscal year end was changed from June 30 to Aug. 31.
(11) Effective March 31, 2008, RiverSource Emerging Markets Fund changed its name to Threadneedle Emerging Markets Fund; RiverSource Global Equity Fund changed its name to Threadneedle Global Equity Fund; RiverSource European Equity Fund changed its name to Threadneedle European Equity Fund; RiverSource International Opportunity Fund changed its name to Threadneedle International Opportunity Fund; RiverSource International Aggressive Growth Fund changed its name to RiverSource Partners International Select Growth Fund; RiverSource International Select Value Fund changed its name to RiverSource Partners International Select Value Fund; RiverSource International Small Cap Fund changed its name to RiverSource Partners International Small Cap Fund; RiverSource Aggressive Growth Fund changed its name to RiverSource Partners Aggressive Growth Fund; RiverSource Fundamental Value Fund changed its name to RiverSource Partners Fundamental Value Fund; RiverSource Select Value Fund changed its name to RiverSource Partners Select Value Fund; RiverSource Small Cap Equity Fund changed its name to RiverSource Partners Small Cap Equity Fund; RiverSource Small Cap Value Fund changed its name to RiverSource Partners Small Cap Value Fund; RiverSource Small Cap Growth Fund changed its name to RiverSource Partners Small Cap Growth Fund; RiverSource Variable Portfolio -- Fundamental Value Fund changed its name to RiverSource Partners Variable Portfolio -- Fundamental Value Fund; RiverSource Variable Portfolio -- Select Value Fund changed its name to RiverSource Partners Variable Portfolio -- Select Value Fund; and RiverSource Variable Portfolio -- Small Cap Value Fund changed its name to RiverSource Partners Variable Portfolio -- Small Cap Value Fund.
(12) Prior to January 2008, the assets in the funds in RiverSource Variable Series Trust were held by funds organized under six separate Minnesota Corporations.
(13) Effective June 8, 2005, Variable Portfolio -- Inflation Protected Securities Fund changed its name to Variable Portfolio -- Global Inflation Protected Securities Fund.
BOARD MEMBERS AND OFFICERS
Shareholders elect a Board that oversees a fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board.
The following is a list of each fund's Board members. Each member oversees 96 RiverSource funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday.
TABLE 6. BOARD MEMBERS
INDEPENDENT BOARD MEMBERS
POSITION
HELD
WITH FUNDS
AND
LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE
NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS
-----------------------------------------------------------------------------------------------
Kathleen Blatz Board Chief Justice, Minnesota None Board
901 S. Marquette Ave. member Supreme Court, 1998-2006; Governance,
Minneapolis, MN 55402 since 2006 Attorney Investment
Age 53 Review,
Joint Audit
-----------------------------------------------------------------------------------------------
Arne H. Carlson Board Chair, RiverSource Funds, None Board
901 S. Marquette Ave. member 1999-2006; former Governor Governance,
Minneapolis, MN 55402 since 1999 of Minnesota Compliance,
Age 73 Contracts,
Executive,
Investment
Review
-----------------------------------------------------------------------------------------------
Pamela G. Carlton Board President, Springboard- None Investment
901 S. Marquette Ave. member Partners in Cross Cultural Review,
Minneapolis, MN 55402 since 2007 Leadership (consulting Joint Audit
Age 53 company)
-----------------------------------------------------------------------------------------------
Patricia M. Flynn Board Trustee Professor of None Board
901 S. Marquette Ave. member Economics and Management, Governance,
Minneapolis, MN 55402 since 2004 Bentley College; former Contracts,
Age 57 Dean, McCallum Graduate Investment
School of Business, Bentley Review
College
-----------------------------------------------------------------------------------------------
Anne P. Jones Board Attorney and Consultant None Board
901 S. Marquette Ave. member Governance,
Minneapolis, MN 55402 since 1985 Compliance,
Age 73 Executive,
Investment
Review,
Joint Audit
-----------------------------------------------------------------------------------------------
|
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 45
POSITION
HELD
WITH FUNDS
AND
LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE
NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS
-----------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board Former Managing Director, American Investment
901 S. Marquette Ave. member Shikiar Asset Management Progressive Review,
Minneapolis, MN 55402 since 2005 Insurance Joint Audit
Age 72
-----------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Board President Emeritus and Valmont Board
901 S. Marquette Ave. member Professor of Economics, Industries, Governance,
Minneapolis, MN 55402 since 2002 Carleton College Inc. Compliance,
Age 69 and Chair (manufactures Contracts,
of irrigation Executive,
the Board systems) Investment
since 2007 Review
-----------------------------------------------------------------------------------------------
Catherine James Paglia Board Director, Enterprise Asset None Compliance,
901 S. Marquette Ave. member Management, Inc. (private Contracts,
Minneapolis, MN 55402 since 2004 real estate and asset Executive,
Age 55 management company) Investment
Review
-----------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board Chief Executive Officer and Idera Contracts,
901 S. Marquette Ave. member Director, RiboNovix, Inc. Pharmaceuti- Executive,
Minneapolis, MN 55402 since 2002 since 2003 (biotechnology); cals, Inc. Investment
Age 63 former President, Forester (biotechnol- Review
Biotech ogy);
Healthways,
Inc. (health
management
programs)
===============================================================================================
|
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
POSITION
HELD
WITH FUNDS
AND OTHER
LENGTH OF PRINCIPAL OCCUPATION DIRECTOR- COMMITTEE
NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS SHIPS MEMBERSHIPS
---------------------------------------------------------------------------------------------------
William F. Truscott Board President - U.S. Asset None Investment
53600 Ameriprise Financial Center member Management and Chief Review
Minneapolis, MN 55474 since Investment Officer,
Age 47 2001, Vice Ameriprise Financial, Inc.
President and President, Chairman of
since 2002 the Board and Chief
Investment Officer,
RiverSource Investments,
LLC since 2005; Director,
President and Chief
Executive Officer,
Ameriprise Certificate
Company since 2006;
Chairman of the Board,
Chief Executive Officer
and President, RiverSource
Distributors, Inc. since
2006; Senior Vice
President - Chief
Investment Officer,
Ameriprise Financial, Inc.
and Chairman of the Board
and Chief Investment
Officer, RiverSource
Investments, LLC, 2001-
2005
===================================================================================================
|
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 46
The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the fund's other officers are:
TABLE 7. FUND OFFICERS
POSITION HELD
WITH FUNDS AND
LENGTH OF PRINCIPAL OCCUPATION
NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS
-----------------------------------------------------------------------------------------------------
Patrick T. Bannigan President since Director and Senior Vice President - Asset
172 Ameriprise Financial Center 2006 Management, Products and Marketing,
Minneapolis, MN 55474 RiverSource Investments, LLC since 2006;
Age 42 Director and Vice President - Asset
Management, Products and Marketing,
RiverSource Distributors, Inc. since 2006;
Managing Director and Global Head of Product,
Morgan Stanley Investment Management, 2004-
2006; President, Touchstone Investments,
2002-2004
-----------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed
172 Ameriprise Financial Center since 2004 Income, Ameriprise Financial, Inc. and
Minneapolis, MN 55474 RiverSource Investments, LLC since 2006; Vice
Age 43 President - Investments, Ameriprise
Certificate Company since 2003; Senior Vice
President - Fixed Income, Ameriprise
Financial, Inc. 2002-2006 and RiverSource
Investments, LLC, 2004-2006
-----------------------------------------------------------------------------------------------------
Amy K. Johnson Vice President Vice President - Asset Management and Trust
5228 Ameriprise Financial Center since 2006 Company Services, RiverSource Investments,
Minneapolis, MN 55474 LLC since 2006; Vice President - Operations
Age 42 and Compliance, RiverSource Investments, LLC,
2004-2006; Director of Product
Development - Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
-----------------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since Vice President - Investment Accounting,
105 Ameriprise Financial Center 2002 Ameriprise Financial, Inc. since 2002; Chief
Minneapolis, MN 55474 Financial Officer, RiverSource Distributors,
Age 52 Inc. since 2006
-----------------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel - Asset
5228 Ameriprise Financial Center General Management, Ameriprise Financial, Inc. since
Minneapolis, MN 55474 Counsel and 2005; Chief Counsel, RiverSource
Age 48 Secretary Distributors, Inc. since 2006; Vice
since 2006 President, General Counsel and Secretary,
Ameriprise Certificate Company since 2005;
Vice President - Asset Management Compliance,
Ameriprise Financial, Inc., 2004-2005; Senior
Vice President and Chief Compliance Officer,
USBancorp Asset Management, 2002-2004
-----------------------------------------------------------------------------------------------------
Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance
172 Ameriprise Financial Center Officer Officer, RiverSource Investments, LLC since
Minneapolis, MN 55474 since 2006 2006; Director - Mutual Funds, Voyageur Asset
Age 47 Management, 2003-2006; Director of Finance,
Voyageur Asset Management, 2000-2003
-----------------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering
2934 Ameriprise Financial Center Prevention Officer, Ameriprise Financial, Inc. since
Minneapolis, MN 55474 Officer 2004; Manager Anti-Money Laundering,
Age 44 since 2004 Ameriprise Financial, Inc., 2003-2004;
Compliance Director and Bank Secrecy Act
Officer, American Express Centurion Bank,
2000-2003
-----------------------------------------------------------------------------------------------------
|
RESPONSIBILITIES OF BOARD WITH RESPECT TO FUND MANAGEMENT
The Board initially approves an Investment Management Services Agreement and
other contracts with the investment manager and its affiliates, and other
service providers. Once the contracts are approved, the Board monitors the level
and quality of services including commitments of service providers to achieve
expected levels of investment performance and shareholder services. In addition,
the Board oversees that processes are in place to assure compliance with
applicable rules, regulations and investment policies and addresses possible
conflicts of interest. Annually, the Board evaluates the services received under
the contracts by receiving reports covering investment performance, shareholder
services, marketing, and the investment manager's profitability in order to
determine whether to continue existing contracts or negotiate new contracts.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 47
SEVERAL COMMITTEES FACILITATE ITS WORK
BOARD GOVERNANCE COMMITTEE -- Recommends to the Board the size, structure and
composition of the Board and its committees; the compensation to be paid to
members of the Board; and a process for evaluating the Board's performance. The
committee also reviews candidates for Board membership including candidates
recommended by shareholders. To be considered, recommendations must include a
curriculum vitae and be mailed to the Chairman of the Board, RiverSource Funds,
901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268. The
committee also makes recommendations to the Board regarding responsibilities and
duties of the Board, oversees proxy voting and supports the work of the Board
Chair in relation to furthering the interests of the Funds and their
shareholders on external matters.
COMPLIANCE COMMITTEE -- Supports the Funds' maintenance of a strong compliance program by providing a forum for independent Board members to consider compliance matters impacting the Funds or their key service providers; developing and implementing, in coordination with the Funds' Chief Compliance Officer (CCO), a process for the review and consideration of compliance reports that are provided to the Boards; and providing a designated forum for the Funds' CCO to meet with independent Board members on a regular basis to discuss compliance matters.
CONTRACTS COMMITTEE -- Reviews and oversees the contractual relationships with service providers. Receives and analyzes reports covering the level and quality of services provided under contracts with the fund and advises the Board regarding actions taken on these contracts during the annual review process.
DISTRIBUTION COMMITTEE -- Reviews and supports product development, marketing, sales activity and practices related to the funds and will report to the Board as appropriate.
EXECUTIVE COMMITTEE -- Acts for the Board between meetings of the Board.
INVESTMENT REVIEW COMMITTEE -- Reviews and oversees the management of the Funds' assets. Considers investment management policies and strategies; investment performance; risk management techniques; and securities trading practices and reports areas of concern to the Board.
JOINT AUDIT COMMITTEE -- Oversees the accounting and financial reporting processes of the Funds and internal controls over financial reporting. Oversees the quality and integrity of the Funds' financial statements and independent audits as well as the Funds' compliance with legal and regulatory requirements relating to the Funds' accounting and financial reporting, internal controls over financial reporting and independent audits. The committee also makes recommendations regarding the selection of the Funds' independent auditor and reviews and evaluates the qualifications, independence and performance of the auditor.
BOARD MEMBER HOLDINGS
The following table shows the dollar range of equity securities beneficially owned on Dec. 31, 2007 of all funds overseen by the Board members. All shares of the Variable Portfolio funds are owned by life insurance companies and are not available for purchase by individuals. Consequently no Board member owns any shares of Variable Portfolio funds.
TABLE 8. BOARD MEMBER HOLDINGS -- ALL FUNDS
Based on net asset values as of Dec. 31, 2007:
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF ALL
BOARD MEMBER FUNDS OVERSEEN BY BOARD MEMBER
-------------------------------------------------------------------------------------------------------
Kathleen Blatz Over $100,000
-------------------------------------------------------------------------------------------------------
Arne H. Carlson Over $100,000
-------------------------------------------------------------------------------------------------------
Pamela G. Carlton None
-------------------------------------------------------------------------------------------------------
Patricia M. Flynn Over $100,000*
-------------------------------------------------------------------------------------------------------
Anne P. Jones Over $100,000
-------------------------------------------------------------------------------------------------------
Jeffrey Laikind None
-------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Over $100,000*
-------------------------------------------------------------------------------------------------------
Catherine James Paglia Over $100,000*
-------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Over $100,000
-------------------------------------------------------------------------------------------------------
William F. Truscott Over $100,000
=======================================================================================================
|
* Includes deferred compensation invested in share equivalents.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 48
As of 30 days prior to the date of this SAI, the Board members and officers as a group owned less than 1% of the outstanding shares of any class of any fund.
COMPENSATION OF BOARD MEMBERS
TOTAL COMPENSATION. The following table shows the total compensation paid to independent Board members from all the RiverSource funds in the fiscal period ended Jan. 30, 2008.
TABLE 9. BOARD MEMBER COMPENSATION -- ALL FUNDS
TOTAL CASH COMPENSATION FROM RIVERSOURCE FUNDS
BOARD MEMBER(A) PAID TO BOARD MEMBER
--------------------------------------------------------------------------------------------------------
Kathleen Blatz $156,250
--------------------------------------------------------------------------------------------------------
Arne H. Carlson 146,250
--------------------------------------------------------------------------------------------------------
Pamela G. Carlton 92,917
--------------------------------------------------------------------------------------------------------
Patricia M. Flynn 151,250(b)
--------------------------------------------------------------------------------------------------------
Anne P. Jones 148,750
--------------------------------------------------------------------------------------------------------
Jeffrey Laikind 146,250
--------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. 386,250(b)
--------------------------------------------------------------------------------------------------------
Catherine James Paglia 153,750(b)
--------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby 143,750
========================================================================================================
|
(a) Board member compensation is a combination of a base fee and meeting fees, with the exception of the Chair of the Board, who receives a base annual compensation. Payment of compensation is administered by a company providing limited administrative services to the funds and to the Board.
(b) Ms. Flynn, Mr. Lewis and Ms. Paglia elected to defer a portion of the total cash compensation payable during the period in the amount of $62,292, $110,875 and $153,750, respectively. Additional information regarding the deferred compensation plan is described below.
The independent Board members determine the amount of compensation that they receive, including the amount paid to the Chair of the Board. In determining compensation for the independent Board members, the independent Board members take into account a variety of factors including, among other things, their collective significant work experience (e.g., in business and finance, government or academia). The independent Board members also recognize that these individuals' advice and counsel are in demand by other organizations, that these individuals may reject other opportunities because the time demands of their duties as independent Board members, and that they undertake significant legal responsibilities. The independent Board members also consider the compensation paid to independent board members of other mutual fund complexes of comparable size. In determining the compensation paid to the Chair, the independent Board members take into account, among other things, the Chair's significant additional responsibilities (e.g., setting the agenda for Board meetings, communicating or meeting regularly with the Funds' Chief Compliance Officer, Counsel to the independent Board members, and the Funds' service providers) which result in a significantly greater time commitment required of the Board Chair. The Chair's compensation, therefore, has generally been set at a level between 2.5 and 3 times the level of compensation paid to other independent Board members.
Effective Jan. 1, 2008, independent Board members will be paid an annual
retainer of $95,000. Committee and subcommittee Chairs will each receive an
additional annual retainer of $5,000. In addition, independent Board members
will be paid the following fees for attending Board and committee meetings:
$5,000 per day of in-person Board meetings and $2,500 per day of in-person
committee or sub-committee meetings (if such meetings are not held on the same
day as a Board meeting). Independent Board members are not paid for special
telephonic meetings. In 2008, the Board's Chair will receive total annual cash
compensation of $400,000.
The independent Board members may elect to defer payment of up to 100% of the compensation they receive in accordance with a Deferred Compensation Plan (the Deferred Plan). Under the Deferred Plan, a Board member may elect to have his or her deferred compensation treated as if they had been invested in shares of one or more RiverSource funds and the amount paid to the Board member under the Deferred Plan will be determined based on the performance of such investments. Distributions may be taken in a lump sum or over a period of years. The Deferred Plan will remain unfunded for federal income tax purposes under the Internal Revenue Code of 1986, as amended. It is anticipated that deferral of Board member compensation in accordance with the Deferred Plan will have, at most, a negligible impact on Fund assets and liabilities.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 49
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
RiverSource Life Insurance Company (RiverSource Life) and its subsidiaries are the record holders of all outstanding shares of the funds. All shares were purchased and are held by RiverSource Life and its subsidiaries pursuant to instructions from owners of variable annuity and variable life insurance contracts issued by RiverSource Life and its subsidiaries. Accordingly, RiverSource Life disclaimed beneficial ownership of all shares of the funds.
INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendant's motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals an Aug. 8, 2007.
In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Board of Directors/Trustees.
Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements contained in the funds' Annual Report will be audited by the independent registered public accounting firm, Ernst & Young LLP, 220 South 6th Street, Suite 1400, Minneapolis, MN 55402-3900. The independent registered public accounting firm also provides other accounting and tax-related services as requested by the fund.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page 50
APPENDIX A
DESCRIPTION OF RATINGS
STANDARD & POOR'S LONG-TERM DEBT RATINGS
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of such information or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
- Likelihood of default capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation.
- Nature of and provisions of the obligation.
- Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
INVESTMENT GRADE
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category also is used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
Debt rated CC typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page A-1
Debt rated C typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
MOODY'S LONG-TERM DEBT RATINGS
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risk appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment some time in the future.
Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements - their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
FITCH'S LONG-TERM DEBT RATINGS
Fitch's bond ratings provide a guide to investors in determining the credit risk
associated with a particular security. The ratings represent Fitch's assessment
of the issuer's ability to meet the obligations of a specific debt issue in a
timely manner.
The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated.
Fitch ratings are not recommendations to buy, sell or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature of taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page A-2
INVESTMENT GRADE
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+.
A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.
SPECULATIVE GRADE
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. DDD represents the highest potential for recovery on these bonds, and D represents the lowest potential for recovery.
SHORT-TERM RATINGS
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues are regarded as having only speculative capacity for timely payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
|
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page A-3
STANDARD & POOR'S MUNI BOND AND NOTE RATINGS
An S&P municipal bond or note rating reflects the liquidity factors and market-
access risks unique to these instruments. Notes maturing in three years or less
will likely receive a note rating. Notes maturing beyond three years will most
likely receive a long-term debt rating.
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3 Speculative capacity to pay principal and interest.
Municipal bond rating symbols and definitions are as follows:
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal and interest.
MOODY'S SHORT-TERM RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: (i) leading market positions in well-established industries, (ii) high rates of return on funds employed, (iii) conservative capitalization structure with moderate reliance on debt and ample asset protection, (iv) broad margins in earnings coverage of fixed financial charges and high internal cash generation, and (v) well established access to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
MOODY'S SHORT-TERM MUNI BONDS AND NOTES
Short-term municipal bonds and notes are rated by Moody's. The ratings reflect
the liquidity concerns and market access risks unique to notes.
Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
Moody's MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page A-4
FITCH'S SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned F-1+ and F-1 ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate, however, near-term adverse changes could cause these securities to be rated below investment grade.
F-S: Weak Credit Quality. Issues assigned this rating have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions.
D: Default. Issues assigned this rating are in actual or imminent payment default.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page A-5
APPENDIX B
RELATED, COMPARATIVE PERFORMANCE
The Disciplined Asset Allocation Portfolios (each a Portfolio and collectively the Portfolios) are mutual funds offered as underlying investment options of insurance company variable products, including variable annuity and variable universal life insurance contracts (collectively, variable products). Each Portfolio is a target risk fund-of-funds, providing investors an investment option based on individual risk tolerance, including: Conservative, Moderately Conservative, Moderate, Moderately Aggressive, and Aggressive. The investment strategies used in the management of the Portfolios have been employed for a variety of other mutual funds and accounts managed by the investment manager, RiverSource Investments, LLC (RiverSource). Specifically, although different in structure, Moderately Aggressive Portfolio is expected to perform similar to RiverSource Strategic Allocation Fund (Strategic Allocation Fund), a retail and institutional mutual fund, managed using the same quantitative modeling and qualitative investment techniques that will be employed for Moderately Aggressive Portfolio. The most significant difference between Strategic Allocation Fund and Moderately Aggressive Portfolio is that Strategic Allocation Fund invests directly in stocks, bonds and other securities, whereas Moderately Aggressive Portfolio invests in up to twelve affiliated mutual funds (the underlying funds), which invest directly in stocks, bonds and other securities. Similarities and differences are discussed in more detail below.
Comparative Performance. Moderately Aggressive Portfolio was launched May 1, 2008 and does not have a performance track record. Performance information for Strategic Allocation Fund (Class A shares) is presented to provide a comparative track record (performance and volatility) of RiverSource's experience managing a mutual fund that uses the same quantitative modeling and qualitative investment techniques to achieve exposure to the market that will be used for Moderately Aggressive Portfolio. Of course, past performance does not guarantee future results, and investors should not consider this data as a substitute for actual performance of Moderately Aggressive Portfolio or as an indication of future performance of Moderately Aggressive Portfolio.
RIVERSOURCE STRATEGIC RIVERSOURCE STRATEGIC 60% S&P
ALLOCATION FUND ALLOCATION FUND 500 INDEX
CL A CL A / 40%
(WITHOUT SALES (WITH SALES LEH U.S.
CHARGE) CHARGE) AGGREGATE INDEX
--------------------- --------------------- ---------------
YTD -9.0863 -14.3139 -4.8820
1-Yr -4.7386 -10.2162 0.0337
3-Yr 7.0658 4.9731 5.8206
5-Yr 10.9087 9.6028 8.7140
10-Yr 3.7727 3.1600 4.8284
|
* Portfolio management change in 2002 to the Disciplined Equity, Asset Allocation and Fixed Income Teams.
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page B-1
RIVERSOURCE STRATEGIC 60% S&P
ALLOCATION FUND 500 INDEX
CL A / 40%
(WITHOUT SALES LEH U.S.
CHARGE) AGGREGATE INDEX
--------------------- ---------------
1998 8.411050 20.986300
1999 11.953400 11.999400
2000 -3.827960 -0.995353
2001 -5.122430 -3.711860
2002 -12.590900 -9.820340
2003 19.755300 18.479200
2004 12.927900 8.298930
2005 7.389220 4.004450
2006 16.150200 11.115600
2007 6.892060 6.223740
|
* Portfolio management change in 2002 to the Disciplined Equity, Asset Allocation and Fixed Income Teams.
Structure and Availability. Moderately Aggressive Portfolio is offered exclusively as an underlying investment option of variable products. Currently, only affiliated insurance companies, RiverSource Life Insurance Company and RiverSource Life Insurance Co. of New York (collectively, the Participating Insurance Companies) include the Portfolios as underlying investment options in their variable products. Strategic Allocation Fund is offered directly to retail and institutional investors, and is not available to investors in variable products. This difference does not impact the investment strategies employed by RiverSource, but performance will be impacted by different levels and types of fees and expenses.
Investment Objective. Moderately Aggressive Portfolio is designed for investors seeking a high level of total return that is consistent with a moderately aggressive level of risk. Strategic Allocation Fund seeks to provide shareholders maximum total return through a combination of growth of capital and current income.
Principal Investment Strategies. Moderately Aggressive Portfolio and Strategic Allocation Fund are managed based on the same quantitative modeling and qualitative investment techniques, each investing in a discrete number of identified asset classes or investment categories (collectively, investment categories) including: U.S. large cap equities, U.S. mid and small cap equities, international equities, U.S. Investment Grade Bonds, U.S. high yield bonds, international bonds, emerging markets bonds, and cash. Moderately Aggressive Portfolio is expected to have similar exposure* to these investment categories as Strategic Allocation Fund, although Moderately Aggressive Portfolio may also have exposure to inflation protected securities and alternative strategies, which provides exposure to foreign currency. Strategic Allocation Fund obtains exposure to these investment categories through direct investment in stocks, bonds and other securities. Moderately Aggressive Portfolio is a fund-of-fund product that obtains exposure to stocks, bonds and other securities indirectly through investment in up to twelve underlying funds, which invest directly in stocks, bonds and other securities.
* Moderately Aggressive Portfolio's target asset ranges are 45-85% equity, 5-55% fixed income, 0-20% cash and cash equivalents, and 0-20% alternative investment strategies. Strategic Allocation fund's target asset ranges are 25-100% equity, 10-50% fixed income and 0-30% cash and cash equivalents.
Portfolio Management. Dimitris J. Bertsimas leads the team of portfolio managers for each of Strategic Allocation Fund and Moderately Aggressive Portfolio. For Moderately Aggressive Portfolio, Colin J. Lundgren and Erol Sonderegger support the determination of allocations among fixed income, alternative, and cash investment categories, and Tao Qiu supports the determination of allocations within the equity investment category. Mr. Bertsimas leads the team responsible for the day-to-day management of the equity portion of Strategic Allocation Fund and the underlying equity funds in which Moderately Aggressive Portfolio invests. The fixed income portion of Strategic Allocation Fund, and the underlying fixed income funds in which Moderately Aggressive Portfolio invests, are managed by the same teams of portfolio managers under the oversight of various sector team leaders, including Jamie Jackson, Tom Murphy and Scott Kirby.
Fees and Expenses. Fees and expenses for Moderately Aggressive Portfolio differ from the fees and expenses for Strategic Allocation Fund (Class A shares). Moderately Aggressive Portfolio, as a fund-of-funds, includes in its expense ratio the pro rata fees and expenses of the underlying funds in which it invests, plus any direct fund fees and expenses. Directly or indirectly, however, Moderately Aggressive Portfolio and Strategic Allocation Fund have varying levels of investment
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page B-2
management fees, administration fees, transfer agent and servicing fees, and similar distribution fees, and custodian fees. As of its most recent fiscal year end, Strategic Allocation Fund (Class A shares) report annual fund operating expenses as a percentage of average daily net asset (excluding any applicable sales loads) of 1.13%. Moderately Aggressive Portfolio's annual operating expenses as a percentage of daily net assets (including both direct expenses and indirect expenses of underlying funds in which it invests) are estimated to be 1.14% (after giving effect to fee waivers and expense reimbursements). The fees and expenses for Moderately Aggressive Portfolio do not include separate insurance company contract fees and expenses. Total fees and expenses (including separate insurance company contract fees and expenses) for Moderately Aggressive Portfolio, and any fee waivers and expense reimbursements, are disclosed in the Participating Insurance Company prospectuses. The comparative performance information for Strategic Allocation Fund does not reflect the deduction of any separate fees that would have been imposed by Participating Insurance Companies in connection with their sale of variable annuity contracts to investors. If the performance of Strategic Allocation Fund had been adjusted to reflect any such fees, returns would be lower.
S-6521-20 A (5/08)
RiverSource Variable Portfolio Funds - Statement of Additional Information - April 23, 2008 Page B-3
PART C. OTHER INFORMATION
Item 23. Exhibits
(a)(1) Amendment No. 1 to the Agreement and Declaration of Trust effective Sept. 11, 2007, filed electronically on or about Sept. 28, 2007 as Exhibit (a) to Registrant's Registration Statement No. 333-146374 is incorporated by reference.
(a)(2) Amendment No. 2 to the Agreement and Declaration of Trust effective April 9, 2008, is filed electronically herewith as Exhibit (a)(2) to Registrant's Post-Effective Amendment No. 2 to Registration Statement No. 333-146374.
(b) By-laws filed electronically on or about Sept. 28, 2007 as Exhibit (b) to Registrant's Registration Statement No. 333-146374 are incorporated by reference.
(c) Stock Certificate: Not applicable.
(d)(1) Investment Management Services Agreement, dated Nov. 8, 2008, amended and restated April 10, 2008, between Registrant and RiverSource Investments, LLC is filed electronically herewith as Exhibit (d)(1) to Registrant's Post-Effective Amendment No. 2 to Registration Statement No. 333-146374.
(d)(2) Subadvisory Agreement between American Express Financial Corporation and Donald Smith & Co., Inc., dated March 12, 2004, filed electronically as Exhibit (d)(19) to AXP Partners Series, Inc. Post-Effective Amendment No. 10 to Registration Statement No. 333-57852 filed on or about May 26, 2004 is incorporated by reference.
(d)(3) Subadvisory Transfer Agreement, dated Oct. 1, 2005, between Ameriprise Financial, Inc., RiverSource Investments, LLC and Donald Smith & Co., Inc. filed electronically on or about May 24, 2006 as Exhibit (d)(25) to RiverSource Managers Series, Inc. Post-Effective Amendment No. 14 to Registration Statement No. 333-57852 is incorporated by reference.
(d)(4) Subadvisory Agreement between American Express Financial Corporation and Barrow, Hanley, Mewhinney & Strauss, Inc., dated March 12, 2004, filed electronically as Exhibit (d)(20) to AXP Partners Series, Inc. Post-Effective Amendment No. 10 to Registration Statement No. 333-57852 filed on or about May 26, 2004 is incorporated by reference.
(d)(5) Subadvisory Transfer Agreement, dated Oct. 1, 2005, between Ameriprise Financial, Inc., RiverSource Investments, LLC and Barrow, Hanley, Mewhinney & Strauss, Inc., filed electronically on or about May 24, 2006 as Exhibit (d)(27) to RiverSource Managers Series, Inc. Post-Effective Amendment No. 14 to Registration Statement No. 333-57852 is incorporated by reference.
(d)(6) Subadvisory Agreement between American Express Financial Corporation and Franklin Portfolio Associates LLC, dated March 12, 2004, filed electronically as Exhibit (d)(21) to AXP Partners Series, Inc. Post-Effective Amendment No. 10 to Registration Statement No. 333-57852 filed on or about May 26, 2004 is incorporated by reference.
(d)(7) Subadvisory Transfer Agreement, dated Oct. 1, 2005, between Ameriprise
Financial, Inc., RiverSource Investments, LLC and Franklin Portfolio
Associates LLC filed electronically on or about May 24, 2006 as Exhibit
(d)(29) to RiverSource Managers Series, Inc. Post-Effective Amendment
No. 14 to Registration Statement No. 333-57852 is incorporated by
reference.
(d)(8) Subadvisory Agreement, dated March 1, 2006, between Davis Selected Advisers, L.P. and RiverSource Investments, LLC filed electronically on or about April 21, 2006 as Exhibit (d)(19) to RiverSource Variable Portfolio - Managers Series, Inc. Post-Effective Amendment No. 15 to Registration Statement No. 333-61346 is incorporated by reference.
(d)(9) Amendment One to Subadvisory Agreement, dated April 24, 2006, between Davis Selected Advisers, L.P. and RiverSource Investments, LLC filed electronically on or about May 24, 2006 as Exhibit (d)(3) to RiverSource Managers Series, Inc. Post-Effective Amendment No. 14 to Registration Statement No. 333-57852 is incorporated by reference.
(d)(10) Subadvisory Agreement, dated Oct. 17, 2007, between River Road Asset Management, LLC and RiverSource Investments, LLC filed electronically on or about Dec. 14, 2007 as Exhibit (d)(10) to Registrant's Pre-Effective Amendment No. 1 to Registration Statement No. 333-146374 is incorporated by reference.
(d)(11) Subadvisory Agreement, dated Sept. 24, 2006, between WEDGE Capital Management L.L.P. and RiverSource Investments, LLC filed electronically on or about Oct. 26, 2006 as Exhibit (d)(11) to RiverSource Variable Portfolio - Managers Series, Inc. Post-Effective Amendment No. 18 to Registration Statement No. 333-61346 is incorporated by reference.
(d)(12) Subadvisory Agreement, dated Sept. 24, 2006, between Systematic Financial Management, L.P. and RiverSource Investments, LLC filed electronically on or about Oct. 26, 2006 as Exhibit (d)(12) to RiverSource Variable Portfolio - Managers Series, Inc. Post-Effective Amendment No. 18 to Registration Statement No. 333-61346 is incorporated by reference.
(d)(13) Subadvisory Agreement, dated July 16, 2007, between Denver Investment Advisors LLC and RiverSource Investments, LLC filed electronically on or about Dec. 14, 2007 as Exhibit (d)(13) to Registrant's Pre-Effective Amendment No. 1 to Registration Statement No. 333-146374 is incorporated by reference.
(e) Distribution Agreement, dated Nov. 8, 2007, amended and restated April 10, 2008, between Registrant and RiverSource Distributors, Inc. is filed electronically herewith as Exhibit (e) to Registrant's Post-Effective Amendment No. 2 to Registration Statement No. 333-146374.
(f) Bonus or Profit Sharing Contracts: Not Applicable.
(g)(1) Custodian Agreement, dated Oct. 1, 2005, amended and restated April 10, 2008, between Registrant and Ameriprise Trust Company is filed electronically herewith as Exhibit (g)(1) to Registrant's Post-Effective Amendment No. 2 to Registration Statement No. 333-146374.
(g)(2) Custodian Agreement between American Express Trust Company (now known as Ameriprise Trust Company) and The Bank of New York dated May 13, 1999, filed electronically as Exhibit (g)(3) to AXP Precious Metals Fund, Inc. Post-Effective Amendment No. 33 to Registration Statement No. 2-93745, filed on or about May 25, 1999 is incorporated by reference.
(g)(3) Custodian Agreement First Amendment between American Express Trust Company (now known as Ameriprise Trust Company) and The Bank of New York, dated Dec. 1, 2000, filed electronically as Exhibit (g)(4) to AXP Precious Metals Fund, Inc. Post-Effective Amendment No. 37 to Registration Statement No. 2-93745, filed on or about May 28, 2002, is incorporated by reference.
(g)(4) Custodian Agreement Second Amendment between American Express Trust Company (now known as Ameriprise Trust Company) and The Bank of New York, dated June 7, 2001, filed electronically as Exhibit (g)(5) to AXP Precious Metals Fund, Inc. Post-Effective Amendment No. 37 to Registration Statement No. 2-93745, filed on or about May 28, 2002, is incorporated by reference.
(g)(5) Custodian Agreement Amendment between American Express Trust Company (now known as Ameriprise Trust Company) and The Bank of New York, dated Jan. 31, 2002, filed electronically as Exhibit (g)(6) to AXP Precious Metals Fund, Inc. Post-Effective Amendment No. 37 to Registration Statement No. 2-93745, filed on or about May 28, 2002, is incorporated by reference.
(g)(6) Custodian Agreement Amendment between American Express Trust Company (now known as Ameriprise Trust Company) and The Bank of New York, dated April 29, 2003, filed electronically as Exhibit (g)(8) to AXP Partners Series, Inc. Post-Effective Amendment No. 7 to Registration Statement No. 333-57852, filed on or about May 22, 2003, is incorporated by reference.
(h)(1) Administrative Services Agreement, dated Oct. 1, 2005, amended and restated April 10, 2008, between Registrant and Ameriprise Financial, Inc. is filed electronically herewith as Exhibit (h)(1) to Registrant's Post-Effective Amendment No. 2 to Registration Statement No. 333-146374.
(h)(2) Transfer Agency and Servicing Agreement, dated Nov. 8, 2007, amended and restated April 10, 2008, between Registrant and RiverSource Service Corporation is filed electronically herewith as Exhibit (h)(2) to Registrant's Post-Effective Amendment No. 2 to Registration Statement No. 333-146374.
(h)(3) Master Fee Cap/Fee Waiver Agreement, dated Oct. 1, 2005, amended and restated April 10, 2008, between RiverSource Investments, LLC, Ameriprise Financial, Inc., RiverSource Service Corporation, RiverSource Distributors, Inc. and the Registrant is filed electronically herewith as Exhibit (h)(3) to Registrant's Post-Effective Amendment No. 2 to Registration Statement No. 333-146374.
(h)(4) License Agreement, effective May 1, 2006, amended and restated as of Sept. 11, 2007, between Ameriprise Financial, Inc. and RiverSource Funds filed electronically on or about Oct. 30, 2007 as Exhibit (h)(7) to RiverSource Diversified Income Series, Inc. Post-Effective Amendment No. 63 to Registration Statement No. 2-51586 is incorporated by reference.
(h)(5) Agreement and Plan of Reorganization, dated Sept. 11, 2007, between
RiverSource Variable Portfolio Funds, as series of Minnesota
corporations, and corresponding RiverSource Variable Portfolio Funds,
each a series of RiverSource Variable Portfolio Trust, a Massachusetts
business trust, and between RiverSource Variable Portfolio - Core Bond
Fund, a series of RiverSource Variable Series Trust, and RiverSource
Variable Portfolio - Diversified Bond Fund, a series of RiverSource
Variable Series Trust, is filed electronically herewith as Exhibit
(a)(5) to Registrant's Post-Effective Amendment No. 2 to Registration
Statement No. 333-146374.
(i) Opinion and consent of counsel as to the legality of the securities being registered is filed electronically herewith.
(j) Consent of Independent Registered Public Accounting Firm: Not Applicable.
(k) Omitted Financial Statements: Not Applicable.
(l) Initial Capital Agreement: Not Applicable.
(m) Plan and Agreement of Distribution, dated Nov. 8, 2007, amended and restated April 10, 2008, between Registrant and RiverSource Distributors, Inc. is filed electronically herewith as Exhibit (m) to Registrant's Post-Effective Amendment No. 2 to Registration Statement No. 333-146374.
(n) Rule 18f - 3(d) Plan: Not Applicable.
(o) Reserved.
(p)(1) Code of Ethics adopted under Rule 17j-1 for Registrant filed electronically on or about Aug. 27, 2007 as Exhibit (p)(1) to RiverSource Sector Series, Inc. Post-Effective Amendment No. 39 to Registration Statement No. 33-20872 is incorporated by reference.
(p)(2) Codes of Ethics adopted under Rule 17j-1 for Registrant's investment adviser, RiverSource Variable Portfolio - Small Cap Advantage Fund's Subadviser Kenwood Capital Management LLC 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 is incorporated by reference.
(p)(3) Code of Ethics adopted under Rule 17j-1 for RiverSource Partners Variable Portfolio - Fundamental Value and RiverSource Partners Fundamental Value Funds' Subadviser Davis Selected Advisers, L.P., as amended effective Feb. 1, 2005, filed electronically on or about April 21, 2006, as Exhibit (p)(8) to AXP Variable Portfolio - Partners Series, Inc. Post-Effective Amendment No. 15 to Registration Statement No. 333-61346 is incorporated by reference.
(p)(4) Code of Ethics adopted under Rule 17j-1 for RiverSource Partners Small Cap Value and RiverSource Partners Variable Portfolio - Small Cap Value Funds' Subadviser Donald Smith & Co., Inc., adopted Jan. 1, 2005, revised June 1, 2006 filed electronically on or about April 24, 2007 as Exhibit (p)(4) to RiverSource Variable Portfolio - Managers Series, Inc. Post-Effective Amendment No. 19 to Registration Statement No. 333-61346 is incorporated by reference.
(p)(5) Code of Ethics adopted under Rule 17j-1 for RiverSource Partners Small Cap Value and RiverSource Partners Variable Portfolio - Small Cap Value Funds' Subadviser Barrow, Hanley, Mewhinney & Strauss, Inc., dated Jan. 2007, filed electronically on or about April 24, 2007 as Exhibit (p)(5) to RiverSource Variable Portfolio - Managers Series, Inc. Post-Effective Amendment No. 19 to Registration Statement No. 333-61346 is incorporated by reference.
(p)(6) Code of Ethics adopted under Rule 17j-1 for RiverSource Partners Small Cap Value and RiverSource Partners Variable Portfolio - Small Cap Value Funds' Subadviser Franklin Portfolio, dated Feb. 2007, filed electronically on or about April 24, 2007 as Exhibit (p)(6) to RiverSource Variable Portfolio - Managers Series, Inc. Post- Effective Amendment No. 19 to Registration Statement No. 333-61346 is incorporated by reference.
(p)(7) Code of Ethics adopted under Rule 17j-1 for RiverSource Partners Variable Portfolio - Small Cap Value Fund's Subadviser River Road Asset Management, LLC, dated July 1, 2007, filed electronically on or about Dec. 14, 2007 as Exhibit (p)(7) to Registrant's Pre-Effective Amendment No. 1 to Registration Statement No. 333-146374 is incorporated by reference.
(p)(8) Code of Ethics adopted under Rule 17j-1 for RiverSource Partners Variable Portfolio - Select Value Fund's and RiverSource Partners Select Value Fund's Subadviser WEDGE Capital Management L.L.P. effective Oct. 1, 2002, revised Nov. 16, 2007 filed electronically on or about Dec. 14, 2007 as Exhibit (p)(8) to Registrant's Pre-Effective Amendment No. 1 to Registration Statement No. 333-146374 is incorporated by reference.
(p)(9) Code of Ethics adopted under Rule 17j-1 for RiverSource Partners Variable Portfolio - Select Value Fund's and RiverSource Partners Select Value Fund's Subadviser Systematic Financial Management L.P. effective July 1, 2007, filed electronically on or about Dec. 14, 2007 as Exhibit (p)(9) to Registrant's Pre-Effective Amendment No. 1 to Registration Statement No. 333-146374 is incorporated by reference.
(p)(10) Code of Ethics adopted under Rule 17j-1 for RiverSource Partners Variable Portfolio - Small Cap Value Fund's Subadviser Denver Investment Advisors LLC effective Feb. 15, 2007, is filed electronically herewith as Exhibit (p)(10) to Registrant's Post-Effective Amendment No. 2 to Registration Statement No. 333- 146374.
(p)(11) Code of Ethics, dated May 2005, adopted under Rule 17j-1, for Threadneedle Variable Portoflio - Emerging Markets Fund's and Threadneedle Variable Portfolio - International Opportunity Fund's Subadviser, Threadneedle International Ltd., filed electronically on or about Dec. 20, 2005, as Exhibit (p)(3) to AXP International Series, Inc. Post-Effective Amendment No. 42 to Registration Statement No. 2-92309 is incorporated by reference.
(q) Directors/Trustees Power of Attorney to sign Amendments to this Registration Statement, dated Sept. 11, 2007, filed electronically on or about Sept. 28, 2007 as Exhibit (q) to Registrant's Registration Statement No. 333-146374 is incorporated by reference.
Item 24. Persons Controlled by or Under Common Control with Registrant:
RiverSource Investments, LLC, as sponsor of the RiverSource Funds, may make initial capital investments in RiverSource funds (seed accounts). RiverSource Investments also serves as investment manager of certain RiverSource funds-of-funds that invest primarily in Class I shares of affiliated RiverSource funds (the "underlying funds"). RiverSource Investments does not make initial capital investments or invest in underlying funds for the purpose of exercising control. However, since these ownership interests may be significant, in excess of 25%, such that RiverSource Investments may be deemed to control certain RiverSource funds, procedures have been put in place to assure that public shareholders determine the outcome of all actions taken at shareholder meetings. Specifically, RiverSource Investments (which votes proxies for the seed accounts) and the Boards of Directors or Trustees of the RiverSource funds-of-funds (which votes proxies for the RiverSource funds-of-funds) vote on each proposal in the same proportion that other shareholders vote on the proposal.
Item 25. Indemnification
The Agreement and Declaration of Trust of the registrant provides that the Trust 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 trustee, officer, employee or agent of the Trust, or is or was serving at the request of the Trust as a trustee, 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 Trust may purchase liability insurance and advance legal expenses, all to the fullest extent permitted by the laws of the Commonwealth of Massachusetts, as now existing or hereafter amended. The By-laws of the registrant provide that present or former trustees or officers of the Trust 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 Trust to the full extent authorized by the Massachusetts 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 trustees, 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 trustee, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, 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 trustees, officers, employees or agents might otherwise be entitled. No indemnification shall be made in violation of the Investment Company Act of 1940.
Item 26. Business and Other Connections of the Investment Adviser (RiverSource Investments, LLC)
The following are directors and principal officers of RiverSource Investments, LLC who are directors and/or officers of one or more other companies:
Name and Title Other Companies Address* Title within other companies
-------------------------------- ----------------------------------------------- ----------------- ------------------------------
Neysa M. Alecu, Advisory Capital Partners LLC Dissolved Anti-Money Laundering Officer
Anti-Money Laundering (resigned 5/23/06)
Officer
Advisory Capital Strategies Group Inc. Anti-Money Laundering Officer
Advisory Convertible Arbitrage LLC Dissolved Anti-Money Laundering Officer
(resigned 5/23/06)
Advisory Select LLC Dissolved Anti-Money Laundering Officer
(resigned 5/1/07)
American Enterprise Investment Services Inc. 70400 AXP Anti-Money Laundering Officer
Financial Center,
Minneapolis, MN
55474
American Enterprise Life Insurance Company Dissolved Anti-Money Laundering Officer
(resigned 12/30/06)
American Enterprise REO 1 LLC Dissolved Anti-Money Laundering Officer
(resigned 6/13/07)
American Express Insurance Agency of Alabama Dissolved Anti-Money Laundering Officer
Inc. (resigned 6/29/07)
American Express Insurance Agency of Arizona Dissolved Anti-Money Laundering Officer
Inc. (resigned 6/29/07)
American Express Insurance Agency of Idaho Inc. Dissolved Anti-Money Laundering Officer
(resigned 6/29/07)
American Express Insurance Agency of Maryland Dissolved Anti-Money Laundering Officer
Inc. (resigned 7/27/07)
American Express Insurance Agency of Dissolved Anti-Money Laundering Officer
Massachusetts Inc. (resigned 8/18/07)
American Express Insurance Agency of Nevada Dissolved Anti-Money Laundering Officer
Inc. (resigned 6/29/07)
American Express Insurance Agency of New Dissolved Anti-Money Laundering Officer
Mexico Inc. (resigned 6/29/07)
American Express Insurance Agency of Oklahoma Dissolved Anti-Money Laundering Officer
Inc. (resigned 6/29/07)
American Express Insurance Agency of Texas Inc. Dissolved Anti-Money Laundering Officer
(resigned 7/29/07)
American Express Insurance Agency of Wyoming Dissolved Anti-Money Laundering Officer
Inc. (resigned 7/2/07)
American Partners Life Insurance Company Dissolved Anti-Money Laundering Officer
(resigned 12/30/06)
Ameriprise Auto & Home Insurance Agency, Inc. 3500 Packerland Anti-Money Laundering Officer
Drive
De Pere, WI 54115
Ameriprise Certificate Company 70100 Ameriprise Anti-Money Laundering Officer
Financial Center, (resigned 8/24/07)
Minneapolis, MN
55474
Ameriprise Financial, Inc. 200 Ameriprise Anti-Money Laundering Officer
Financial Center,
Minneapolis, MN
55474
Ameriprise Financial Services, Inc. 5221 Ameriprise Anti-Money Laundering Officer
Financial Center,
Minneapolis, MN
55474
|
Name and Title Other Companies Address* Title within other companies
-------------------------------- ----------------------------------------------- ----------------- ------------------------------
Ameriprise Trust Company 200 Ameriprise Anti-Money Laundering Officer
Financial Center,
Minneapolis, MN
55474
Boston Equity General Partner LLC Anti-Money Laundering Officer
IDS Capital Holdings Inc. Anti-Money Laundering Officer
IDS Management Corporation Anti-Money Laundering Officer
RiverSource Distributors, Inc. 50611 Ameriprise Anti-Money Laundering Officer
Financial Center,
Minneapolis, MN
55474
RiverSource Life Insurance Company 829 Ameriprise Anti-Money Laundering Officer
Financial Center,
Minneapolis, MN
55474
RiverSource Service Corporation 734 Ameriprise Anti-Money Laundering Officer
Financial Center,
Minneapolis, MN
55474
Patrick Thomas Bannigan, Ameriprise Trust Company 200 Ameriprise Director,
Director and Senior Vice Financial Center, Senior Vice President
President - Asset Minneapolis, MN
Management, Products and 55474
Marketing
RiverSource Distributors, Inc. 50611 Ameriprise Vice President
Financial Center,
Minneapolis, MN
55474
RiverSource Service Corporation 734 Ameriprise Director
Financial Center,
Minneapolis, MN
55474
Walter S. Berman, Advisory Capital Partners LLC Dissolved Treasurer (resigned 5/23/06)
Treasurer
Advisory Capital Strategies Group Inc. Treasurer
Advisory Convertible Arbitrage LLC Dissolved Treasurer (resigned 5/23/06)
Advisory Select LLC Dissolved Treasurer (resigned 5/1/07)
American Centurion Life Assurance Company Dissolved Vice President and Treasurer
(resigned 12/30/06)
American Enterprise Investment Services Inc. 70400 AXP Treasurer
Financial Center,
Minneapolis, MN
55474
American Enterprise Life Insurance Company Dissolved Vice President and Treasurer
(resigned 12/30/06)
American Enterprise REO 1 LLC Dissolved Treasurer (resigned 6/13/07)
American Express Financial Advisors, Japan Dissolved Vice President and Treasurer
Inc. (resigned 2/4/08)
American Express Insurance Agency of Alabama, Dissolved Treasurer (resigned 6/29/07)
Inc.
American Express Insurance Agency of Arizona, Dissolved Treasurer (resigned 6/29/07)
Inc.
American Express Insurance Agency of Idaho, Dissolved Treasurer (resigned 6/29/07)
Inc.
|
Name and Title Other Companies Address* Title within other companies
-------------------------------- ----------------------------------------------- ----------------- ------------------------------
American Express Insurance Agency of Maryland, Dissolved Treasurer (resigned 7/27/07)
Inc.
American Express Insurance Agency of Dissolved Treasurer (resigned 8/18/07)
Massachusetts, Inc.
American Express Insurance Agency of Nevada, Dissolved Treasurer (resigned 6/29/07)
Inc.
American Express Insurance Agency of New Dissolved Treasurer (resigned 6/29/07)
Mexico, Inc.
American Express Insurance Agency of Oklahoma, Dissolved Treasurer (resigned 6/29/07)
Inc.
American Express Insurance Agency of Wyoming, Dissolved Treasurer (resigned 7/2/07)
Inc.
American Express Property Casualty Insurance Treasurer
Agency of Kentucky, Inc.
American Express Property Casualty Insurance Treasurer
Agency of Maryland, Inc.
American Express Property Casualty Insurance Treasurer
Agency of Pennsylvania, Inc.
American Partners Life Insurance Company Dissolved Vice President and Treasurer
(resigned 12/30/06)
Ameriprise Auto & Home Insurance Agency Inc. 3500 Packerland Treasurer
Drive
De Pere, WI 54115
Ameriprise Bank, FSB 9393 Ameriprise Treasurer
Financial Center,
Minneapolis, MN
55474
Ameriprise Captive Insurance Company Director and Treasurer
Ameriprise Certificate Company 70100 Ameriprise Treasurer and Investment
Financial Center, Committee Member (resigned
Minneapolis, MN 8/24/07)
55474
Ameriprise Financial, Inc. 200 Ameriprise Executive Vice President,
Financial Center, Chief Financial Officer and
Minneapolis, MN Treasurer
55474
Ameriprise Financial Services, Inc. 5221 Ameriprise Director and Treasurer
Financial Center,
Minneapolis, MN
55474
Ameriprise Insurance Company 3500 Packerland Treasurer
Drive
De Pere, WI 54115
AMEX Assurance Company Dissolved Treasurer (resigned 3/15/07)
Boston Equity General Partner LLC Treasurer
IDS Cable Corporation Dissolved Treasurer (resigned 5/31/07)
IDS Cable II Corporation Dissolved Treasurer (resigned 6/18/07)
IDS Capital Holdings Inc. Treasurer
IDS Management Corporation Treasurer
IDS Partnership Services Corporation Dissolved Treasurer (resigned 6/18/07)
IDS Property Casualty Insurance Company 3500 Packerland Treasurer
Drive
De Pere, WI 54115
|
Name and Title Other Companies Address* Title within other companies
-------------------------------- ----------------------------------------------- ----------------- ------------------------------
IDS Realty Corporation Dissolved Treasurer (resigned 6/18/07)
IDS REO 1, LLC Treasurer
IDS REO 2, LLC Treasurer
Investors Syndicate Development Corporation Vice President and Treasurer
Kenwood Capital Management LLC 333 S. 7th Street, Treasurer (resigned 9/30/06)
Suite 2330,
Minneapolis, MN
55402
RiverSource CDO Seed Investments, LLC Treasurer
RiverSource Distributors, Inc. 50611 Ameriprise Treasurer
Financial Center,
Minneapolis, MN
55474
RiverSource Distributors Ltd Dissolved Treasurer (resigned)
RiverSource Life Insurance Company of New York 20 Madison Vice President and Treasurer
Ave. Extension,
Albany, NY 12005
RiverSource Life Insurance Company 829 Ameriprise Vice President and Treasurer
Financial Center,
Minneapolis, MN
55474
RiverSource Service Corporation 734 Ameriprise Treasurer
Financial Center,
Minneapolis, MN
55474
RiverSource Tax Advantaged Investments, Inc. Treasurer
Securities America Advisors Inc. 12325 Port Grace Director
Blvd., Lavista,
NE 68128-8204
Securities America Financial Corporation 7100 W. Center Director
Rd., Ste. 500,
Omaha, NE
68106-2716
Securities America, Inc. 12325 Port Grace Director
Blvd., Lavista,
NE 68128
Threadneedle Asset Management Holdings Ltd. 60 St. Mary Axe, Director
London EC3A 8JQ
Richard N. Bush, Advisory Capital Partners LLC Dissolved Senior Vice President -
Senior Vice President, Corporate Tax
Corporate Tax (resigned 5/23/06)
Advisory Capital Strategies Group Inc. Senior Vice President -
Corporate Tax
Advisory Convertible Arbitrage LLC Dissolved Senior Vice President -
Corporate Tax
(resigned 5/23/06)
American Centurion Life Assurance Company Dissolved Senior Vice President -
Corporate Tax
(resigned 12/30/06)
American Enterprise Investment Services Inc. 70400 AXP Senior Vice President -
Financial Center, Corporate Tax
Minneapolis, MN
55474
American Enterprise Life Insurance Company Dissolved Senior Vice President -
Corporate Tax
(resigned 12/30/06)
American Enterprise REO 1 LLC Dissolved Senior Vice President -
Corporate Tax
(resigned 6/13/07)
American Express Financial Advisors Japan, Dissolved Senior Vice President -
Inc. Corporate Tax
(resigned 2/4/08)
American Express Insurance Agency of Alabama, Dissolved Senior Vice President -
Inc. Corporate Tax
(resigned 6/29/07)
|
Name and Title Other Companies Address* Title within other companies
-------------------------------- ----------------------------------------------- ----------------- ------------------------------
American Express Insurance Agency of Arizona, Dissolved Senior Vice President -
Inc. Corporate Tax
(resigned 6/29/07)
American Express Insurance Agency of Idaho, Dissolved Senior Vice President -
Inc. Corporate Tax
(resigned 6/29/07)
American Express Insurance Agency of Maryland, Dissolved Senior Vice President -
Inc. Corporate Tax
(resigned 6/29/07)
American Express Insurance Agency of Dissolved Senior Vice President -
Massachusetts, Inc. Corporate Tax
(resigned 6/29/07)
American Express Insurance Agency of Nevada, Dissolved Senior Vice President -
Inc. Corporate Tax
(resigned 6/29/07)
American Express Insurance Agency of New Dissolved Senior Vice President -
Mexico, Inc. Corporate Tax
(resigned 6/29/07)
American Express Insurance Agency of Oklahoma, Dissolved Senior Vice President -
Inc. Corporate Tax
(resigned 6/29/07)
American Express Insurance Agency of Wyoming, Dissolved Senior Vice President -
Inc. Corporate Tax
(resigned 7/2/07)
American Express Property Casualty Insurance Senior Vice President -
Agency of Kentucky, Inc. Corporate Tax
American Express Property Casualty Insurance Senior Vice President -
Agency of Maryland, Inc. Corporate Tax
American Express Property Casualty Insurance Senior Vice President -
Agency of Pennsylvania, Inc. Corporate Tax
American Partners Life Insurance Company Dissolved Senior Vice President -
Corporate Tax
(resigned 12/30/06)
Ameriprise Bank, FSB 9393 Ameriprise Senior Vice President -
Financial Center, Corporate Tax
Minneapolis, MN
55474
Ameriprise Financial, Inc. 200 Ameriprise Senior Vice President -
Financial Center, Corporate Tax
Minneapolis, MN
55474
Ameriprise Financial Services, Inc. 5221 Ameriprise Senior Vice President -
Financial Center, Corporate Tax
Minneapolis, MN
55474
Ameriprise Insurance Company 3500 Packerland Senior Vice President -
Drive Corporate Tax
De Pere, WI 54115
AMEX Assurance Company Dissolved Senior Vice President -
Corporate Tax
(resigned 9/30/07)
Boston Equity General Partner LLC Senior Vice President -
Corporate Tax
IDS Cable Corporation Dissolved Senior Vice President -
Corporate Tax
(resigned 5/31/07)
IDS Cable II Corporation Dissolved Senior Vice President -
Corporate Tax
(resigned 6/18/07)
IDS Capital Holdings Inc. Senior Vice President -
Corporate Tax
IDS Futures Corporation 570 Ameriprise Senior Vice President -
Financial Center, Corporate Tax
Minneapolis, MN
55474
IDS Management Corporation Senior Vice President -
Corporate Tax
IDS Property Casualty Insurance Company 3500 Packerland Senior Vice President -
Drive Corporate Tax
De Pere, WI 54115
|
Name and Title Other Companies Address* Title within other companies
-------------------------------- ----------------------------------------------- ----------------- ------------------------------
IDS Realty Corporation Dissolved Senior Vice President -
Corporate Tax
(resigned 6/18/07)
IDS REO 1, LLC Senior Vice President -
Corporate Tax
IDS REO 2, LLC Senior Vice President -
Corporate Tax
RiverSource Life Insurance Company of New York 20 Madison Senior Vice President -
Ave. Extension, Corporate Tax and Authorized
Albany, NY 12005 Officer - Derivatives Use
Plan
RiverSource Life Insurance Company 829 Ameriprise Senior Vice President -
Financial Center, Corporate Tax
Minneapolis, MN
55474
RiverSource Service Corporation 734 Ameriprise Senior Vice President -
Financial Center, Corporate Tax
Minneapolis, MN
55474
RiverSource Tax Advantaged Investments, Inc. Senior Vice President -
Corporate Tax
Peter Arthur Gallus, Advisory Capital Partners LLC Dissolved President, Chief Operating
Senior Vice President, Chief Officer and Chief Compliance
Operating Officer and Officer(resigned 5/23/06)
Assistant Treasurer
Advisory Capital Strategies Group Inc. Director, President, Chief
Operating Officer and Chief
Compliance Officer
Advisory Convertible Arbitrage LLC Dissolved President, Chief Operating
Officer and Chief Compliance
Officer (resigned 5/23/06)
Advisory Select LLC Dissolved President and Chief Operating
Officer(resigned 5/1/07)
Ameriprise Financial, Inc. 200 Ameriprise Vice President - Investment
Financial Center, Administration
Minneapolis, MN
55474
Ameriprise Financial Services, Inc. 5221 Ameriprise Vice President - CAO-AEFA
Financial Center, Investment Management
Minneapolis, MN
55474
Boston Equity General Partner LLC President, Chief Operating
Officer and Chief Compliance
Officer
IDS Capital Holdings Inc. Vice President and Controller
Kenwood Capital Management LLC 333 S. 7th Street, Board Member
Suite 2330,
Minneapolis, MN
55402
Christopher Paul Keating, Ameriprise Trust Company 200 Ameriprise Director, Head of
Head of Institutional Sales, Financial Center, Institutional Sales,
Client Service and Minneapolis, MN Client Service and
Consultant Relationships 55474 Consultant Relationships
Kenwood Capital Management LLC 333 S. 7th Street, Board Member
Suite 2330,
Minneapolis, MN
55402
Michelle Marie Keeley, Ameriprise Bank, FSB 9393 Ameriprise Director
Executive Vice President - Financial Center,
Equity and Fixed Income Minneapolis, MN
55474
Ameriprise Financial, Inc. 200 Ameriprise Executive Vice President -
Financial Center, Equity and Fixed Income
Minneapolis, MN
55474
|
Name and Title Other Companies Address* Title within other companies
-------------------------------- ----------------------------------------------- ----------------- ------------------------------
Ameriprise Financial Services, Inc. 5221 Ameriprise Executive Vice President -
Financial Center, Equity and Fixed Income
Minneapolis, MN
55474
IDS Property Casualty Insurance Company 3500 Packerland Vice President - Investments
Drive
De Pere, WI 54115
Kenwood Capital Management LLC 333 S. 7th Street, Board Member
Suite 2330,
Minneapolis, MN
55402
RiverSource CDO Seed Investments, LLC Chairperson and President
RiverSource Life Insurance Company 829 Ameriprise Vice President - Investments
Financial Center,
Minneapolis, MN
55474
RiverSource Life Insurance Company of New York 20 Madison Vice President - Investments
Ave. Extension,
Albany, NY 12005
American Centurion Life Assurance Company Dissolved Vice President - Investments
(resigned 12/30/06)
American Enterprise Life Insurance Company Dissolved Vice President - Investments
(resigned 12/30/06)
American Partners Life Insurance Company Dissolved Vice President - Investments,
Investment Committee Member
(resigned 12/30/06)
Ameriprise Certificate Company 70100 Ameriprise Vice President - Investments,
Financial Center, Investment Committee Member
Minneapolis, MN (resigned 8/24/07)
55474
Ameriprise Insurance Company 3500 Packerland Vice President - Investments
Drive (resigned 9/18/06)
De Pere, WI 54115
AMEX Assurance Company Vice President - Investments
(resigned 9/30/2007)
Jennifer Davis Lammers, Kenwood Capital Management LLC 333 S. 7th Street, Chief Compliance Officer
Chief Compliance Officer Suite 2330,
Minneapolis, MN
55402
RiverSource Service Corporation 734 Ameriprise Chief Compliance Officer
Financial Center,
Minneapolis, MN
55474
Brian Joseph McGrane, Advisory Capital Partners LLC Dissolved Vice President and Chief
Director, Vice President and Financial Officer
Chief Financial Officer (resigned 5/23/06)
Advisory Capital Strategies Group Inc. Vice President and Chief
Financial Officer
Advisory Convertible Arbitrage LLC Dissolved Vice President and Chief
Financial Officer
(resigned 5/23/06)
Advisory Select LLC Dissolved Vice President and Chief
Financial Officer
(resigned 5/1/07)
Ameriprise Financial, Inc. 200 Ameriprise Senior Vice President and
Financial Center, Lead Financial Officer
Minneapolis, MN
55474
Ameriprise Financial Services, Inc. 5221 Ameriprise Vice President and Lead
Financial Center, Financial Officer - Finance
Minneapolis, MN
55474
|
Name and Title Other Companies Address* Title within other companies
-------------------------------- ----------------------------------------------- ----------------- ------------------------------
Ameriprise Trust Company 200 Ameriprise Director
Financial Center,
Minneapolis, MN
55474
Boston Equity General Partner LLC Vice President and Chief
Financial Officer
RiverSource CDO Seed Investments, LLC Board Member
RiverSource Life Insurance Company 829 Ameriprise Director, Executive Vice
Financial Center, President and Chief Financial
Minneapolis, MN Officer
55474
Ameriprise Certificate Company 70100 Ameriprise Vice President and Chief
Financial Center, Financial Officer (resigned
Minneapolis, MN 8/24/07)
55474
American Enterprise Life Insurance Company Dissolved Director, Executive Vice
President and Chief Financial
Officer (resigned 12/30/06)
American Partners Life Insurance Company Dissolved Director (resigned 12/30/06)
Thomas R. Moore, Advisory Capital Strategies Group Inc. Secretary
Secretary
American Centurion Life Assurance Company Dissolved Secretary (resigned 12/30/06)
American Enterprise Investment Services Inc. 70400 AXP Secretary
Financial Center,
Minneapolis, MN
55474
American Enterprise Life Insurance Company Dissolved Secretary (resigned 12/30/06)
American Enterprise REO 1 LLC Dissolved Secretary (resigned 6/13/07)
American Express Insurance Agency of Alabama, Dissolved Secretary (resigned 6/29/07)
Inc.
American Express Insurance Agency of Arizona, Dissolved Secretary (resigned 6/29/07)
Inc.
American Express Insurance Agency of Idaho, Dissolved Secretary (resigned 6/29/07)
Inc.
American Express Insurance Agency of Maryland, Dissolved Secretary (resigned 7/27/07)
Inc.
American Express Insurance Agency of Dissolved Secretary (resigned 8/18/07)
Massachusetts, Inc.
American Express Insurance Agency of Nevada, Dissolved Secretary (resigned 6/29/07)
Inc.
American Express Insurance Agency of New Dissolved Secretary (resigned 6/29/07)
Mexico, Inc.
American Express Insurance Agency of Oklahoma, Dissolved Secretary (resigned 6/29/07)
Inc.
American Express Insurance Agency of Wyoming, Dissolved Secretary (resigned 7/2/07)
Inc.
American Express Property Casualty Insurance Secretary
Agency of Kentucky, Inc.
American Express Property Casualty Insurance Secretary
Agency of Maryland, Inc.
|
Name and Title Other Companies Address* Title within other companies
-------------------------------- ----------------------------------------------- ----------------- ------------------------------
American Express Property Casualty Insurance Secretary
Agency of Pennsylvania, Inc.
American Partners Life Insurance Company Dissolved Secretary (resigned 12/30/06)
Ameriprise Bank, FSB 9393 Ameriprise Secretary
Financial Center,
Minneapolis, MN
55474
Ameriprise Captive Insurance Company Assistant Secretary
Ameriprise Financial, Inc. 200 Ameriprise Vice President,
Financial Center, Chief Governance Officer and
Minneapolis, MN Corporate Secretary
55474
Ameriprise Financial Services, Inc. 5221 Ameriprise Secretary
Financial Center,
Minneapolis, MN
55474
Ameriprise Insurance Company 3500 Packerland Secretary
Drive
De Pere, WI 54115
Ameriprise Trust Company 200 Ameriprise Secretary
Financial Center,
Minneapolis, MN
55474
AMEX Assurance Company Dissolved Secretary (resigned 9/30/07)
IDS Cable Corporation Dissolved Secretary (resigned 5/31/07)
IDS Cable II Corporation Dissolved Secretary (resigned6/18/07)
IDS Capital Holdings Inc. Secretary
IDS Futures Corporation 570 Ameriprise Secretary
Financial Center,
Minneapolis, MN
55474
IDS Management Corporation Secretary
IDS Property Casualty Insurance Company 3500 Packerland Secretary
Drive
De Pere, WI 54115
IDS Realty Corporation Dissolved Secretary (resigned 6/18/07)
IDS REO 1, LLC Secretary
IDS REO 2, LLC Secretary
Investors Syndicate Development Corporation Secretary
RiverSource CDO Seed Investments, LLC Secretary
RiverSource Distributors, Inc. 50611 Ameriprise Secretary
Financial Center,
Minneapolis, MN
55474
RiverSource Life Insurance Company of New York 20 Madison Secretary
Ave. Extension,
Albany, NY 12005
RiverSource Life Insurance Company 829 Ameriprise Secretary
Financial Center,
Minneapolis, MN
55474
RiverSource Service Corporation 734 Ameriprise Secretary
Financial Center,
Minneapolis, MN
55474
|
Name and Title Other Companies Address* Title within other companies
-------------------------------- ----------------------------------------------- ----------------- ------------------------------
RiverSource Tax Advantaged Investments, Inc. Secretary
Securities America Financial Corporation 7100 W. Center Secretary (resigned 11/19/07)
Rd., Ste. 500,
Omaha, NE
68106-2716
Scott Roane Plummer, Ameriprise Financial, Inc. 200 Ameriprise Vice President - Asset
Chief Legal Officer and Financial Center, Management Compliance
Assistant Secretary Minneapolis, MN
55474
Ameriprise Financial Services, Inc. 5221 Ameriprise Vice President and Chief
Financial Center, Counsel - Asset Management
Minneapolis, MN
55474
RiverSource Distributors, Inc. 50611 Ameriprise Chief Counsel
Financial Center,
Minneapolis, MN
55474
RiverSource Service Corporation 734 Ameriprise Vice President, Chief Legal
Financial Center, Officer and Assistant
Minneapolis, MN Secretary
55474
Ameriprise Certificate Company 70100 Ameriprise Vice President,
Financial Center, General Counsel and Secretary
Minneapolis, MN (resigned 8/24/07)
55474
William Frederick 'Ted' Truscott Advisory Capital Strategies Group Inc. Director
Chairman, Chief Investment
Officer and President Ameriprise Certificate Company 70100 Ameriprise Director, President and Chief
Financial Center, Executive Officer (resigned
Minneapolis, MN 8/24/07)
55474
Ameriprise Financial, Inc. 200 Ameriprise President - U.S. Asset
Financial Center, Management, Annuities and
Minneapolis, MN Chief Investment Officer
55474
Ameriprise Financial Services, Inc. 5221 Ameriprise Senior Vice President and
Financial Center, Chief Investment Officer
Minneapolis, MN
55474
Ameriprise Trust Company 200 Ameriprise Director
Financial Center,
Minneapolis, MN
55474
IDS Capital Holdings Inc. Director and President
Kenwood Capital Management LLC 333 S. 7th Street, Board Member
Suite 2330,
Minneapolis, MN
55402
RiverSource Distributors, Inc. 50611 Ameriprise Chairman and Chief Executive
Financial Center, Officer
Minneapolis, MN
55474
Threadneedle Asset Management Holdings Ltd. 60 St. Mary Axe, Director
London EC3A 8JQ
|
* Unless otherwise noted, address is 50605 Ameriprise Financial Center, Minneapolis, MN 55474
Item 27. Principal Underwriter (RiverSource Distributors, Inc.)
(a) RiverSource Distributors, Inc. acts as principal underwriter for the following investment companies:
RiverSource Bond Series, Inc.; RiverSource California Tax-Exempt Trust; RiverSource Dimensions Series, Inc.; RiverSource Diversified Income Series, Inc.; RiverSource Equity Series, Inc.; RiverSource Global Series, Inc.; RiverSource Government Income Series, Inc.; RiverSource High Yield Income Series, Inc.; RiverSource Income Series, Inc.; RiverSource International Managers Series, Inc.; RiverSource International Series, Inc.; RiverSource Investment Series, Inc.; RiverSource Large Cap Series, Inc.; RiverSource Managers Series, Inc.; RiverSource Market Advantage Series, Inc.; RiverSource Money Market Series, Inc.; RiverSource Sector Series, Inc.; RiverSource Selected Series, Inc.; RiverSource Series Trust; RiverSource Short Term Investments Series, Inc.; RiverSource Special Tax-Exempt Series Trust; RiverSource Strategic Allocation Series; Inc., RiverSource Strategy Series, Inc.; RiverSource Tax-Exempt Income Series, Inc.; RiverSource Tax-Exempt Money Market Series, Inc.; RiverSource Tax-Exempt Series, Inc.; RiverSource Variable Series Trust.
(b) As to each director, principal officer or partner of RiverSource Distributors, Inc.
Name and Principal Business Address* Positions and Offices with Underwriter Positions and Offices with Fund
------------------------------------ -------------------------------------- -------------------------------
Neysa M. Alecu Anti-Money Laundering Officer None
Gumer C. Alvero Director and Vice President None
Patrick Thomas Bannigan Vice President President
Timothy V. Bechtold Director and Vice President None
Walter S. Berman Treasurer None
Paul J. Dolan Chief Operating Officer and Chief None
Administrative Officer
Jeffrey P. Fox Chief Financial Officer Treasurer
Jeffrey Lee McGregor, Sr. President None
Thomas R. Moore Secretary None
Scott Roane Plummer Chief Counsel Vice President, General Counsel and
Secretary
Julie A. Ruether Chief Compliance Officer None
William Frederick 'Ted' Truscott Chairman and Chief Executive Officer Board Member and Vice President
|
* Business address is: 50611 Ameriprise Financial Center, Minneapolis, MN 55474
(c) Not Applicable
Item 28. Location of Accounts and Records
Ameriprise Financial, Inc.
707 Second Avenue, South
Minneapolis, MN 55402
Iron Mountain Records Management
920 & 950 Apollo Road
Eagan, MN 55121
Iron Mountain Records Management is an off-site storage facility housing historical records that are no longer required to be maintained on-site. Records stored at this facility include various trading and accounting records, as well as other miscellaneous records.
Item 29. Management Services
Not Applicable
Item 30. Undertakings
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company Act, the Registrant, RIVERSOURCE VARIABLE SERIES TRUST, has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Minneapolis and the State of Minnesota on the 21st day of April, 2008.
RIVERSOURCE VARIABLE SERIES TRUST
By /s/ Patrick T. Bannigan
-----------------------------
Patrick T. Bannigan
President
By /s/ Jeffrey P. Fox
------------------
Jeffrey P. Fox
Treasurer
|
Pursuant to the requirements of the Securities Act, this Amendment to its Registration Statement has been signed below by the following persons in the capacities indicated on the 21st day of April, 2008.
Signature Capacity
/s/ Stephen R. Lewis, Jr.* Chair of the Board
----------------------------
Stephen R. Lewis, Jr.
/s/ Kathleen A. Blatz* Trustee
----------------------------
Kathleen A. Blatz
/s/ Arne H. Carlson* Trustee
----------------------------
Arne H. Carlson
/s/ Pamela G. Carlton* Trustee
----------------------------
Pamela G. Carlton
/s/ Patricia M. Flynn* Trustee
----------------------------
Patricia M. Flynn
/s/ Anne P. Jones* Trustee
----------------------------
Anne P. Jones
/s/ Jeffrey Laikind* Trustee
----------------------------
Jeffrey Laikind
/s/ Catherine James Paglia* Trustee
----------------------------
Catherine James Paglia
/s/ Alison Taunton-Rigby* Trustee
----------------------------
Alison Taunton-Rigby
/s/ William F. Truscott* Trustee
----------------------------
William F. Truscott
|
* Signed pursuant to Directors/Trustees Power of Attorney, dated Sept. 11, 2007, filed electronically on or about Sept. 28, 2007 as Exhibit (q) to Registrant's Registration Statement No. 333-146374, by:
/s/ Scott R. Plummer
----------------------------
Scott R. Plummer
|
Contents of this Post-Effective Amendment No. 2 to Registration Statement No. 333-146374
This Post-Effective Amendment contains the following papers and documents:
The facing sheet.
Part A.
The combined prospectus for:
Disciplined Asset Allocation Portfolios - Aggressive Disciplined Asset Allocation Portfolios - Moderately Aggressive Disciplined Asset Allocation Portfolios - Moderate Disciplined Asset Allocation Portfolios - Moderately Conservative Disciplined Asset Allocation Portfolios - Conservative
Part B.
Statement of Additional Information.
Part C.
Other information.
The signatures.
EXHIBIT INDEX
(a)(2) Amendment No. 2 to the Agreement and Declaration of Trust effective April 9, 2008.
(d)(1) Investment Management Services Agreement, dated Nov. 8, 2008, amended and restated April 10, 2008, between Registrant and RiverSource Investments, LLC.
(e) Distribution Agreement, dated Nov. 8, 2007, amended and restated April 10, 2008, between Registrant and RiverSource Distributors, Inc.
(g)(1) Custodian Agreement, dated Oct. 1, 2005, amended and restated April 10, 2008, between Registrant and Ameriprise Trust Company.
(h)(1) Administrative Services Agreement, dated Oct. 1, 2005, amended and restated April 10, 2008, between Registrant and Ameriprise Financial, Inc.
(h)(2) Transfer Agency and Servicing Agreement, dated Nov. 8, 2007, amended and restated April 10, 2008, between Registrant and RiverSource Service Corporation.
(h)(3) Master Fee Cap/Fee Waiver Agreement, dated Oct. 1, 2005, amended and restated April 10, 2008, between RiverSource Investments, LLC, Ameriprise Financial, Inc., RiverSource Service Corporation, RiverSource Distributors, Inc. and the Registrant.
(h)(5) Agreement and Plan of Reorganization, dated Sept. 11, 2007, between RiverSource Variable Portfolio Funds, as series of Minnesota corporations, and corresponding RiverSource Variable Portfolio Funds, each a series of RiverSource Variable Portfolio Trust, a Massachusetts business trust, and between RiverSource Variable Portfolio - Core Bond Fund, a series of RiverSource Variable Series Trust, and RiverSource Variable Portfolio - Diversified Bond Fund, a series of RiverSource Variable Series Trust.
(i) Opinion and consent of counsel as to the legality of the securities being registered.
(m) Plan and Agreement of Distribution, dated Nov. 8, 2007, amended and restated April 10, 2008.
(p)(10) Code of Ethics adopted under Rule 17j-1 for RiverSource Partners Variable Portfolio - Small Cap Value Fund's Subadviser Denver Investment Advisors LLC effective Feb. 15, 2007.
EXHIBIT (a)(2)
RIVERSOURCE VARIABLE SERIES TRUST
AMENDMENT NO. 2 TO THE
AGREEMENT AND DECLARATION OF TRUST
WHEREAS, Section 5 of Article III of the Agreement and Declaration of Trust (the "Declaration of Trust") of RiverSource Variable Series Trust (the "Trust"), amended and restated on September 11, 2007, a copy of which is on file in the Office of the Secretary of The Commonwealth of Massachusetts, authorizes the Trustees of the Trust to amend the Declaration of Trust to create one or more Series of classes of Shares (in addition to any Series or classes already existing or otherwise) with such rights and preferences and such eligibility requirements for investment therein as the Trustees shall determine and change the designation of any Series or class of Shares without authorization by vote of the Shareholders of the Trust.
NOW, THEREFORE, The undersigned, being at least a majority of the Trustees of RiverSource Variable Series Trust, do hereby certify that we have authorized the creation of five additional Series of the Trust and renaming RiverSource Variable Portfolio - Fundamental Value Fund, RiverSource Variable Portfolio - Emerging Markets Fund, RiverSource Variable Portfolio - International Opportunity Fund, RiverSource Variable Portfolio - Select Value Fund and RiverSource Variable Portfolio - Small Cap Value Fund, and have authorized the following amendment to said Declaration of Trust:
Section 6 of Article III is hereby amended to read as follows:
Section 6. Establishment and Designation of Series and Classes. Without limiting the authority of the Trustees as set forth in Section 5, inter alia, to establish and designate any further Series or classes or to modify the rights and preferences of any Series or class, the following Series shall be, and are hereby, established and designated;
Disciplined Asset Allocation Portfolios - Aggressive Disciplined Asset Allocation Portfolios - Conservative Disciplined Asset Allocation Portfolios - Moderate Disciplined Asset Allocation Portfolios - Moderately Aggressive Disciplined Asset Allocation Portfolios - Moderately Conservative RiverSource Partners Variable Portfolio - Fundamental Value Fund RiverSource Partners Variable Portfolio - Select Value Fund RiverSource Partners Variable Portfolio - Small Cap Value Fund RiverSource Variable Portfolio - Balanced Fund RiverSource Variable Portfolio - Cash Management Fund RiverSource Variable Portfolio - Core Equity Fund RiverSource Variable Portfolio - Diversified Bond Fund RiverSource Variable Portfolio - Diversified Equity Income Fund RiverSource Variable Portfolio - Global Bond Fund RiverSource Variable Portfolio - Global Inflation Protected Securities Fund RiverSource Variable Portfolio - Growth Fund RiverSource Variable Portfolio - High Yield Bond Fund RiverSource Variable Portfolio - Income Opportunities Fund RiverSource Variable Portfolio - Large Cap Equity Fund RiverSource Variable Portfolio - Large Cap Value Fund RiverSource Variable Portfolio - Mid Cap Growth Fund RiverSource Variable Portfolio - Mid Cap Value Fund RiverSource Variable Portfolio - S&P 500 Index Fund RiverSource Variable Portfolio - Short Duration U.S. Government Fund RiverSource Variable Portfolio - Small Cap Advantage Fund Threadneedle Variable Portfolio - Emerging Markets Fund Threadneedle Variable Portfolio - International Opportunity Fund
Shares of each Series established in this Section 6 shall have the following rights and preferences relative to Shares of each other Series, and Shares of each class of a Multi-Class Series shall have such rights and preferences relative to other classes of the same Series as are set forth below, together with such other rights and preferences relative to such other classes as are set forth in any resolutions of the Trustees establishing and designating such class of Shares.
The rest of this Section 6 remains unchanged.
The foregoing amendment is effective as of April 9, 2008.
[The remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the undersigned has signed this Amendment No. 2 to the Agreement and Declaration of Trust on April 9, 2008.
/s/ Kathleen Blatz /s/ Arne H. Carlson ------------------------------------- -------------------------------------- Kathleen Blatz * Arne H. Carlson * /s/ Pamela G. Carlton /s/ Patricia M. Flynn ------------------------------------- -------------------------------------- Pamela G. Carlton * Patricia M. Flynn * /s/ Anne P. Jones /s/ Jeffrey Laikind ------------------------------------- -------------------------------------- Anne P. Jones * Jeffrey Laikind * /s/ Stephen R. Lewis, Jr. /s/ Catherine James Paglia ------------------------------------- -------------------------------------- Stephen R. Lewis, Jr. * Catherine James Paglia * /s/ Alison Taunton-Rigby /s/ William F. Truscott ------------------------------------- -------------------------------------- Alison Taunton-Rigby * William F. Truscott ** |
* 901 S. Marquette Avenue
Minneapolis, MN 55402
** 53600 Ameriprise Financial Center Minneapolis, MN 55474
Registered Agent: Corporation Service Company
84 State Street
Boston, MA 02109
|
EXHIBIT (d)(1)
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AMENDED AND RESTATED
This Agreement dated as of November 8, 2007, amended and restated April 10, 2008, is by and between RiverSource Investments, LLC (the "Investment Manager"), a Minnesota limited liability company and RiverSource Variable Series Trust (the "Registrant"), a Massachusetts business trust, on behalf of its underlying series listed in Schedule A (each a "Fund" and collectively the "Funds"). The term "Fund" or "Funds" is used to refer to either the Registrant or its underlying series, as context requires.
PART ONE: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Fund hereby retains the Investment Manager, and the Investment Manager hereby agrees, for the period of this Agreement and under the terms and conditions hereinafter set forth, to furnish the Fund continuously with investment advice; to determine, consistent with the Fund's investment objectives and policies, which securities in the Investment Manager's discretion shall be purchased, held or sold, and to execute or cause the execution of purchase or sell orders; to prepare and make available to the Fund all necessary research and statistical data in connection therewith; to furnish all other services of whatever nature required in connection with the management of the Fund as provided under this Agreement; for RiverSource Variable Portfolio - Core Equity Fund, to furnish the Fund all administrative, accounting, clerical, statistical correspondence, corporate and all other services of whatever nature required in connection with the administration of the affairs of the Fund, including any transfer agent and dividend disbursing agent services; and to pay such expenses as may be provided for in Part Three; subject always to the direction and control of the Board of Trustees (the "Board") and the authorized officers of the Fund. The Investment Manager agrees to maintain an adequate organization of competent persons to provide the services and to perform the functions herein mentioned and to maintain adequate oversight over any service providers including subadvisers hired to provide services and to perform the functions herein mentioned. The Investment Manager agrees to meet with any persons at such times as the Board deems appropriate for the purpose of reviewing the Investment Manager's performance under this Agreement. The Fund agrees that the Investment Manager may subcontract for certain of the services described under this Agreement with the understanding that there shall be no diminution in the quality or level of services and also with the understanding, that the Investment Manager shall obtain such approval from the Fund's Board and/or its shareholders as is required by law, rules and regulations promulgated thereunder, terms of the Agreement, resolutions of the Board and commitments of the Investment Manager.
(2) The Investment Manager agrees that the investment advice and investment decisions will be in accordance with general investment policies of the Fund as disclosed to the Investment Manager from time to time by the Fund and as set forth in the prospectus and registration statement filed with the United States Securities and Exchange Commission (the "SEC").
(3) The Investment Manager agrees to provide such support as required or requested by the Board in conjunction with voting proxies solicited by or with respect to the issuers of securities in which the Fund's assets may be invested from time to time, it being understood that the Board has sole voting power with respect to all such proxies.
(4) The Investment Manager agrees that it will maintain all required records, memoranda, instructions or authorizations relating to the management of the assets for the Fund including the acquisition or disposition of securities, proxy voting and safekeeping of assets.
(5) The Fund agrees that it will furnish to the Investment Manager any information that the latter may reasonably request with respect to the services performed or to be performed by the Investment Manager under this Agreement.
(6) In selecting broker-dealers for execution, the Investment Manager will seek to obtain best execution for securities transactions on behalf of the Fund, except where otherwise directed by the Board. In selecting broker-dealers to execute transactions, the Investment Manager will consider not only available prices (including commissions or mark-up), but also other relevant factors such as, without limitation, the characteristics of the security being traded, the size and difficulty of the transaction, the execution, clearance and settlement capabilities as well as the reputation, reliability, and financial soundness of the broker-dealer selected, the broker-dealer's risk in positioning a block of securities, the broker-dealer's execution service rendered on a continuing basis and in other transactions, the broker-dealer's expertise in particular markets, and the broker-dealer's ability to provide research services. To the extent permitted by law, and consistent with its obligation to seek best execution, the Investment Manager may execute transactions or pay a broker-dealer a commission or markup in excess of that which another broker-dealer might have charged for executing a transaction provided that the Investment Manager determines, in good faith, that the execution is appropriate or the commission or markup is reasonable in relation to the value of the brokerage and/or research services provided, viewed in terms of either that particular transaction or the Investment Manager's overall responsibilities with respect to the Fund and other clients for which it acts as investment adviser. The Investment Manager shall not consider the sale or promotion of shares of the Fund, or other affiliated products, as a factor in the selection of broker-dealers through which transactions are executed.
(7) Except for bad faith, intentional misconduct or negligence in regard to the performance of its duties under this Agreement, neither the Investment Manager, nor any of its respective directors, officers, partners, principals, employees, or agents shall be liable for any acts or omissions or for any loss suffered by the Fund or its shareholders or creditors. Each of the Investment Manager, and its respective directors, officers, partners, principals, employees and agents, shall be entitled to rely, and shall be protected from liability in reasonably relying, upon any information or instructions furnished to it (or any of them as individuals) by the Fund or its agents which is believed in good faith to be accurate and reliable. The Fund understands and acknowledges that the Investment Manager does not warrant any rate of return, market value or performance of any assets in the Fund. Notwithstanding the foregoing, the federal securities laws impose liabilities under certain circumstances on persons who act in good faith and, therefore, nothing herein shall constitute a waiver of any right which the Fund may have under such laws or regulations.
PART TWO: COMPENSATION TO THE INVESTMENT MANAGER
(1) The Fund agrees to pay to the Investment Manager, and the Investment Manager covenants and agrees to accept from the Fund in full payment for the services furnished, a fee as set forth in Schedule A.
(2) The fee shall be paid on a monthly basis and, in the event of the termination of this Agreement, in whole or in part with respect to any Fund, the fee accrued shall be prorated on the basis of the number of days that this Agreement is in effect during the month with respect to which such payment is made.
(3) The fee provided for hereunder shall be paid in cash by the Fund to the Investment Manager within five business days after the last day of each month.
PART THREE: ALLOCATION OF EXPENSES
(1) Each Fund agrees to pay:
(a) Fees payable to the Investment Manager for its services under the terms of this Agreement.
(b) Brokerage commissions and charges in connection with the purchase and sale of assets.
(c) Expenses properly payable by the Fund, approved by the Board.
And for all Funds except RiverSource Core Equity Fund:
(d) Taxes.
(e) Custodian fees and charges.
(f) Premium on the bond required by Rule 17g-1 under the Investment Company Act of 1940.
(g) Fees and expenses of attorneys (i) it employs in matters not involving the assertion of a claim by a third party against the Fund, its Board members and officers, (ii) it employs in conjunction with a claim asserted by the Board against the Investment Manager, except that the Investment Manager shall reimburse the Fund for such fees and expenses if it is ultimately determined by a court of competent jurisdiction, or the Investment Manager agrees, that it is liable in whole or in part to the Fund, (iii) it employs to assert a claim against a third party, and (iv) it or the Investment Manager employs, with the approval of the Board, to assist in the evaluation of certain investments or other matters related to the management of the Fund.
(h) Fees paid for the qualification and registration for public sale of the securities of the Fund under the laws of the United States and of the several states in which such securities shall be offered for sale.
(i) Fees of consultants employed by the Fund.
(j) Board member, officer and employee expenses which shall include fees, salaries, memberships, dues, travel, seminars, pension, profit sharing, and all other benefits paid to or provided for Board members, officers and employees, directors and officers liability insurance, errors and omissions liability insurance, worker's compensation insurance and other expenses applicable to the Board members, officers and employees, except the Fund will not pay any fees or expenses of any person who is an officer or employee of the Investment Manager or its affiliates.
(k) Filing fees and charges incurred by the Fund in connection with filing any amendment to its organizational documents, or incurred in filing any other document with the state where the Fund is organized or its political subdivisions.
(l) Organizational expenses of the Fund.
(m) Expenses incurred in connection with lending portfolio securities of the Fund.
(n) Other expenses payable by the Fund pursuant to separate agreement of the Fund and any of its service providers.
(2) Unless the Fund is obligated to pay an expense pursuant to Part Three,
Section I, above, the Investment Manager agrees to pay all expenses
associated with the services it provides under the terms of this
Agreement.
PART FOUR: MISCELLANEOUS
(1) The Investment Manager shall be deemed to be an independent contractor and, except as expressly provided or authorized in this Agreement, shall have no authority to act for or represent the Fund.
(2) A "full business day" shall be as defined in the By-laws of the Fund.
(3) The Fund acknowledges that the Investment Manager and its affiliates may perform investment advisory services for other clients, so long as the Investment Manager's services to the Fund under this Agreement are not impaired thereby. The Investment Manager and its affiliates may give advice or take action in the performance of duties to other clients that may differ from advice given, or the timing and nature of action taken, with respect to the Fund, and that the Investment Manager and its affiliates may trade and have positions in securities of issuers where the Fund may own equivalent or related securities, and where action may or may not be taken or recommended for the Fund. Nothing in this Agreement shall be deemed to impose upon the Investment Manager or any of its affiliates any obligation to purchase or sell, or recommend for purchase or sale for the Fund, any security or any other property that the Investment Manager or any of its affiliates may purchase, sell or hold for its own account or the account of any other client. Notwithstanding any of the foregoing, the Investment Manager shall allocate investment opportunities among its clients, including the Fund, in an equitable manner, consistent with its fiduciary obligations. By reason of their various activities, the Investment Manager and its affiliates may from time to time acquire information about various corporations and their securities. The Fund recognizes that the Investment Manager and its affiliates may not always be free to divulge such information, or to act upon it.
(4) Neither this Agreement nor any transaction pursuant hereto shall be invalidated or in any way affected by the fact that Board members, officers, agents and/or shareholders of the Fund are or may be interested in the Investment Manager or any successor or assignee thereof, as directors, officers, stockholders or otherwise; that directors, officers, stockholders or agents of the Investment Manager are or may be interested in the Fund as Board members, officers, shareholders, or otherwise; or that the Investment Manager or any successor or assignee, is or may be interested in the Fund as shareholder or otherwise, provided, however, that neither the Investment Manager, nor any officer, Board member or employee thereof or of the Fund, shall sell to or buy from the Fund any property or security other than shares issued by the Fund, except in accordance with applicable regulations or orders of the SEC.
(5) Any notice under this Agreement shall be given in writing, addressed, and delivered, or mailed postpaid, to the party to this Agreement entitled to receive such, at such party's principal place of business in Minneapolis, Minnesota, or to such other address as either party may designate in writing mailed to the other.
(6) The Investment Manager agrees that no officer, director or employee of the Investment Manager will deal for or on behalf of the Fund with himself as principal or agent, or with any corporation or partnership in which he may have a financial interest, except that this shall not prohibit:
(a) Officers, directors or employees of the Investment Manager from having a financial interest in the Fund or in the Investment Manager.
(b) The purchase of securities for the Fund, or the sale of securities owned by the Fund, through a security broker or dealer, one or more of whose partners, officers, directors or employees is an officer, director or employee of the Investment Manager, provided such transactions are handled in the capacity of broker only and provided commissions charged do not exceed customary brokerage charges for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of the Investment Manager as may be allowed by rule or order of the U.S. Securities and Exchange Commission and if made pursuant to procedures adopted by the Board.
(7) The Investment Manager agrees that, except as herein otherwise expressly provided or as may be permitted consistent with the use of a broker-dealer affiliate of the Investment Manager under applicable provisions of the federal securities laws, neither it nor any of its officers, directors or employees shall at any time during the period of this Agreement, make, accept or receive, directly or indirectly, any fees, profits or emoluments of any character in connection with the purchase or sale of securities (except shares issued by the Fund) or other assets by or for the Fund.
(8) All information and advice furnished by the Investment Manager to the Fund under this Agreement shall be confidential and shall not be disclosed to third parties, except as required by law, order, judgment, decree, or pursuant to any rule, regulation or request of or by any government, court, administrative or regulatory agency or commission, other governmental or regulatory authority or any self-regulatory organization. All information furnished by the Fund to the Investment Manager under this Agreement shall be confidential and shall not be disclosed to any unaffiliated third party, except as permitted or required by the foregoing, where it is necessary to effect transactions or provide other services to the Fund, or where the Fund requests or authorizes the Investment Manager to do so. The Investment Manager may share information with its affiliates in accordance with its privacy policies in effect from time to time.
(9) This Agreement shall be governed by the laws of the State of Minnesota.
(10) The Funds are organized as Massachusetts business trusts. A copy of the Declaration of Trust, together with all amendments, is on file in the office of the Secretary of State of the Commonwealth of Massachusetts. The execution and delivery of this Agreement has been authorized by the Trustees and the Agreement has been signed by an authorized officer of the Fund. It is expressly agreed that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Fund personally, but bind only the assets and property of the Fund, as provided in the Declaration of Trust.
PART FIVE: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect for two years from its effective date, or until a new agreement is approved by a vote of the majority of the outstanding shares of the Fund and by vote of the Board, including the vote required by (b) of this paragraph, and if no new agreement is so approved, this Agreement shall continue from year to year thereafter unless and until terminated by either party as hereinafter provided, except that such continuance shall be specifically approved at least annually (a) by the Board or by a vote of the majority of the outstanding shares of the Fund and (b) by the vote of a majority of the Board members who are not parties to this Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. As used in this paragraph, the term "interested person" shall have the same meaning as set forth in the Investment Company Act of 1940, as amended, and the rules promulgated thereunder (the "1940 Act"). As used in this agreement, the term "majority of the outstanding shares of the Fund" shall have the same meaning as set forth in the 1940 Act.
(2) This Agreement may be terminated, with respect to each underlying series of the Fund, by either the Fund or the Investment Manager at any time by giving the other party 60 days' written notice of such intention to terminate, provided that any termination shall be made without the payment of any penalty, and provided further that termination may be effected either by the Board or by a vote of the majority of the outstanding voting shares of the Fund.
(3) This Agreement shall terminate in the event of its assignment, the term "assignment" for this purpose having the same meaning as set forth in the 1940 Act.
(4) Non-material amendments or modifications to this Agreement as may be permitted by the 1940 Act will only be made effective upon written agreement executed by the Investment Manager and the Board.
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as of the day and year first above written.
RIVERSOURCE VARIABLE SERIES TRUST
By: /s/ Patrick T. Bannigan
--------------------------------------
Patrick T. Bannigan
President
|
RIVERSOURCE INVESTMENTS, LLC
By: /s/ William F. Truscott
--------------------------------------
William F. Truscott
President and Chief Investment Officer
|
SCHEDULE A
ASSET CHARGE
The following funds shall not pay the Investment Manager a direct fee for services rendered hereunder:
- Disciplined Asset Allocation Portfolios - Aggressive
- Disciplined Asset Allocation Portfolios - Conservative
- Disciplined Asset Allocation Portfolios - Moderate
- Disciplined Asset Allocation Portfolios - Moderately Aggressive
- Disciplined Asset Allocation Portfolios - Moderately Conservative
For the following funds, the asset charge for each calendar day of each year shall be equal to the total of 1/365th (1/366th in each leap year) of the amount computed in accordance with the fee schedule in the table, below:
NET ASSETS ANNUAL RATE AT
FUND (BILLIONS) EACH ASSET LEVEL
----------------------------------------------------------- -------------- ----------------
RiverSource Partners Variable Portfolio - Fundamental First $ 0.5 0.730%
Value Fund Next $ 0.5 0.705%
Next $ 1.0 0.680%
Next $ 1.0 0.655%
Next $ 3.0 0.630%
Over $ 6.0 0.600%
------------ -----
RiverSource Partners Variable Portfolio - Select Value Fund First $ 0.5 0.780%
Next $ 0.5 0.755%
Next $ 1.0 0.730%
Next $ 1.0 0.705%
Next $ 3.0 0.680%
Over $ 6.0 0.650%
------------ -----
RiverSource Partners Variable Portfolio - Small Cap Value First $ 0.25 0.970%
Fund Next $ 0.25 0.945%
Next $ 0.25 0.920%
Next $ 0.25 0.895%
Over $ 1.0 0.870%
------------ -----
RiverSource Variable Portfolio - Balanced Fund First $ 1.0 0.530%
Next $ 1.0 0.505%
Next $ 1.0 0.480%
Next $ 3.0 0.455%
Next $ 1.5 0.430%
Next $ 2.5 0.410%
Next $ 5.0 0.390%
Next $ 9.0 0.370%
Over $ 24.0 0.350%
------------ -----
RiverSource Variable Portfolio - Cash Management Fund First $ 1.0 0.330%
Next $ 0.5 0.313%
Next $ 0.5 0.295%
Next $ 0.5 0.278%
Next $ 2.5 0.260%
Next $ 1.0 0.240%
Next $ 1.5 0.220%
Next $ 1.5 0.215%
Next $ 1.0 0.190%
Next $ 5.0 0.180%
Next $ 5.0 0.170%
Next $ 4.0 0.160%
Over $ 24.0 0.150%
------------ -----
RiverSource Variable Portfolio - Core Equity Fund All 0.400%
|
NET ASSETS ANNUAL RATE AT
FUND (BILLIONS) EACH ASSET LEVEL
----------------------------------------------------------- -------------- ----------------
RiverSource Variable Portfolio - Diversified Bond Fund First $ 1.0 0.480%
Next $ 1.0 0.455%
Next $ 1.0 0.430%
Next $ 3.0 0.405%
Next $ 1.5 0.380%
Next $ 1.5 0.365%
Next $ 1.0 0.360%
Next $ 5.0 0.350%
Next $ 5.0 0.340%
Next $ 4.0 0.330%
Next $ 26.0 0.310%
Next $ 50.0 0.290%
-------------- -----
RiverSource Variable Portfolio - Diversified Equity Income First $ 1.0 0.600%
Fund Next $ 1.0 0.575%
RiverSource Variable Portfolio - Growth Fund Next $ 1.0 0.550%
RiverSource Variable Portfolio - Large Cap Equity Fund Next $ 3.0 0.525%
RiverSource Variable Portfolio - Large Cap Value Fund Next $ 1.5 0.500%
Next $ 2.5 0.485%
Next $ 5.0 0.470%
Next $ 5.0 0.450%
Next $ 4.0 0.425%
Next $ 26.0 0.400%
Over $ 50.0 0.375%
-------------- -----
RiverSource Variable Portfolio - Global Bond Fund First $ 0.25 0.720%
Next $ 0.25 0.695%
Next $ 0.25 0.670%
Next $ 0.25 0.645%
Next $ 6.5 0.620%
Next $ 2.5 0.605%
Next $ 5.0 0.590%
Next $ 5.0 0.580%
Next $ 4.0 0.560%
Next $ 26.0 0.540%
Over $ 50.0 0.520%
-------------- -----
RiverSource Variable Portfolio - Global Inflation Protected First $ 1.0 0.440%
Securities Fund Next $ 1.0 0.415%
Next $ 1.0 0.390%
Next $ 3.0 0.365%
Next $ 1.5 0.340%
Next $ 1.5 0.325%
Next $ 1.0 0.320%
Next $ 5.0 0.310%
Next $ 5.0 0.300%
Next $ 4.0 0.290%
Next $ 26.0 0.270%
Next $ 50.0 0.250%
-------------- -----
|
NET ASSETS ANNUAL RATE AT
FUND (BILLIONS) EACH ASSET LEVEL
----------------------------------------------------------- -------------- ----------------
RiverSource Variable Portfolio - High Yield Bond Fund First$ 1.0 0.590%
Next $ 1.0 0.565%
Next $ 1.0 0.540%
Next $ 3.0 0.515%
Next $ 1.5 0.490%
Next $ 1.5 0.475%
Next $ 1.0 0.450%
Next $ 5.0 0.435%
Next $ 5.0 0.425%
Next $ 4.0 0.400%
Next $ 26.0 0.385%
Next $ 50.0 0.360%
------------- -----
RiverSource Variable Portfolio - Income Opportunities First$ 1.0 0.610%
Fund Next $ 1.0 0.585%
Next $ 1.0 0.560%
Next $ 3.0 0.535%
Next $ 1.5 0.510%
Next $ 1.5 0.495%
Next $ 1.0 0.470%
Next $ 5.0 0.455%
Next $ 5.0 0.445%
Next $ 4.0 0.420%
Next $ 26.0 0.405%
Next $ 50.0 0.380%
------------- -----
RiverSource Variable Portfolio - Mid Cap Growth Fund First$ 1.0 0.700%
RiverSource Variable Portfolio - Mid Cap Value Fund Next $ 1.0 0.675%
Next $ 1.0 0.650%
Next $ 3.0 0.625%
Next $ 1.5 0.600%
Next $ 2.5 0.575%
Next $ 5.0 0.550%
Next $ 9.0 0.525%
Next $ 26.0 0.500%
Over $ 50.0 0.475%
-------------- -----
RiverSource Variable Portfolio - S&P 500 Index Fund First$ 1.0 0.220%
Next $ 1.0 0.210%
Next $ 1.0 0.200%
Next $ 4.5 0.190%
Next $ 2.5 0.180%
Next $ 5.0 0.170%
Next $ 9.0 0.160%
Next $ 26.0 0.140%
Over $ 50.0 0.120%
-------------- -----
RiverSource Variable Portfolio - Short Duration U.S. First$ 1.0 0.480%
Government Fund Next $ 1.0 0.455%
Next $ 1.0 0.430%
Next $ 3.0 0.405%
Next $ 1.5 0.380%
Next $ 1.5 0.365%
Next $ 1.0 0.340%
Next $ 5.0 0.325%
Next $ 5.0 0.315%
Next $ 4.0 0.290%
Next $ 26.0 0.275%
Next $ 50.0 0.250%
-------------- -----
|
NET ASSETS ANNUAL RATE AT
FUND (BILLIONS) EACH ASSET LEVEL
----------------------------------------------------------- -------------- ----------------
RiverSource Variable Portfolio - Small Cap Advantage First $ 0.25 0.790%
Fund Next $ 0.25 0.765%
Next $ 0.25 0.740%
Next $ 0.25 0.715%
Next $ 1.0 0.690%
Over $ 2.0 0.665%
-------------- -----
Threadneedle Variable Portfolio - Emerging Markets Fund First $ 0.25 1.100%
Next $ 0.25 1.080%
Next $ 0.25 1.060%
Next $ 0.25 1.040%
Next $ 1.0 1.020%
Next $ 5.5 1.000%
Next $ 2.5 0.985%
Next $ 5.0 0.970%
Next $ 5.0 0.960%
Next $ 4.0 0.935%
Next $ 26.0 0.920%
Over $ 50.0 0.900%
-------------- -----
Threadneedle Variable Portfolio - International Opportunity First $ 0.25 0.800%
Fund Next $ 0.25 0.775%
Next $ 0.25 0.750%
Next $ 0.25 0.725%
Next $ 1.0 0.700%
Next $ 5.5 0.675%
Next $ 2.5 0.660%
Next $ 5.0 0.645%
Next $ 5.0 0.635%
Next $ 4.0 0.610%
Next $ 26.0 0.600%
Over $ 50.0 0.570%
-------------- -----
|
The computation shall be made for each calendar day on the basis of net assets as of the close of the preceding day. In the case of the suspension of the computation of net asset value, the fee for each calendar day during such suspension shall be computed as of the close of business on the last full day on which the net assets were computed. Net assets as of the close of a full day shall include all transactions in shares of t he Fund recorded on the books of the Fund for that day.
PERFORMANCE INCENTIVE ADJUSTMENT
In addition to an asset charge, the fee for certain of the funds, noted in the chart below, shall include a performance incentive adjustment.
The perfomance incentive adjustment shall be based on the Fund's performance compared to an index of similar funds (the "Index"). Current Indexes are shown below. These Indexes may change as set forth below:
INVESTMENT
FUND LIPPER INDEX CATEGORY
--------------------------------------------------------------- ------------------------------------ ------------
RiverSource Partners Variable Portfolio - Fundamental Value Lipper Large-Cap Core Funds Index Equity
Fund
RiverSource Partners Variable Portfolio - Fundamental Value Lipper Large-Cap Core Funds Index Equity
Fund
RiverSource Partners Variable Portfolio - Select Value Fund Lipper Mid-Cap Value Funds Index Equity
RiverSource Partners Variable Portfolio - Small Cap Value Fund Lipper Small-Cap Value Funds Index Equity
RiverSource Variable Portfolio - Balanced Fund Lipper Balanced Funds Index Balanced
RiverSource Variable Portfolio - Diversified Equity Income Lipper Equity Income Funds Index Equity
RiverSource Variable Portfolio - Growth Fund Lipper Large-Cap Growth Funds Index Equity
RiverSource Variable Portfolio - Large Cap Equity Fund Lipper Large-Cap Core Funds Index Equity
|
INVESTMENT
FUND LIPPER INDEX CATEGORY
--------------------------------------------------------------- ----------------------------------------------- ------------
RiverSource Variable Portfolio - Large Cap Value Fund Lipper Large-Cap Value Funds Index Equity
RiverSource Variable Portfolio - Mid Cap Growth Fund Lipper Mid-Cap Growth Funds Index Equity
RiverSource Variable Portfolio - Mid Cap Value Fund Lipper Mid-Cap Value Funds Index Equity
RiverSource Variable Portfolio - Small Cap Advantage Fund Lipper Small-Cap Core Funds Index Equity
Threadneedle Variable Portfolio - Emerging Markets Fund Lipper Emerging Markets Funds Index Equity
Threadneedle Variable Portfolio - International Opportunity Fund Lipper International Large-Cap Core Funds Index Equity
|
The performance incentive adjustment is determined by measuring the percentage difference over a rolling 12-month period between the performance of one Class A share of the Fund and the change in performance of the Index. The performance difference will then be used to determine the adjustment rate.
The adjustment rate, computed to five decimal places, is determined in accordance with the table below, and is applied against average daily net assets for the applicable rolling 12-month period.
EQUITY FUNDS BALANCED FUNDS
------------------------------------------------------------ ---------------------------------------------------------
PERFORMANCE PERFORMANCE
DIFFERENCE ADJUSTMENT RATE DIFFERENCE ADJUSTMENT RATE
-------------- ------------------------------------------ -------------- ----------------------------------------
0.00% - 0.50% 0 0.00% - 0.50% 0
0.50% - 1.00% 6 basis points times the performance 0.50% - 1.00% 6 basis points times the performance
difference over 0.50%, times 100 difference over 0.50%, times 100
(maximum of 3 basis points if a 1% (maximum of 3 basis points if a 1%
performance difference) performance difference)
1.00% - 2.00% 3 basis points, plus 3 basis points times 1.00% - 2.00% 3 basis points, plus 3 basis points times
the performance difference over 1.00%, the performance difference over
times 100 (maximum 6 basis points if a 1.00%, times 100 (maximum 6 basis
2% performance difference) points if a 2% performance difference)
2.00% - 4.00% 6 basis points, plus 2 basis points times 2.00% - 3.00% 6 basis points, plus 2 basis points times
the performance difference over 2.00%, the performance difference over
times 100 (maximum 10 basis points if a 2.00%, times 100 (maximum 8 basis
4% performance difference) points if a 3% performance difference)
4.00% - 6.00% 10 basis points, plus 1 basis point times 3.00% or more 8 basis points
the performance difference over 4.00%,
times 100 (maximum 12 basis points if a
6% performance difference)
6.00% or more 12 basis points
|
For example, if the performance difference is 2.38%, the adjustment rate is 0.000676 (0.0006 [6 basis points] plus 0.0038 [the 0.38% performance difference over 2.00%] x 0.0002 [2 basis points] x 100 (0.000076)). Rounded to five decimal places, the adjustment rate is 0.00068. Where the Fund's Class A performance exceeds that of the Index, the fee paid to the Investment Manager will increase by the adjustment rate. Where the performance of the Index exceeds the performance of the Fund's Class A shares, the fee paid to the Investment Manager will decrease by the adjustment rate.
The 12-month comparison period rolls over with each succeeding month, so that it always equals 12 months, ending with the month for which the performance adjustment is being computed.
TRANSITION PERIOD
The performance incentive adjustment will not be calculated for the first 6 months from the inception of the fund. After 6 full calendar months, the performance fee adjustment will be determined using the average assets and Performance Difference over the first 6 full calendar months, and the Adjustment Rate will be applied in full. Each successive month an additional calendar month will be added to the performance adjustment computation. After 12 full calendar months, the full rolling 12-month period will take affect.
CHANGE IN INDEX
If an Index ceases to be published for a period of more than 90 days,
changes in any material respect, otherwise becomes impracticable or, at
the discretion of the Board, is no longer appropriate to use for purposes
of a performance incentive adjustment, for example, if Lipper reclassifies
the Fund from one peer group to another, the Board may take action it
deems appropriate and in the best interests of shareholders, including:
(1) discontinuance of the performance incentive adjustment until such time
as it approves a substitute index, or (2) adoption of a methodology to
transition to a substitute index it has approved.
EXHIBIT (e)
DISTRIBUTION AGREEMENT
AMENDED AND RESTATED
This Distribution Agreement ("Agreement"), effective as of November 8, 2007, amended and restated April 10, 2008 is by and between RiverSource Distributors, Inc. ("Distributor"), a Delaware corporation, and RiverSource Variable Series Trust, a Massachusetts business trust, on behalf of its underlying series listed in Schedule A (each a "Fund" and collectively the "Funds"). The terms "Fund" or "Funds" are used to refer to the corporation and the underlying series as the context requires.
Part One: APPOINTMENT OF DISTRIBUTOR
(1) The Fund covenants and agrees that, during the term of this Agreement and any renewal or extension, Distributor shall have the right to act as principal underwriter for the Fund and to offer for sale and to distribute any and all shares of each class of capital stock issued or to be issued by the Fund, upon the terms described herein and in the Fund's prospectus and statement of additional information ("prospectus") included in the Fund's registration statement most recently filed with the Securities and Exchange Commission ("SEC") and effective under the Securities Act of 1933 ("1933 Act") and the Investment Company Act of 1940 ("1940 Act"), or as the Fund's prospectus may otherwise be amended or supplemented and filed with the SEC pursuant to Rule 497 of the 1933 Act.
The right to act as principal underwriter will not apply:
(a) to transactions in connection with the merger or consolidation of any other investment company or personal holding company with the Fund or the acquisition by purchase or otherwise of all (or substantially all) the assets or the outstanding shares of any such company by the Fund; or
(b) pursuant to reinvestment of dividends or capital gains distributions.
(2) Distributor hereby covenants and agrees to act as the principal underwriter of each class of capital shares issued and to be issued by the Fund during the period of this Agreement and agrees to offer for sale such shares as long as such shares remain available for sale, unless Distributor is unable or unwilling to make such offer for sale or sales or solicitations therefore legally because of any federal, state, provincial or governmental law, rule or agency or for any financial reason. Distributor agrees to devote reasonable time and effort to effect sales of shares of the Fund but is not obligated to sell any specific number of shares. It is understood that Distributor may act as principal underwriter for other entities including registered investment companies.
(3) Distributor is authorized to enter into separate written agreements regarding the sale of shares of the Fund, on terms and conditions consistent with this Agreement, the Plan and Agreement of Distribution (the "12b-1 Plan"), the order under Section 6(c) of the 1940 Act granting the Funds certain exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules 6e-2(b) and 6e-3T(b)(15) under the 1940 Act ( SEC Release No. 26495, July 9, 2004)(the "Mixed and Shared Funding Exemptive Order") and the Notice of Application for the Mixed and Shared Funding Exemptive Order (SEC Release No. 26468, June 16, 2004) with affiliated and unaffiliated insurance companies that have separate accounts allocated for investment in the Fund, with their affiliated broker-dealers and with shareholders eligible to purchase shares of the Fund pursuant to applicable Internal Revenue Code provisions and the terms of the Mixed and Shared Funding Exemptive Order ("Participation Agreements") and with broker-dealers with respect to sales to eligible shareholders ("Selling Agreements"). The Fund will not pay any compensation under the Participation Agreements or the Selling Agreements (collectively referred to as the "Selling Agreements").
RiverSource Distributors - VP Funds Distribution Agreement
Part Two: SALE OF FUND SHARES
(1) With respect to the offering for sale and sale of shares of each class to be issued by the Fund, it is mutually understood and agreed that such shares are to be sold on the following terms:
(a) Distributor has the right, as principal, to buy from the Fund the shares needed to fill unconditional orders for shares.
(b) For orders for Fund shares placed with Distributor under Selling Agreements, Distributor has the right, as principal, to buy from the Fund the shares needed to fill unconditional orders.
(c) The price Distributor will pay to the Fund is the net asset value, determined as set forth in the prospectus.
(d) The shares will be resold by Distributor at the price determined as set forth in the prospectus. Distributor shall not give any information or make any representations with respect to the Fund, other than those contained in the prospectus, statement of additional information or any approved sales literature.
(e) The Fund or its transfer agent shall be promptly advised of all orders received.
(f) The net asset value of the shares will be determined by the Fund or any agent of the Fund in accordance with the method set forth in the prospectus. In the event the Fund suspends the determination of the net asset value as permitted under Section 22(c) of the 1940 Act, the computation of the net asset value for the purpose of determining the number of shares or fractional shares to be acquired may be deferred until the close of business on the first full business day upon which the net asset value is next computed.
(g) Distributor or the Fund may in its discretion refuse to accept orders for shares and the Distributor may provide similar discretion in Selling Agreements.
(h) Distributor will make such reports as may be requested from time to time by the Fund regarding Selling Agreements.
(2) The Fund agrees to make prompt and reasonable effort to do any and all things necessary, in the opinion of Distributor, to have and to keep the Fund and the shares properly registered or qualified in all appropriate jurisdictions and, as to shares, in such amounts as Distributor may from time to time designate in order that the Fund's shares may be offered or sold in such jurisdictions.
(3) Distributor agrees to cause to be delivered to each purchaser a prospectus or such other disclosure document as may be required by law.
Part Three: REPURCHASE OR REDEMPTION OF FUND SHARES
(1) In connection with the repurchase of shares, Distributor will act as agent of the Fund. Any outstanding shares may be tendered for redemption at any time and the Fund agrees to repurchase or redeem the shares in accordance with the terms and conditions of the prospectus. The Fund will pay the amount of the redemption price to shareholders on or before the seventh business day after receiving the notice of redemption in proper form except as provided for in paragraph (2).
RiverSource Distributors - VP Funds Distribution Agreement
(2) The net asset value of the shares will be determined by the Fund or any agent of the Fund in accordance with the method set forth in the prospectus. In the event the Fund suspends the determination of the net asset value as permitted under Section 22(c) of the 1940 Act, the computation of the net asset value for the purpose of determining the redemption price on the number of shares or fractional shares to be redeemed or repurchased may be deferred until the close of business on the first full business day upon which the net asset value is next computed.
Part Four: ALLOCATION OF EXPENSES AND COMPENSATION
(1) For services rendered and expenses borne as principal underwriter, Distributor shall receive no compensation from the Fund other than the fees payable by the Fund pursuant to the 12b-1 Plan.
(2) Distributor shall bear all expenses incurred by it in connection with its duties and activities under this Agreement including the payment under Selling Agreements of any sales commissions, service fees, revenue sharing, and expenses for sales of a Fund's shares (except such expenses as are specifically undertaken herein by a Fund). Distributor shall bear the costs and expenses of preparing, printing and distributing prospectuses, statements of additional information, shareholder reports and any supplementary sales literature used by the Distributor or furnished by it for use under Selling Agreements in connection with the offering of the shares for sale. Any expenses of advertising incurred in connection with such offering will also be the obligation of the Distributor. It is understood and agreed that, so long as a Fund's 12b-1 Plan continues in effect, any expenses incurred by the Distributor under this Agreement may be paid in accordance with the terms of the 12b-1 Plan.
Part Five: MISCELLANEOUS
(1) Distributor shall be deemed to be an independent contractor and, except as expressly provided or authorized in this Agreement, shall have no authority to act for or represent the Fund.
(2) Distributor agrees to perform such agreed anti-money laundering ("AML") functions with respect to purchases of the Fund's shares as the Fund or its agent may delegate to Distributor from time to time or as Distributor is otherwise obligated to perform. In accordance with mutually-agreed procedures, Distributor shall use its best efforts in carrying out such agreed functions consistent with the requirements of the Fund's AML program. Distributor agrees to cooperate with any request from examiners of United States Government agencies having jurisdiction over the Fund for information and records relating to the Fund's AML program and consents to inspection by such examiners for this purpose.
(3) Distributor and the Fund agree to conform with all applicable state and federal laws and regulations relating to any rights or obligations under the terms of this Agreement.
(4) The Fund agrees that it will furnish Distributor with information with respect to the affairs and accounts of the Fund, and in such form as Distributor may from time to time reasonably require, and further agrees that Distributor, at all reasonable times, shall be permitted to inspect the books and records of the Fund.
(5) Distributor agrees to indemnify and hold harmless the Fund and each person who has been, is, or may hereafter be a member of the Board of Trustees ("Board member") of the Fund against expenses reasonably incurred by any of them in connection with any claim or in connection with any action, suit or proceeding to which any of them may be a party, which arises out of or is alleged to arise out of any misrepresentation or omission to state a material fact, or out of any alleged misrepresentation or omission to state a material fact, on the part of Distributor or any agent or employee of Distributor
RiverSource Distributors - VP Funds Distribution Agreement
or any other person for whose acts Distributor is responsible or is alleged to be responsible, unless such misrepresentation or omission was made in reliance upon information furnished by the Fund. Distributor likewise agrees to indemnify and hold harmless the Fund and each such person in connection with any claim or in connection with any action, suit or proceeding which arises out of or is alleged to arise out of Distributor's (or an affiliate of Distributor's) failure to exercise reasonable care and diligence. The term "expenses" includes amounts paid in satisfaction of judgments or in settlements that are made with Distributor's consent. The foregoing rights of indemnification shall be in addition to any other rights to which the Fund or a Board member may be entitled as a matter of law.
(6) Neither this Agreement nor any transaction had pursuant hereto shall be invalidated or in any way affected by the fact that Board members, officers, agents and/or shareholders of the Fund are or may be interested persons of Distributor as directors, officers, shareholders or otherwise; that directors, officers, shareholders or agents of Distributor are or may be interested persons of the Fund as Board members, officers, shareholders or otherwise; or that Distributor is or may be interested in the Fund as shareholder or otherwise, provided, however, that neither Distributor nor any officer or director of Distributor or any officers or Board members of the Fund shall sell to or buy from the Fund any property or security other than a security issued by the Fund, except in accordance with a rule, regulation or order of the SEC.
(7) For the purposes of this Agreement, a "business day" shall have the same meaning as is given to the term in the By-laws of the Fund.
(8) Any notice under this Agreement shall be given in writing, addressed and delivered, or mailed postpaid, to the parties to this Agreement at each company's principal place of business in Minneapolis, Minnesota, or to such other address as either party may designate in writing mailed to the other.
(9) Distributor agrees that no officer, director or employee of Distributor will deal for or on behalf of the Fund with himself as principal or agent, or with any corporation or partnership in which he may have a financial interest, except that this shall not prohibit:
(a) Officers, directors and employees of Distributor from having a financial interest in the Fund or in Distributor.
(b) The purchase of securities for the Fund, or the sale of securities owned by the Fund, through a security broker or dealer, one or more of whose partners, officers, directors or employees is an officer, director or employee of Distributor, provided such transactions are handled in the capacity of broker only and provided commissions charged do not exceed customary brokerage charges for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of Distributor if allowed by rule or order of the SEC and if made pursuant to procedures adopted by the Fund's Board of Trustees.
(10) Distributor agrees that, except as otherwise provided in this Agreement or as may be permitted consistent with the use of a broker-dealer affiliate of Distributor under applicable provisions of the federal securities laws, neither it nor any of its officers, directors or employees shall at any time during the period of this Agreement make, accept or receive, directly or indirectly, any fees, profits or emoluments of any character in connection with the purchase or sale of securities (except securities issued by the Fund) or other assets by or for the Fund.
RiverSource Distributors - VP Funds Distribution Agreement
(11) This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties.
(12) This Agreement is governed by the laws of the State of Minnesota.
(13) Each Fund is organized as a Massachusetts Business Trust. A copy of the Declaration of Trust, together with all amendments, is on file in the office of the Secretary of State of the Commonwealth of Massachusetts. The execution and delivery of this Agreement has been authorized by the Trustees and the Agreement has been signed by an authorized officer of the Fund. It is expressly agreed that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Fund, personally, but bind only the assets and property of the Fund, as provided in the Declaration of Trust.
Part Six: TERMINATION
(1) This Agreement shall continue in effect from year to year unless and until terminated by Distributor or the Fund, except that such continuance shall be specifically approved at least annually by a vote of a majority of the Board members who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and by a majority of the Board members or by vote of a majority of the outstanding voting securities of the Fund. As used in this paragraph, the term "interested person" shall have the meaning as set forth in the 1940 Act.
(2) This Agreement may be terminated by Distributor or the Fund at any time by giving the other party sixty (60) days written notice of such intention to terminate.
(3) This agreement shall terminate in the event of its assignment, the term "assignment" for this purpose having the same meaning as set forth in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have executed the foregoing Agreement as of the day and year first above written.
RIVERSOURCE VARIABLE SERIES TRUST
By /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President
|
RIVERSOURCE DISTRIBUTORS, INC.
By /s/ William F. Truscott
----------------------------------
William F. Truscott
Vice President
|
RiverSource Distributors - VP Funds Distribution Agreement
SCHEDULE A
FUNDS
The Funds to which this Agreement applies follow:
RIVERSOURCE VARIABLE SERIES TRUST
Disciplined Asset Allocation Portfolios - Aggressive
Disciplined Asset Allocation Portfolios - Conservative
Disciplined Asset Allocation Portfolios - Moderate
Disciplined Asset Allocation Portfolios - Moderately Aggressive
Disciplined Asset Allocation Portfolios - Moderately Conservative
RiverSource Partners Variable Portfolio - Fundamental Value Fund
RiverSource Partners Variable Portfolio - Select Value Fund
RiverSource Partners Variable Portfolio - Small Cap Value Fund
RiverSource Variable Portfolio - Balanced Fund
RiverSource Variable Portfolio - Cash Management Fund
RiverSource Variable Portfolio - Core Equity Fund
RiverSource Variable Portfolio - Diversified Bond Fund
RiverSource Variable Portfolio - Diversified Equity Income Fund
RiverSource Variable Portfolio - Global Bond Fund
RiverSource Variable Portfolio - Global Inflation Protected Securities Fund
RiverSource Variable Portfolio - Growth Fund
RiverSource Variable Portfolio - High Yield Bond Fund
RiverSource Variable Portfolio - Income Opportunities Fund
RiverSource Variable Portfolio - Large Cap Equity Fund
RiverSource Variable Portfolio - Large Cap Value Fund
RiverSource Variable Portfolio - Mid Cap Growth Fund
RiverSource Variable Portfolio - Mid Cap Value Fund
RiverSource Variable Portfolio - S&P 500 Index Fund
RiverSource Variable Portfolio - Short Duration U.S. Government Fund
RiverSource Variable Portfolio - Small Cap Advantage Fund
Threadneedle Variable Portfolio - Emerging Markets Fund
Threadneedle Variable Portfolio - International Opportunity Fund
EXHIBIT (g)(1)
CUSTODIAN AGREEMENT
AMENDED AND RESTATED
This Custodian Agreement, first entered into as of October 1, 2005 ("Agreement"), and amended as of April 10, 2008, is by and between Ameriprise Trust Company, a corporation organized under the laws of the state of Minnesota with its principal place of business at Minneapolis, Minnesota ("Custodian"), and the Corporations and Trusts ("Registrants"), each on behalf of its underlying series listed in Schedule A (the terms "Fund" or "Funds" are used to refer to either the Registrants or the underlying series as context requires). The Fund and the Custodian are collectively referred to as the "parties."
WHEREAS, the Fund desires that its securities and cash be hereafter held and administered by the Custodian pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the Fund and the Custodian agree as follows:
Section 1. Definitions
The word "securities" as used herein shall be construed to include, without being limited to, shares, stocks, treasury stocks, including any stocks of the Fund, notes, bonds, debentures, evidences of indebtedness, options to buy or sell stocks or stock indexes, certificates of interest or participation in any profit-sharing agreements, collateral trust certificates, preorganization certificates or subscriptions, transferable shares, investment contracts, voting trust certificates, certificates of deposit for a security, fractional or undivided interests in oil, gas or other mineral rights, or any certificates of interest or participation in, temporary or interim certificates for, receipts for, guarantees of, or warrants or rights to subscribe to or purchase any of the foregoing, acceptances and other obligations and any evidence of any right or interest in or to any cash, property or assets and any interest or instrument commonly known as a security. In addition, for the purpose of this Agreement, the word "securities" also shall include other instruments in which the Fund may invest including currency forward contracts and commodities such as interest rate or index futures contracts, margin deposits on such contracts or options on such contracts.
The words "custodian order" shall mean a request for direction, including a computer printout directed to the Custodian and signed in the name of the Fund on behalf of the Fund by any individual designated in the current certified list referred to in Section 2.
The word "facsimile" shall mean an exact copy or likeness, which is electronically transmitted for instant reproduction.
Section 2. Names, Titles and Signatures of Authorized Persons
The Fund will certify to the Custodian the names and signatures of its present officers and other designated persons authorized on behalf of the Fund to direct the Custodian by custodian order as herein before defined. The Fund agrees that whenever any change occurs in this list it will provide to the Custodian a copy of a resolution certified by the Secretary or an Assistant Secretary of the Fund as having been duly adopted by the Fund's Board of Directors or Trustees (the "Board") or the Executive Committee of the Board designating those persons currently authorized on behalf of the Fund to direct the Custodian by custodian order. Upon the Custodian's receipt of such a certified resolution (to be accompanied by specimen signatures of the designated persons), the persons so designated in such resolution shall constitute the current certified list. The Custodian is authorized to rely and act upon the names and signatures of the individuals as they appear in the most recent list from the Fund which has been delivered to the Custodian as herein above provided.
Section 3. Use of Subcustodians
The Custodian may make arrangements, where appropriate, with other banks having not less than two million dollars aggregate capital, surplus and undivided profits for the custody of securities or other instruments. Any such bank selected by the Custodian to act as subcustodian shall be deemed to be the agent of the Custodian.
The Custodian also may enter into arrangements for the custody of securities entrusted to its care through foreign branches of U.S. banks; through foreign banks, banking institutions or trust companies; through foreign subsidiaries of U.S. banks or bank holding companies; or through foreign securities depositories or clearing agencies (hereinafter also called, collectively, the "Foreign Subcustodian") or indirectly through an agent, established under the first paragraph of this section, if and to the extent permitted by Section 17(f) of the Investment Company Act of 1940 (the "1940 Act") and the rules promulgated by the Securities and Exchange Commission (the "SEC") thereunder, or any "no-action" letter received from the staff of the SEC. To the extent the existing provisions of the Agreement are consistent with the requirements of such section, rules, order or no-action letter, they shall apply to all such foreign custodianships. To the extent such provisions are inconsistent with or additional requirements are established by such section, rules, order or no-action letter, the requirements of such section, rules, order or no-action letter will prevail and the parties will adhere to such requirements; provided, however, in the absence of notification from the Fund of any changes or additions to such requirements, the Custodian shall have no duty or responsibility to inquire as to any such changes or additions.
Section 4. Receipt and Disbursement of Money
(1) The Custodian shall open and maintain a separate account or accounts in the name of the Fund or cause its agent to open and maintain such account or accounts subject only to checks, drafts or directives by the Custodian pursuant to the terms of this Agreement. The Custodian or its agent shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund. The Custodian or its agent shall make payments of cash to or for the account of the Fund from such cash only:
(a) for the purchase of securities for the portfolio of the Fund upon the receipt of such securities by the Custodian or its agent unless otherwise instructed on behalf of the Fund;
(b) for the purchase or redemption of shares of capital stock of the Fund;
(c) for the payment of interest, dividends, taxes, management fees, or operating expenses (including, without limitation thereto, fees for legal, accounting and auditing services);
(d) for payment of distribution fees, commissions, or redemption fees, if any;
(e) for payments in connection with the conversion, exchange or surrender of securities owned or subscribed to by the Fund held by, or to be delivered to, the Custodian;
(f) for payments in connection with the return of securities loaned by the Fund upon receipt of such securities or the reduction of collateral upon receipt of proper notice;
(g) for payments for other proper corporate purposes; or
(h) upon the termination of this Agreement.
Before making any such payment for the purposes permitted under these items (a), (b), (c), (d), (e), (f) or (g) of paragraph (1) of this section, the Custodian shall receive and may rely upon a custodian order directing such payment and stating that the payment is for such a purpose permitted under these items (a), (b), (c), (d), (e), (f) or (g) or, where appropriate, a trade affirmation report, and that in respect to item (g), a copy of a resolution of the Board or of the Executive Committee signed by an officer of the Fund and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose to be a proper corporate purpose, and naming the person or persons to whom such payment is made. Notwithstanding the above, for the purposes permitted under items (a) or (f) of paragraph (1) of this section, the Custodian may rely upon a facsimile order.
(2) The Custodian is hereby appointed the attorney-in-fact of the Fund to endorse and collect all checks, drafts or other orders for the payment of money received by the Custodian for the account of the Fund and drawn on or to the order of the Funds and to deposit same to the account of the Fund pursuant to this Agreement.
Section 5. Receipt of Securities
Except as permitted by the second paragraph of this section, the Custodian or its agent shall hold in a separate account or accounts, and physically segregated at all times from those of any other persons, firms or corporations, pursuant to the provisions hereof, all securities received by it for the account of the Fund. The Custodian shall record and maintain a record of all certificate numbers. Securities so received shall be held in the name of the Fund, in the name of an exclusive nominee duly appointed by the Custodian or in bearer form, as appropriate.
Subject to such rules, regulations or guidelines as the SEC may adopt, the Custodian may deposit all or any part of the securities owned by the Fund in a "securities depository" which includes any system for the central handling of securities established by a national securities exchange or a national securities association registered with the SEC under the Securities Exchange Act of 1934, or such other person as may be permitted by the SEC, pursuant to which system all securities of any particular class or series of any issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of such securities.
All securities are to be held or disposed of by the Custodian for, and subject at all times to the instructions of, the Fund pursuant to the terms of this Agreement. The Custodian shall have no power or authority to assign, hypothecate, pledge or otherwise dispose of any such securities, except pursuant to the directive of the Fund and only for the account of the Fund as set forth in Section 6 of this Agreement.
Section 6. Transfer, Exchange, and Delivery of Securities
The Custodian shall have sole power to release or deliver any securities of the Fund held by it pursuant to this Agreement. The Custodian agrees to transfer, exchange or deliver securities held by it or its agent hereunder only:
(a) for sales of such securities for the account of the Fund, upon receipt of payment therefore;
(b) when such securities are called, redeemed, retired or otherwise become payable;
(c) for examination upon the sale of any such securities in accordance with "street delivery" custom which would include delivery against interim receipts or other proper delivery receipts;
(d) in exchange for or upon conversion into other securities alone or other securities and cash whether pursuant to any plan of merger, consolidation, reorganization, recapitalization or readjustment, or otherwise;
(e) for the purpose of exchanging interim receipts or temporary certificates for permanent certificates;
(f) upon conversion of such securities pursuant to their terms into other securities;
(g) upon exercise of subscription, purchase or other similar rights represented by such securities;
(h) for loans of such securities by the Fund upon receipt of collateral; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a), (b), (c), (d),
(e), (f), (g) and (h), securities or cash received in exchange therefore shall
be delivered to the Custodian, its agent, or to a securities depository. Before
making any such transfer, exchange or delivery, the Custodian shall receive a
custodian order or a facsimile from the Fund requesting such transfer, exchange
or delivery and stating that it is for a purpose permitted under Section 6, or,
where appropriate, a trade affirmation report, (whenever a facsimile is
utilized, the Fund will also deliver an original signed custodian order) and, in
respect to item (i), a copy of a resolution of the Board or of the Executive
Committee of the Board signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the securities, setting forth
the purpose for which such payment, transfer, exchange or delivery is to be
made, declaring such purpose to be a proper corporate purpose, and naming the
person or persons to whom such transfer, exchange or delivery of such securities
shall be made.
Section 7. Custodian's Acts Without Instructions
Unless and until the Custodian receives a contrary custodian order from the Fund, the Custodian shall or shall cause its agent to:
(a) present for payment all coupons and other income items held by the Custodian or its agent for the account of the Fund which call for payment upon presentation and hold all cash received by it upon such payment for the account of the Fund;
(b) present for payment all securities held by it or its agent which mature or when called, redeemed, retired or otherwise become payable;
(c) ascertain all stock dividends, rights and similar securities to be issued with respect to any securities held by the Custodian or its agent hereunder, and to collect and hold for the account of the Fund all such securities; and
(d) ascertain all interest and cash dividends to be paid to security holders with respect to any securities held by the Custodian or its agent, and to collect and hold such interest and cash dividends for the account of the Fund.
Section 8. Voting and Other Action
Neither the Custodian nor any nominee of the Custodian shall vote any of the securities held hereunder by or for the account of the Fund. The Custodian shall promptly deliver to the Fund all notices, proxies and proxy soliciting materials with relation to such securities such proxies to be executed by the registered
holder of such securities (if registered otherwise than in the name of the Fund) but without indicating the manner in which such proxies are to be voted.
The Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith) received by the Custodian from issuers of the securities being held for the Fund. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer.
Section 9. Transfer Taxes
The Fund shall pay or reimburse the Custodian for any transfer taxes payable upon transfers of securities made hereunder, including transfers resulting from the termination of this Agreement. The Custodian shall execute such certificates in connection with securities delivered to it under this Agreement as may be required, under any applicable law or regulation, to exempt from taxation any transfers and/or deliveries of any such securities which may be entitled to such exemption.
Section 10. Custodian's Reports
The Custodian shall, on behalf of the Fund, furnish the Fund as of the close of business each day a statement showing all transactions and entries for the account of the Fund. The books and records of the Custodian pertaining to its actions as Custodian under this Agreement and securities held hereunder by the Custodian shall be open to inspection and audit by officers of the Fund, internal auditors employed by the Fund's investment adviser, and independent auditors employed by the Fund. The Custodian shall furnish the Fund in such form as may reasonably be requested by the Fund a report, including a list of the securities held by it in custody for the account of the Fund, and identification of any subcustodian and identification of such securities held by such subcustodian, as of the close of business of the last business day of each month, which shall be certified by a duly authorized officer of the Custodian. It is further understood that additional reports may from time to time be requested by the Fund. Should any report ever be filed with any governmental authority pertaining to lost or stolen securities, the Custodian will concurrently provide the Fund with a copy of that report.
The Custodian shall furnish such reports on its systems of internal accounting control as the Fund may reasonably request from time to time.
The Custodian also shall take such actions to facilitate the work of auditors with respect to compliance with Rule 17f-2 requirements.
Section 11. Concerning Custodian
For its services hereunder the Custodian shall be paid such compensation as set forth under Schedule B.
The Custodian shall not be liable for any action taken in good faith upon any custodian order or facsimile herein described, trade affirmation report, or certified copy of any resolution of the Board or of the Executive Committee of the Board, and may rely on the genuineness of any such document which it may, in good faith, believe to have been validly prepared or executed.
The Fund, on behalf of the Fund, agrees to indemnify and hold harmless the Custodian and its nominee from all taxes, charges, expenses, assessments, claims and liabilities (including counsel fees) incurred or assessed against it or its nominee in connection with the performance of this Agreement, except such as may arise from the Custodian's or its nominee's own negligent action, negligent failure to act or willful
misconduct. The Custodian is authorized to charge any account of the Fund for such items. In the event of any advance of cash for any purpose made by the Custodian resulting from orders or instructions of the Fund, or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Fund shall be security therefore.
The Custodian shall maintain a standard of care equivalent to that which would be required of a bailee for hire and shall not be liable for any loss or damage to the Fund resulting from participation in a securities depository unless such loss or damage arises by reason of any negligence, misfeasance, or willful misconduct of officers or employees of the Custodian, or from its failure to enforce effectively such rights as it may have against any securities depository or from use of an agent, unless such loss or damage arises by reason of any negligence, misfeasance, or willful misconduct of officers or employees of the Custodian, or from its failure to enforce effectively such rights as it may have against any agent.
Section 12. Termination and Amendment of Agreement
The Fund and the Custodian mutually may agree from time to time in writing to amend, to add to, or to delete from, any provision of this Agreement.
The Custodian may terminate this Agreement by giving the Fund ninety days' written notice of such termination by registered mail addressed to the Fund at its principal place of business.
The Fund may terminate this Agreement at any time by written notice thereof delivered, together with a copy of the resolution of the Board authorizing such termination and certified by the Secretary of the Fund, by registered mail to the Custodian.
Upon such termination of this Agreement, assets of the Fund held by the Custodian shall be delivered by the Custodian to a successor custodian, if one has been appointed by the Fund, upon receipt by the Custodian of a copy of the resolution of the Board certified by the Secretary, showing appointment of the successor custodian, and provided that such successor custodian is a bank or trust company, organized under the laws of the United States or of any State of the United States, having not less than two million dollars aggregate capital, surplus and undivided profits. Upon the termination of this Agreement as a part of the transfer of assets, either to a successor custodian or otherwise, the Custodian will deliver securities held by it hereunder, when so authorized and directed by resolution of the Board, to a duly appointed agent of the successor custodian or to the appropriate transfer agents for transfer of registration and delivery as directed. Delivery of assets on termination of this Agreement shall be effected in a reasonable, expeditious and orderly manner; and in order to accomplish an orderly transition from the Custodian to the successor custodian, the Custodian shall continue to act as such under this Agreement as to assets in its possession or control. Termination as to each security shall become effective upon delivery to the successor custodian, its agent, or to a transfer agent for a specific security for the account of the successor custodian, and such delivery shall constitute effective delivery by the Custodian to the successor under this Agreement.
In addition to the means of termination herein before authorized, this Agreement may be terminated at any time by the vote of a majority of the outstanding shares of the Fund and after written notice of such action to the Custodian.
Section 13. General
Nothing expressed or mentioned in or to be implied from any provision of this Agreement is intended to, or shall be construed to give any person or corporation other than the parties hereto, any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any covenant, condition or provision herein contained, this Agreement and all of the covenants, conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and their respective successors and assigns.
For each Fund that is organized as a Massachusetts Business Trust, a copy of the Declaration of Trust, together with all amendments, is on file in the office of the Secretary of State of the Commonwealth of Massachusetts. The execution and delivery of this Agreement has been authorized by the Trustees and the Agreement has been signed by an authorized officer of the Fund. It is expressly agreed that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Fund, personally, but bind only the assets and property of the Fund, as provided in the Declaration of Trust.
This Agreement shall be governed by the laws of the State of Minnesota.
This Agreement supersedes all prior agreements between the parties.
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement to be executed as of the date first above written by their respective officers thereunto duly authorized.
RIVERSOURCE BOND SERIES, INC.
RIVERSOURCE DIMENSIONS SERIES, INC.
RIVERSOURCE EQUITY SERIES, INC.
RIVERSOURCE GLOBAL SERIES, INC.
RIVERSOURCE GOVERNMENT INCOME SERIES, INC.
RIVERSOURCE INCOME SERIES, INC.
RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC.
RIVERSOURCE INTERNATIONAL SERIES, INC.
RIVERSOURCE INVESTMENT SERIES, INC.
RIVERSOURCE LARGE CAP SERIES, INC.
RIVERSOURCE MANAGERS SERIES, INC.
RIVERSOURCE MARKET ADVANTAGE SERIES, INC.
RIVERSOURCE MONEY MARKET SERIES, INC.
RIVERSOURCE SECTOR SERIES, INC.
RIVERSOURCE SELECTED SERIES, INC.
RIVERSOURCE SERIES TRUST
RIVERSOURCE SHORT TERM INVESTMENTS SERIES, INC.
RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC.
RIVERSOURCE STRATEGY SERIES, INC.
RIVERSOURCE VARIABLE SERIES TRUST
By: /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President
|
AMERIPRISE TRUST COMPANY
By: /s/ Amy K. Johnson
----------------------------------
Amy K. Johnson
President
|
SCHEDULE A
FUNDS
Each Registrant is a Minnesota corporation except, RiverSource Series Trust and RiverSource Variable Series Trust, which are Massachusetts business trusts:
RIVERSOURCE BOND SERIES, INC.
RiverSource Floating Rate Fund
RiverSource Income Opportunities Fund
RiverSource Inflation Protected Securities Fund
RiverSource Limited Duration Bond Fund
RIVERSOURCE DIMENSIONS SERIES, INC.
RiverSource Disciplined Small and Mid Cap Equity Fund
RiverSource Disciplined Small Cap Value Fund
RIVERSOURCE EQUITY SERIES, INC.
RiverSource Mid Cap Growth Fund
RIVERSOURCE GLOBAL SERIES, INC.
RiverSource Absolute Return Currency and Income Fund
RiverSource Emerging Markets Bond Fund
RiverSource Global Bond Fund
RiverSource Global Technology Fund
Threadneedle Emerging Markets Fund
Threadneedle Global Equity Fund
RIVERSOURCE GOVERNMENT INCOME SERIES, INC.
RiverSource Short Duration U.S. Government Fund
RiverSource U.S. Government Mortgage Fund
RIVERSOURCE INCOME SERIES, INC.
RiverSource Income Builder Basic Income Fund*
RiverSource Income Builder Enhanced Income Fund*
RiverSource Income Builder Moderate Income Fund*
RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC.
RiverSource Partners International Select Growth Fund
RiverSource Partners International Select Value Fund
RiverSource Partners International Small Cap Fund
RIVERSOURCE INTERNATIONAL SERIES, INC.
RiverSource Disciplined International Equity Fund
Threadneedle European Equity Fund
Threadneedle International Opportunity Fund
RIVERSOURCE INVESTMENT SERIES, INC.
RiverSource Balanced Fund
RiverSource Disciplined Large Cap Growth Fund
RiverSource Disciplined Large Cap Value Fund
RiverSource Diversified Equity Income Fund
RiverSource Mid Cap Value Fund
RIVERSOURCE LARGE CAP SERIES, INC.
RiverSource Growth Fund
RiverSource Large Cap Equity Fund
RiverSource Large Cap Value Fund
RiverSource Disciplined Equity Fund
RIVERSOURCE MANAGERS SERIES, INC.
RiverSource Partners Aggressive Growth Fund
RiverSource Partners Fundamental Value Fund
RiverSource Partners Select Value Fund
RiverSource Partners Small Cap Equity Fund
RiverSource Partners Small Cap Value Fund
RIVERSOURCE MARKET ADVANTAGE SERIES, INC.
RiverSource Portfolio Builder Aggressive Fund*
RiverSource Portfolio Builder Conservative Fund*
RiverSource Portfolio Builder Moderate Aggressive Fund*
RiverSource Portfolio Builder Moderate Conservative Fund*
RiverSource Portfolio Builder Moderate Fund*
RiverSource Portfolio Builder Total Equity Fund*
RiverSource S&P 500 Index Fund
RiverSource Small Company Index Fund
RIVERSOURCE MONEY MARKET SERIES, INC.
RiverSource Cash Management Fund
RIVERSOURCE SECTOR SERIES, INC.
RiverSource Dividend Opportunity Fund
RiverSource Real Estate Fund
RIVERSOURCE SELECTED SERIES, INC.
RiverSource Precious Metals and Mining Fund
RIVERSOURCE SERIES TRUST
RiverSource Retirement Plus 2010 Fund*
RiverSource Retirement Plus 2015 Fund*
RiverSource Retirement Plus 2020 Fund*
RiverSource Retirement Plus 2025 Fund*
RiverSource Retirement Plus 2030 Fund*
RiverSource Retirement Plus 2035 Fund*
RiverSource Retirement Plus 2040 Fund*
RiverSource Retirement Plus 2045 Fund*
RIVERSOURCE SHORT TERM INVESTMENTS SERIES, INC.
RiverSource Short-Term Cash Fund
RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC.
RiverSource Strategic Allocation Fund
RiverSource Strategic Income Allocation Fund
RIVERSOURCE STRATEGY SERIES, INC.
RiverSource Equity Value Fund
RiverSource Partners Small Cap Growth Fund
RiverSource Small Cap Advantage Fund
RIVERSOURCE VARIABLE SERIES TRUST
Disciplined Asset Allocation Portfolios - Aggressive*
Disciplined Asset Allocation Portfolios - Conservative*
Disciplined Asset Allocation Portfolios - Moderate*
Disciplined Asset Allocation Portfolios - Moderately Aggressive*
Disciplined Asset Allocation Portfolios - Moderately Conservative*
RiverSource Partners Variable Portfolio-Fundamental Value Fund
RiverSource Partners Variable Portfolio-Select Value Fund
RiverSource Partners Variable Portfolio-Small Cap Value Fund
RiverSource Variable Portfolio-Balanced Fund
RiverSource Variable Portfolio-Cash Management Fund
RiverSource Variable Portfolio-Core Equity Fund
RiverSource Variable Portfolio-Diversified Bond Fund RiverSource Variable Portfolio-Diversified Equity Income Fund RiverSource Variable Portfolio-Global Bond Fund RiverSource Variable Portfolio-Global Inflation Protected Securities Fund RiverSource Variable Portfolio-Growth Fund RiverSource Variable Portfolio-High Yield Bond Fund RiverSource Variable Portfolio-Income Opportunities Fund RiverSource Variable Portfolio-Large Cap Equity Fund RiverSource Variable Portfolio-Large Cap Value Fund RiverSource Variable Portfolio-Mid Cap Growth Fund RiverSource Variable Portfolio-Mid Cap Value Fund RiverSource Variable Portfolio-S&P 500 Index Fund RiverSource Variable Portfolio-Short Duration U.S. Government Fund RiverSource Variable Portfolio-Small Cap Advantage Fund Threadneedle Variable Portfolio-Emerging Markets Fund Threadneedle Variable Portfolio-International Opportunity Fund
* A fund-of-funds. See Addendum A.
SCHEDULE B
QUARTERLY FEE SCHEDULE
1. Annual Maintenance Charge per Account (Total market value $0.05 per $1,000 for assets under custody,
inclusive of domestic & international assets) Fund complex-wide and $0.025 per $1,000 for
assets under custody, Fund complex-wide over
$100 billion(1)
Minimum per portfolio per quarter $1,000.00
2. Transaction Charges
(only for transactions settled by the Custodian)
Debt/Equity Issue $15.00 per transaction
Short Term (physical) $40.00 per transaction
Short Term (Book Entry) $15.00 per transaction
Position Charges (Corporate Action, Calls $15.00 per transaction
and
Principal Reductions)
3. Securities Loan:
a. Receive/Deliver $15.00 per transaction
b. Physical Receive/Deliver $15.00 per transaction
c. Exchange Collateral $15.00 per transaction
Options $15.00 per transaction
Futures - Movement of Margin Collateral $15.00 per transaction
Futures Wires - To Brokers $6.50 per transaction
Futures Wires - From Brokers $4.00 per transaction
Futures Recording of Markings $3.00 per transaction
Index Funds - All Long Term Transactions $10.00 per transaction
A transaction consists of the receipt or withdrawal of
securities and short term and/or change in the security
position
4. Out-of Pocket Charges - included but not limited to : Postage
Wire Charges
Telephone
Transfer Fees
Insurance
Attorney's Fees
Courier Service
BONY Sub-Custody Fees
|
(1) The calculation of complex-wide assets under custody to determine the Annual Maintenance Charge shall exclude of assets of RiverSource Funds invested in bank loans held in custody with The Bank of New York, sub-custodian.
ADDENDUM A
RIVERSOURCE FUNDS' INVESTMENT IN OTHER RIVERSOURCE FUNDS
Each Fund-of-Funds (noted on Schedule A) that invests in underlying RiverSource funds and any other Fund listed in Schedule A that invests a portion of its assets in RiverSource Short-Term Cash Fund agree that the Custodian is entitled to rely upon RiverSource Service Corporation, the Funds' transfer agent, which shall maintain in book-entry form, on behalf of the Custodian, a record of the shares of RiverSource Fund held by the Funds, and to delegate to RiverSource Service Corporation responsibility for reporting to the Fund.
EXHIBIT (h)(1)
ADMINISTRATIVE SERVICES AGREEMENT
AMENDED AND RESTATED
This Administrative Services Agreement ("Agreement"), effective as of October 1, 2005, amended and restated April 10, 2008, is by and between Ameriprise Financial, Inc. ("Administrator"), a Delaware corporation, and the Corporations and Trusts ("Registrants") listed in Schedule A, each on behalf of its underlying series. The terms "Fund" or "Funds" are used to refer to either the Registrant or the underlying series as context requires.
PART ONE: SERVICES
(1) The Fund hereby retains Administrator, and Administrator hereby agrees, for the period of this Agreement and under the terms and conditions set forth in this Agreement, to furnish the Fund continuously with all administrative, accounting, treasury, and other services, as set forth in more detail, below:
(a) Administration services necessary and appropriate for the business of the Fund, including but not limited to:
(i) Preparing all general or routine shareholder communications including notices of dividends and capital gains distributions;
(ii) Preparing and filing of shareholder reports and other required regulatory reports and communications;
(iii) Preparing and filing of tax reports, including the Fund's income tax returns;
(iv) Monitoring the Fund's compliance with Subchapter M of the Internal Revenue Code, and other applicable tax laws and regulations;
(v) Executing the pricing process and monitoring the reliability of the valuation information received from the independent third-party pricing services and brokers;
(vi) Coordinating and supervising relations with, and monitoring the performance of, custodians, depositories, transfer and pricing agents, accountants, underwriters, brokers and dealers, insurers, printers, Fund auditors, and other persons serving the Fund, deemed to be necessary or desirable;
(vii) Maintaining Fund registration statement updates, and maintaining registration in the jurisdictions in which shares of the Fund are offered for sale;
(viii) Preparing reports, information, surveys, or other analyses to third parties as deemed necessary or desirable by the Fund; and
(ix) Preparing reports, evaluations, information, surveys, statistical analysis or other analysis of the Fund as the Boards of Directors/Trustees of the Fund ("Board") may request from time to time.
(x) Providing support for the Board in connection with the Board's efforts to vote proxies on behalf of the Fund.
(b) Accounting and recordkeeping services necessary and appropriate for the business of the Fund, including but not limited to:
(i) Calculating and supervising publication of the Fund's daily net asset value quotations, pricing, performance and yield information, periodic earnings reports, and other financial data, consistent with federal securities laws and the Fund's current prospectus; and
(ii) Monitoring the Fund's compliance with accounting operations control processes.
(c) Treasury services necessary and appropriate for the business of the Fund, including but not limited to:
(i) Monitoring daily cash and transaction statements and reports from the Fund's transfer agent and custodian; and
(ii) Completing daily cash reconciliations, notifying Fund's custodian of such reconciliations, and reporting investable cash to the Fund's investment manager and subadvisers, as directed by the Fund's investment manager or subadviser, if applicable.
(d) Other services necessary and appropriate for the operations of the Fund, not listed above, including but not limited to:
(i) Providing compliance services, as directed by the Fund's Chief Compliance Officer, which may include monitoring the Fund's compliance with applicable federal, state and foreign securities laws, and the rules and regulations thereunder, as applicable, including, without limitation, the Investment Company Act of 1940, the Securities and Exchange Act of 1934 and the Securities Act of 1933, each as amended from time to time, and the rules promulgated under each of the foregoing;
(ii) Providing legal support of all administration services provided by Administrator under this Agreement;
(iii) Providing other services related to this Agreement, including drafting, filing and maintaining Fund's charter documents with regulatory authorities; drafting, negotiating and maintaining any necessary Fund agreements; assisting in the preparation of regulatory filings; and arranging for and preparing or coordinating materials in connection with shareholder meetings, as necessary;
(iv) Providing services to the Fund and to the Board including coordinating and preparing materials for Board and Committee meetings; providing guidance and preparing materials on corporate and legal issues relevant to the Fund's business; and assisting in the Fund's procurement of fidelity bond coverage and error and omissions/directors (trustees) and officers insurance coverage;
(v) Maintaining the Fund's books and records in accordance with all applicable federal and state securities laws and regulations; and
(vi) Maintaining, together with affiliated companies, a business continuation and recovery program for the Fund, provided that, to the extent consistent with applicable law and regulation, any services provided pursuant to clauses (iii) and (iv) in this Part (1)(d) shall,
in the reasonable discretion of the chairperson of the Board (the "Chair"), be subject to review and oversight of the Board, any committee thereof or the Chair.
(2) Administrator agrees to pay on behalf of the Fund such expenses as may be provided for in Part Three; subject always to the direction and control of the Board, the Executive Committee and the authorized officers of the Fund and to maintain an adequate organization of competent persons,. Administrator agrees to meet with any persons at such times as the Board deems appropriate for the purpose of reviewing Administrator's performance under this Agreement.
(3) The Fund agrees that it will furnish to Administrator any information that the latter may reasonably request with respect to the services performed or to be performed by Administrator under this Agreement.
(4) It is understood and agreed that in furnishing the Fund with services under this Agreement, neither Administrator, nor any officer, director or agent thereof shall be held liable to shareholders of the Fund, the Fund or its creditors for errors of judgment or for anything except willful misfeasance, bad faith, or negligence in the performance of its duties, or reckless disregard of its obligations and duties under the terms of this Agreement. It is further understood and agreed that Administrator may rely upon information furnished to it reasonably believed to be accurate and reliable.
PART TWO: COMPENSATION FOR SERVICES
(1) The Fund agrees to pay to Administrator, and Administrator covenants and agrees to accept from the Fund in full payment for the services furnished, a fee as described in Schedule A. The fee for each calendar day of each year shall be equal to 1/365th (1/366th in each leap year) of the total amount computed. The computation shall be made for each day on the basis of net assets as of the close of the preceding day. In the case of the suspension of the computation of net asset value, the administrative fee for each day during the suspension shall be computed as of the close of business on the last full day on which the net assets were computed. As used in this Agreement "net assets" as of the close of a full day includes all transactions in shares of the Fund recorded on the books of the Fund for that day.
(2) The administrative fee shall be paid on a monthly basis and, in the event of the termination of this Agreement, in whole or in part with respect to any Fund, the administrative fee accrued shall be prorated on the basis of the number of days that this Agreement is in effect during the month with respect to which such payment is made.
(3) The administrative fee shall be paid in cash by the Fund to Administrator within five (5) business days after the last day of each month.
PART THREE: ALLOCATION OF EXPENSES
(1) The Fund agrees to pay:
(a) Administrative fees payable to Administrator for its services under the terms of this Agreement.
(b) Taxes.
(c) Fees and charges of its independent certified public accountants for services the Fund requests.
(d) Commitment fees on lines of credit.
(e) Fees and expenses of attorneys (i) it employs in matters not involving the assertion of a claim by a third party against the Fund, its Board members and officers, (ii) it employs in conjunction with a claim asserted by the Board against Administrator, except that Administrator shall reimburse the Fund for such fees and expenses if it is ultimately determined by a court of competent jurisdiction, or Administrator agrees, that it is liable in whole or in part to the Fund, (iii) it employs to assert a claim against a third party, and (iv) it or Administrator employs, with the approval of the Board, to assist in the evaluation of certain investments or other matters related to the administration of the Fund.
(f) Fees paid for the qualification and registration for public sale of the securities of the Fund under the laws of the United States and of the several states in which such securities shall be offered for sale.
(g) Fees of consultants employed by the Fund.
(h) Board member, officer and employee expenses which shall include fees, salaries, memberships, dues, travel, seminars, pension, profit sharing, and all other benefits paid to or provided for Board members, officers and employees, directors and officers liability insurance, errors and omissions liability insurance, worker's compensation insurance and other expenses applicable to the Board members, officers and employees, except the Fund will not pay any fees or expenses of any person who is an officer or employee of Administrator or its affiliates.
(i) Filing fees and charges incurred by the Fund in connection with filing any amendment to its organizational documents, or incurred in filing any other document with the state where the Fund is organized or its political subdivisions.
(j) Organizational expenses of the Fund.
(k) Fund Board and Fund office expenses, separate from Administrator or affiliates of Administrator, which shall include a charge for occupancy, insurance on the premises, furniture and equipment, telephone, telegraph, electronic information services, books, periodicals, published services, and office supplies used by the Fund.
(l) Other expenses properly payable by the Fund, approved by the Board.
(2) Administrator agrees to pay all expenses associated with the services it provides under the terms of this Agreement
PART FOUR: MISCELLANEOUS
(1) Administrator shall be deemed to be an independent contractor and, except as expressly provided or authorized in this Agreement, shall have no authority to act for or represent the Fund.
(2) A "full business day" shall be as defined in the By-laws of the Fund.
(3) The Fund recognizes that Administrator and its affiliates, pursuant to separate agreements, now render and may continue to render services to other investment companies and persons which may or may not have policies similar to those of the Fund and that Administrator provides services for its own investments and/or those of its affiliates. Administrator shall be free to provide such services and the Fund hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto shall be invalidated or in any way affected by the fact that Board members, officers, agents and/or shareholders of the Fund are or may be interested in Administrator or any successor or assignee thereof, as directors, officers, stockholders or otherwise; that directors, officers, stockholders or agents of Administrator are or may be interested in the Fund as Board members, officers, shareholders, or otherwise; or that Administrator or any successor or assignee, is or may be interested in the Fund as shareholder or otherwise, provided, however, that neither Administrator, nor any officer, Board member or employee thereof or of the Fund, shall sell to or buy from the Fund any property or security other than shares issued by the Fund, except in accordance with applicable regulations or orders of the United States Securities and Exchange Commission.
(5) Any notice under this Agreement shall be given in writing, addressed, and delivered, or mailed postpaid, to the party to this Agreement entitled to receive such, at such party's principal place of business in Minneapolis, Minnesota, or to such other address as either party may designate in writing mailed to the other.
(6) Administrator agrees that no officer, director or employee of Administrator will deal for or on behalf of the Fund with himself as principal or agent, or with any corporation or partnership in which he may have a financial interest, except that this shall not prohibit officers, directors or employees of the Administrator's affiliated companies from having a financial interest in the Fund or in Administrator.
(7) The Fund agrees that Administrator may subcontract for certain of the services described under this Agreement with the understanding that there shall be no diminution in the quality or level of the services and that Administrator remains fully responsible for the services.
(8) This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable without the written consent of the other party. This Agreement shall be governed by the laws of the State of Minnesota.
(9) For each Fund that is organized as a Massachusetts business trust, a copy of the Declaration of Trust, together with all amendments, is on file in the office of the Secretary of State of the Commonwealth of Massachusetts. The execution and delivery of this Agreement has been authorized by the Trustees and the Agreement has been signed by an authorized officer of the Fund. It is expressly agreed that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Fund, personally, but bind only the assets and property of the Fund, as provided in the Declaration of Trust.
PART FIVE: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect until April 30, 2008 and, thereafter, from year to year as the parties may mutually agree, provided that either party may terminate this Agreement by giving the other party notice in writing specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice.
(2) Non-material amendments or modifications to this Agreement will only be made effective upon written agreement executed by the Administrator and the Fund.
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as of the day and year first above written.
RIVERSOURCE BOND SERIES, INC.
RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST
RIVERSOURCE DIMENSIONS SERIES, INC.
RIVERSOURCE DIVERSIFIED INCOME SERIES, INC.
RIVERSOURCE EQUITY SERIES, INC.
RIVERSOURCE GLOBAL SERIES, INC.
RIVERSOURCE GOVERNMENT INCOME SERIES, INC.
RIVERSOURCE HIGH YIELD INCOME SERIES, INC.
RIVERSOURCE INCOME SERIES, INC.
RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC.
RIVERSOURCE INTERNATIONAL SERIES, INC.
RIVERSOURCE INVESTMENT SERIES, INC.
RIVERSOURCE LARGE CAP SERIES, INC.
RIVERSOURCE MANAGERS SERIES, INC.
RIVERSOURCE MARKET ADVANTAGE SERIES, INC.
RIVERSOURCE MONEY MARKET SERIES, INC.
RIVERSOURCE SECTOR SERIES, INC.
RIVERSOURCE SELECTED SERIES, INC.
RIVERSOURCE SERIES TRUST
RIVERSOURCE SHORT TERM INVESTMENTS SERIES, INC.
RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC.
RIVERSOURCE STRATEGY SERIES, INC.
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC.
RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC.
RIVERSOURCE TAX-EXEMPT SERIES, INC.
RIVERSOURCE VARIABLE SERIES TRUST
By: /s/ Patrick Bannigan
----------------------------------------
Patrick Bannigan
President
|
AMERIPRISE FINANCIAL, INC.
By: /s/ William F. Truscott
----------------------------------------
William F. Truscott
President - U.S. Asset Management and
Chief Investment Officer
|
SCHEDULE A
FEE SCHEDULE
Each Registrant is a Minnesota corporation except, RiverSource California Tax-Exempt Trust, RiverSource Special Tax-Exempt Series Trust, RiverSource Series Trust, and RiverSource Variable Series Trust, which are Massachusetts business trusts:
The fee is based on the net assets of the Fund as set forth in the following table:
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES
--------------------------------------------------------------------------------------
500,000,001 - 1,000,000,001 - 3,000,000,001-
FUNDS 0 - 500,000,000 1,000,000,000 3,000,000,000 12,000,000,000 12,000,000,001 +
--------------------------------------- --------------- ------------- --------------- -------------- ----------------
SCHEDULE I 0.080% 0.075% 0.070% 0.060% 0.050%
120/20 Contrarian Equity 0.080% 0.075% 0.070% 0.060% 0.050%
130/30 U.S. Equity 0.080% 0.075% 0.070% 0.060% 0.050%
Absolute Return Currency and Income 0.080% 0.075% 0.070% 0.060% 0.050%
Disciplined International Equity 0.080% 0.075% 0.070% 0.060% 0.050%
Disciplined Small Cap Value 0.080% 0.075% 0.070% 0.060% 0.050%
Emerging Markets Bond 0.080% 0.075% 0.070% 0.060% 0.050%
Global Bond 0.080% 0.075% 0.070% 0.060% 0.050%
Partners International Select Growth 0.080% 0.075% 0.070% 0.060% 0.050%
Partners International Select Value 0.080% 0.075% 0.070% 0.060% 0.050%
Partners International Small Cap 0.080% 0.075% 0.070% 0.060% 0.050%
Partners Small Cap Equity 0.080% 0.075% 0.070% 0.060% 0.050%
Partners Small Cap Growth 0.080% 0.075% 0.070% 0.060% 0.050%
Partners Small Cap Value 0.080% 0.075% 0.070% 0.060% 0.050%
Partners Variable Portfolio-Small Cap
Value 0.080% 0.075% 0.070% 0.060% 0.050%
Small Cap Advantage 0.080% 0.075% 0.070% 0.060% 0.050%
Small Company Index 0.080% 0.075% 0.070% 0.060% 0.050%
Strategic Allocation 0.080% 0.075% 0.070% 0.060% 0.050%
Threadneedle Emerging Markets 0.080% 0.075% 0.070% 0.060% 0.050%
Threadneedle European Equity 0.080% 0.075% 0.070% 0.060% 0.050%
Threadneedle Global Equity 0.080% 0.075% 0.070% 0.060% 0.050%
Threadneedle International Opportunity 0.080% 0.075% 0.070% 0.060% 0.050%
Threadneedle Variable Portfolio-
Emerging Markets 0.080% 0.075% 0.070% 0.060% 0.050%
Threadneedle Variable Portfolio-
International Opportunity 0.080% 0.075% 0.070% 0.060% 0.050%
Variable Portfolio-Global Bond 0.080% 0.075% 0.070% 0.060% 0.050%
Variable Portfolio-Small Cap Advantage 0.080% 0.075% 0.070% 0.060% 0.050%
----- ----- ----- ----- -----
SCHEDULE II 0.070% 0.065% 0.060% 0.050% 0.040%
California Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040%
Diversified Bond 0.070% 0.065% 0.060% 0.050% 0.040%
Floating Rate 0.070% 0.065% 0.060% 0.050% 0.040%
High-Yield Bond 0.070% 0.065% 0.060% 0.050% 0.040%
Income Opportunities 0.070% 0.065% 0.060% 0.050% 0.040%
|
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES
--------------------------------------------------------------------------------------
500,000,001 - 1,000,000,001 - 3,000,000,001-
FUNDS 0 - 500,000,000 1,000,000,000 3,000,000,000 12,000,000,000 12,000,000,001 +
--------------------------------------- --------------- ------------- --------------- -------------- ----------------
Inflation Protected Securities 0.070% 0.065% 0.060% 0.050% 0.040%
Intermediate Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040%
Limited Duration Bond 0.070% 0.065% 0.060% 0.050% 0.040%
Minnesota Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040%
New York Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040%
Short Duration U.S. Government 0.070% 0.065% 0.060% 0.050% 0.040%
Strategic Income Allocation 0.070% 0.065% 0.060% 0.050% 0.040%
Tax-Exempt Bond 0.070% 0.065% 0.060% 0.050% 0.040%
Tax-Exempt High Income 0.070% 0.065% 0.060% 0.050% 0.040%
U.S. Government Mortgage 0.070% 0.065% 0.060% 0.050% 0.040%
Variable Portfolio-Diversified Bond 0.070% 0.065% 0.060% 0.050% 0.040%
Variable Portfolio-Global Inflation
Protected Securities 0.070% 0.065% 0.060% 0.050% 0.040%
Variable Portfolio-High Yield Bond 0.070% 0.065% 0.060% 0.050% 0.040%
Variable Portfolio-Income Opportunities 0.070% 0.065% 0.060% 0.050% 0.040%
Variable Portfolio-Short Duration U.S.
Government 0.070% 0.065% 0.060% 0.050% 0.040%
----- ----- ----- ----- -----
SCHEDULE III 0.060% 0.055% 0.050% 0.040% 0.030%
Balanced 0.060% 0.055% 0.050% 0.040% 0.030%
Cash Management 0.060% 0.055% 0.050% 0.040% 0.030%
Disciplined Equity 0.060% 0.055% 0.050% 0.040% 0.030%
Disciplined Large Cap Growth 0.060% 0.055% 0.050% 0.040% 0.030%
Disciplined Large Cap Value 0.060% 0.055% 0.050% 0.040% 0.030%
Disciplined Small and Mid Cap Equity 0.060% 0.055% 0.050% 0.040% 0.030%
Diversified Equity Income 0.060% 0.055% 0.050% 0.040% 0.030%
Dividend Opportunity 0.060% 0.055% 0.050% 0.040% 0.030%
Equity Value 0.060% 0.055% 0.050% 0.040% 0.030%
Global Technology 0.060% 0.055% 0.050% 0.040% 0.030%
Growth 0.060% 0.055% 0.050% 0.040% 0.030%
Large Cap Equity 0.060% 0.055% 0.050% 0.040% 0.030%
Large Cap Value 0.060% 0.055% 0.050% 0.040% 0.030%
Mid Cap Growth 0.060% 0.055% 0.050% 0.040% 0.030%
Mid Cap Value 0.060% 0.055% 0.050% 0.040% 0.030%
Partners Aggressive Growth 0.060% 0.055% 0.050% 0.040% 0.030%
Partners Fundamental Value 0.060% 0.055% 0.050% 0.040% 0.030%
Partners Select Value 0.060% 0.055% 0.050% 0.040% 0.030%
Partners Variable 0.060% 0.055% 0.050% 0.040% 0.030%
Portfolio-Fundamental Value
Partners Variable Portfolio-Select 0.060% 0.055% 0.050% 0.040% 0.030%
Value
Precious Metals and Mining 0.060% 0.055% 0.050% 0.040% 0.030%
Real Estate 0.060% 0.055% 0.050% 0.040% 0.030%
S&P 500 Index 0.060% 0.055% 0.050% 0.040% 0.030%
Tax-Exempt Money Market 0.060% 0.055% 0.050% 0.040% 0.030%
Variable Portfolio-Balanced 0.060% 0.055% 0.050% 0.040% 0.030%
|
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES
--------------------------------------------------------------------------------------
500,000,001 - 1,000,000,001 - 3,000,000,001-
FUNDS 0 - 500,000,000 1,000,000,000 3,000,000,000 12,000,000,000 12,000,000,001 +
--------------------------------------- --------------- ------------- --------------- -------------- ----------------
Variable Portfolio-Cash Management 0.060% 0.055% 0.050% 0.040% 0.030%
Variable Portfolio-Diversified Equity
Income 0.060% 0.055% 0.050% 0.040% 0.030%
Variable Portfolio-Growth 0.060% 0.055% 0.050% 0.040% 0.030%
Variable Portfolio-Large Cap Equity 0.060% 0.055% 0.050% 0.040% 0.030%
Variable Portfolio-Large Cap Value 0.060% 0.055% 0.050% 0.040% 0.030%
Variable Portfolio-Mid Cap Growth 0.060% 0.055% 0.050% 0.040% 0.030%
Variable Portfolio-Mid Cap Value 0.060% 0.055% 0.050% 0.040% 0.030%
Variable Portfolio-S&P 500 Index 0.060% 0.055% 0.050% 0.040% 0.030%
----- ----- ----- ----- -----
SCHEDULE IV 0.020% 0.020% 0.020% 0.020% 0.020%
Disciplined Asset Allocation
Portfolios - Aggressive 0.020% 0.020% 0.020% 0.020% 0.020%
Disciplined Asset Allocation
Portfolios - Conservative 0.020% 0.020% 0.020% 0.020% 0.020%
Disciplined Asset Allocation
Portfolios - Moderate 0.020% 0.020% 0.020% 0.020% 0.020%
Disciplined Asset Allocation
Portfolios - Moderately Aggressive 0.020% 0.020% 0.020% 0.020% 0.020%
Disciplined Asset Allocation
Portfolios - Moderately Conservative 0.020% 0.020% 0.020% 0.020% 0.020%
Income Builder Basic Income 0.020% 0.020% 0.020% 0.020% 0.020%
Income Builder Enhanced Income 0.020% 0.020% 0.020% 0.020% 0.020%
Income Builder Moderate Income 0.020% 0.020% 0.020% 0.020% 0.020%
Portfolio Builder Aggressive 0.020% 0.020% 0.020% 0.020% 0.020%
Portfolio Builder Conservative 0.020% 0.020% 0.020% 0.020% 0.020%
Portfolio Builder Moderate 0.020% 0.020% 0.020% 0.020% 0.020%
Portfolio Builder Moderate Aggressive 0.020% 0.020% 0.020% 0.020% 0.020%
Portfolio Builder Moderate Conservative 0.020% 0.020% 0.020% 0.020% 0.020%
Portfolio Builder Total Equity 0.020% 0.020% 0.020% 0.020% 0.020%
Retirement Plus 2010 0.020% 0.020% 0.020% 0.020% 0.020%
Retirement Plus 2015 0.020% 0.020% 0.020% 0.020% 0.020%
Retirement Plus 2020 0.020% 0.020% 0.020% 0.020% 0.020%
Retirement Plus 2025 0.020% 0.020% 0.020% 0.020% 0.020%
Retirement Plus 2030 0.020% 0.020% 0.020% 0.020% 0.020%
Retirement Plus 2035 0.020% 0.020% 0.020% 0.020% 0.020%
Retirement Plus 2040 0.020% 0.020% 0.020% 0.020% 0.020%
Retirement Plus 2045 0.020% 0.020% 0.020% 0.020% 0.020%
----- ----- ----- ----- -----
SCHEDULE V 0 0 0 0 0
Short-Term Cash N/A N/A N/A N/A N/A
|
EXHIBIT (h)(2)
TRANSFER AGENCY AND SERVICING AGREEMENT
AMENDED AND RESTATED
This Transfer Agency and Servicing Agreement ("Agreement"), dated as of November 8, 2007, amended and restated April 10, 2008, is by and between RiverSource Service Corporation ("Transfer Agent"), a Minnesota corporation, and RiverSource Variable Series Trust ("Registrant"), a Massachusetts business trust, on behalf of the underlying series listed in Schedule A (each a "Fund" and collectively the "Funds"). The terms "Fund" or "Funds" are used to refer to either the Registrant or the underlying series as context requires. The Fund and the Transfer Agent are collectively referred to as the "parties."
In consideration of the mutual promises set forth below, the Fund and the Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Fund hereby appoints the Transfer Agent, as transfer agent for its shares ("shares") and as shareholder servicing agent for the Fund, and the Transfer Agent accepts such appointment and agrees to perform the duties set forth below. It is understood that all shares will be owned by insurance companies ("Insurance Companies") and held in accounts for the benefit of owners of variable life insurance policies or annuity contracts and that these insurance companies will be solely responsible for the administration of these policies and contracts.
2. Compensation.
(a) The Fund will compensate the Transfer Agent for the performance of its obligations under this Agreement a fee, accrued daily and payable monthly, which shall be equal to 0.06% (6 basis points) of the average daily net assets of the Fund. The fee provided for hereunder shall be paid in cash by the Fund to the Transfer Agent within five (5) business days after the last day of each period. The fee does not include out-of-pocket disbursements of the Transfer Agent for which the Transfer Agent shall be entitled to bill the Fund separately.
(b) Any compensation jointly agreed to hereunder may be adjusted from time to time by written agreement of the parties.
(c) Out-of-pocket disbursements shall include, but shall not be limited to, the items specified in Schedule B. Reimbursement by the Fund for expenses incurred by the Transfer Agent in any month shall be made as soon as practicable after the receipt of an itemized bill from the Transfer Agent.
(d) The Transfer Agent may hire affiliated and unaffiliated Insurance Companies, or other third parties, to perform services under this Agreement with the understanding that there shall be no diminution in the quality or level of the services and that the Transfer Agent remains fully responsible for the services. Except for out-of-pocket expenses identified in Schedule B, the Transfer Agent shall bear the cost of subcontracting such services, unless otherwise agreed by the parties.
3. Documents. The Fund will furnish from time to time such certificates, documents or opinions as the Transfer Agent deems to be appropriate or necessary for the proper performance of its duties.
4. Representations of the Fund and the Transfer Agent.
Transfer Agency & Servicing Agreement - Variable Series Trust
(a) The Fund represents to the Transfer Agent that all outstanding shares are validly issued, fully paid and non-assessable by the Fund. When shares are hereafter issued in accordance with the terms of the Fund's organizational documents, such shares shall be validly issued, fully paid and non-assessable by the Fund.
(b) The Transfer Agent represents that it is registered under Section 17A(c) of the Securities Exchange Act of 1934. The Transfer Agent agrees to maintain the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement and to comply with all applicable laws.
5. Duties of the Transfer Agent. The Transfer Agent shall be responsible for providing or ensuring that the following services are provided:
(a) Sale and Redemption of Fund Shares. On receipt of investment payments or redemption instructions from Insurance Companies, the Transfer Agent will process the payment or redemption, confirm all transactions, and prepare and maintain all reports and records to assure the safekeeping of the Fund's assets. All shares shall be held in book entry form, and no certificate shall be issued except as has been previously issued.
(b) Right to Seek Assurance for Redemption of Fund Shares. The Transfer Agent may refuse to redeem shares of the Fund until it is satisfied that the requested transaction or action is legally authorized or until it is satisfied that there is no basis for any claims adverse to the transaction or action. It may rely on the provisions of the Uniform Act for the Simplification of Fiduciary Security Transfers or the Uniform Commercial Code. The Fund shall indemnify the Transfer Agent for any act done or omitted to be done in reliance on such laws or for refusing to transfer, exchange or redeem shares or taking any requested action if it acts on a good faith belief that the transaction or action is illegal or unauthorized.
(c) Required Records. The Transfer Agent shall maintain all accounts,
which shall contain all required tax, legally imposed and regulatory
information; shall provide and file with federal and state agencies,
all required tax and other reports; and shall create and maintain
all records in accordance with all applicable laws, rules and
regulations, including, but not limited to, the records required by
Section 31(a) of the Investment Company Act of 1940, as amended.
(d) The Transfer Agent shall respond to all valid inquiries related to its duties under this Agreement.
(e) Dividends and Distributions. The Transfer Agent shall prepare and present the necessary report to the Fund's custodian regarding processing of income dividends and capital gains distributions.
(f) Confirmations and Statements. The Transfer Agent shall confirm each transaction as may be required.
(g) Reports to Fund. The Transfer Agent will provide reports pertaining to the services provided under this Agreement as the Fund may request to ascertain the quality and level of services being provided or as required by law.
(h) Delivery of Required Documents. Transfer Agent shall deliver or cause to be delivered
Transfer Agency & Servicing Agreement - Variable Series Trust
all required Fund prospectuses, annual reports, semiannual reports, statements of additional information (upon request), proxies and other communications to shareholders and variable account contract owners and policy holders, and shall cause proxies to be tabulated.
(i) Contract owner services. Transfer Agent shall provide or cause to be provided services to variable account contract owners and policy holders, which may include processing purchases, redemptions and exchanges of units representing interest in Fund shares, including confirming such transactions, and other services related to variable account contract owners and policy holders' ownership of interest in the Funds.
6. Ownership and Confidentiality of Records.
(a) General. The Transfer Agent agrees that all records prepared or maintained by it relating to the services to be performed by it under the terms of this Agreement are the property of the Fund and may be inspected by the Fund or any person retained by the Fund at reasonable times. The Fund and Transfer Agent agree to protect the confidentiality of those records.
(b) Regulation S-P.
(1) In accordance with Regulation S-P of the Securities and Exchange Commission, "Nonpublic Personal Information" includes: (1) all personally identifiable financial information; (2) any list, description, or other grouping of consumers (and publicly available information pertaining to them) that is derived using any personally identifiable financial information that is not publicly available information; and (3) any information derived therefrom.
(2) The Transfer Agent must not use or disclose Nonpublic Personal Information for any purpose other than to carry out the purpose for which Nonpublic Personal Information was provided to the Transfer Agent as set forth in this Agreement, and agrees to cause the Transfer Agent, and its employees, agents, representatives, or any other party to whom the Transfer Agent may provide access to or disclose Nonpublic Personal Information to limit the use and disclosure of Nonpublic Personal Information to that purpose.
(3) The Transfer Agent agrees to implement appropriate measures designed to ensure the security and confidentiality of Nonpublic Personal Information, to protect such information against any anticipated threats or hazards to the security or integrity of such information, and to protect against unauthorized access to, or use of, Nonpublic Personal Information that could result in substantial harm or inconvenience to any customer of the Funds; the Transfer Agent further agrees to cause all its agents, representatives, subcontractors, or any other party to whom the Transfer Agent may provide access to, or disclose, Nonpublic Personal Information to implement appropriate measures designed to meet the objectives set forth in this paragraph.
(4) With respect only to the provisions of this Section 6(b), the Transfer Agent agrees to indemnify and hold harmless the Fund and any officer or director of the Board of the Fund ("Board member") against losses, claims, damages, expenses, or liabilities to which the Fund, or any officer or Board member of the Fund, may
Transfer Agency & Servicing Agreement - Variable Series Trust
become subject as the result of: (1) a material breach of the provisions of this section of the Agreement, or (2) any acts or omissions of the Transfer Agent, or of any of its officers, directors, employees, or agents, that are not in substantial accordance with this Agreement, including, but not limited to, any violation of any federal statute or regulation. Notwithstanding the foregoing, no party shall be entitled to indemnification pursuant to this Section 6(b)(4) if such loss, claim, damage, expense, or liability is due to the willful misfeasance, bad faith, gross negligence, or reckless disregard of duty by the party seeking indemnification.
7. Action by Board and Opinion of Counsel. The Transfer Agent may rely on resolutions of the Board or the Executive Committee of the Board or on opinion of counsel for the Fund.
8. Duty of Care. It is understood and agreed that, in furnishing the Fund with the services as herein provided, neither the Transfer Agent, nor any officer, director or agent thereof shall be held liable for any loss arising out of or in connection with their actions under this Agreement so long as they act in good faith and with due diligence, and are not negligent or guilty of any willful misconduct. It is further understood and agreed that the Transfer Agent may rely upon information furnished to it reasonably believed to be accurate and reliable. In the event the Transfer Agent is unable to perform its obligations under the terms of this Agreement because of an act of God, strike or equipment or transmission failure reasonably beyond its control, the Transfer Agent shall not be liable for any damages resulting from such failure.
9. Term and Termination. This Agreement shall continue in effect from year to year as the parties may mutually agree, provided that either party may terminate this Agreement by giving the other party notice in writing specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice. In the event such notice is given by the Fund, it shall be accompanied by a vote of the Board, certified by the Secretary, electing to terminate this Agreement and designating a successor transfer agent or transfer agents. Upon such termination and at the expense of the Fund, the Transfer Agent will deliver to such successor a certified list of shareholders of the Fund (with name, address and taxpayer identification or Social Security number, if available (although such records may consist solely of variable separate accounts of affiliated and unaffiliated insurance companies)), a historical record of the account of each shareholder and the status thereof, and all other relevant books, records, correspondence, and other data established or maintained by the Transfer Agent under this Agreement in the form reasonably acceptable to the Fund, and will cooperate in the transfer of such duties and responsibilities, including provisions for assistance from the Transfer Agent's personnel in the establishment of books, records and other data by such successor or successors.
10. Amendment. This Agreement may not be amended or modified in any manner except by a written agreement executed by the parties.
11. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable without the written consent of the other party.
(b) This Agreement shall be governed by the laws of the State of Minnesota.
(c) Each Fund is organized as a Massachusetts Business Trust. A copy of the Declaration of Trust, together with all amendments, is on file in the office of the Secretary of State of
Transfer Agency & Servicing Agreement - Variable Series Trust
the Commonwealth of Massachusetts. The execution and delivery of this Agreement has been authorized by the Trustees and the Agreement has been signed by an authorized officer of the Fund. It is expressly agreed that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Fund, personally, but bind only the assets and property of the Fund, as provided in the Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers as of the day and year written above.
RIVERSOURCE VARIABLE SERIES TRUST
By: /s/ Patrick T. Bannigan
---------------------------------------
Patrick T. Bannigan
President
|
RIVERSOURCE SERVICE CORPORATION
By: /s/ Lyn Kephart-Strong
---------------------------------------
Lyn Kephart-Strong
President
|
Transfer Agency & Servicing Agreement - Variable Series Trust
SCHEDULE A
FUNDS
The Funds, each a Massachusetts business trust, to which this Agreement applies follow:
RIVERSOURCE VARIABLE PORTFOLIO SERIES TRUST
Disciplined Asset Allocation Portfolios - Aggressive
Disciplined Asset Allocation Portfolios - Conservative
Disciplined Asset Allocation Portfolios - Moderate
Disciplined Asset Allocation Portfolios - Moderately Aggressive
Disciplined Asset Allocation Portfolios - Moderately Conservative
RiverSource Partners Variable Portfolio - Fundamental Value Fund
RiverSource Partners Variable Portfolio - Select Value Fund
RiverSource Partners Variable Portfolio - Small Cap Value Fund
RiverSource Variable Portfolio - Balanced Fund
RiverSource Variable Portfolio - Cash Management Fund
RiverSource Variable Portfolio - Diversified Bond Fund
RiverSource Variable Portfolio - Diversified Equity Income Fund
RiverSource Variable Portfolio - Global Bond Fund
RiverSource Variable Portfolio - Global Inflation Protected Securities Fund
RiverSource Variable Portfolio - Growth Fund
RiverSource Variable Portfolio - High Yield Bond Fund
RiverSource Variable Portfolio - Income Opportunities Fund
RiverSource Variable Portfolio - Large Cap Equity Fund
RiverSource Variable Portfolio - Large Cap Value Fund
RiverSource Variable Portfolio - Mid Cap Growth Fund
RiverSource Variable Portfolio - Mid Cap Value Fund
RiverSource Variable Portfolio - S&P 500 Index Fund
RiverSource Variable Portfolio - Short Duration U.S. Government Fund
RiverSource Variable Portfolio - Small Cap Advantage Fund
Threadneedle Variable Portfolio - Emerging Markets Fund
Threadneedle Variable Portfolio - International Opportunity Fund
Transfer Agency & Servicing Agreement - Variable Series Trust
SCHEDULE B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for the following out-of-pocket expenses (which may be incurred by Insurance Companies):
- typesetting, printing, paper, envelopes, postage and return postage for proxy soliciting material, and proxy tabulation costs
- printing, paper, envelopes and postage for records of account, purchase confirmations, exchange confirmations and exchange prospectuses, redemption confirmations, redemption checks, and any other communication required to be sent to shareholders and variable account contract owners and policy holders
- typesetting, printing, paper, envelopes and postage for prospectuses, annual and semiannual reports, statements of additional information, supplements for prospectuses and statements of additional information and other required mailings to shareholders and variable account contract owners and policy holders
- other expenses incurred at the request or with the consent of the Fund
EXHIBIT (h)(3)
FEE CAP/FEE WAIVER AGREEMENT
AMENDED AND RESTATED
This Agreement, dated Oct. 1, 2005, as amended and restated April 10, 2008, is between each of the RiverSource investment companies (each a "Registrant"), on behalf of its underlying series funds, as listed in Schedule A (the term "FUND" is used to refer to either the Registrant or the series as context requires), and RiverSource Investments, LLC, in its capacity as investment manager of the Funds, Ameriprise Financial, Inc, in its capacity as administrator of the Funds, RiverSource Service Corporation, in its capacity as transfer agent of the Funds, and RiverSource Distributors, Inc. in its capacity as principal underwriter and distributor of the Funds (collectively referred to as the "SERVICE PROVIDERS"). Under this Agreement, the Service Providers hereby agree to waive all or a portion of the fees they earn and/or cap or reimburse expenses of each Fund incurred in connection with the services they provide to the Funds, in an amount equal to the amount by which the Fund's total operating expense, before giving effect to any applicable performance incentive adjustment (excluding foreign transaction taxes, income paid to brokers related to securities lending program, dividend expenses associated with securities sold short, inverse floater program fees and interest expenses, transaction or brokerage fees, fees and expenses associated with investment in other pooled investment vehicles, including exchange traded funds, other affiliated and unaffiliated mutual funds, and certain other expenses as may be approved by the Funds' Board of Directors) exceed the thresholds set forth in the attached Schedule B ("FEE Caps") for any particular Fund, and the Fund hereby agrees to such Fee Caps.
1. FEE CAPS/FEE WAIVERS. Any allocation of fee waivers and expenses reimbursements among the Service Providers in order to meet the Fee Caps will be determined by the Service Providers.
2. TERMINATION. With respect to any Fund, this Agreement will terminate on the date listed in Schedule B unless modified by written agreement of the Fund and the Service Providers or terminated earlier at the sole discretion of the Fund's Board of Directors.
The Service Providers acknowledge that they (1) shall not be entitled to collect on, or make a claim for, waived fees at any time in the future, and (2) shall not be entitled to collect on, or make a claim for, reimbursed Fund expenses at any time in the future.
Fee Cap/Fee Waiver Agreement
IN WITNESS WHEREOF, the parties hereto have executed the foregoing Agreement as of the day and year first above written.
RIVERSOURCE BOND SERIES, INC.
RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST
RIVERSOURCE DIMENSIONS SERIES, INC.
RIVERSOURCE DIVERSIFIED INCOME SERIES, INC.
RIVERSOURCE EQUITY SERIES, INC.
RIVERSOURCE GLOBAL SERIES, INC.
RIVERSOURCE GOVERNMENT INCOME SERIES, INC.
RIVERSOURCE HIGH YIELD INCOME SERIES, INC.
RIVERSOURCE INCOME SERIES, INC.
RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC.
RIVERSOURCE INTERNATIONAL SERIES, INC.
RIVERSOURCE INVESTMENT SERIES, INC.
RIVERSOURCE LARGE CAP SERIES, INC.
RIVERSOURCE MANAGERS SERIES, INC.
RIVERSOURCE MARKET ADVANTAGE SERIES, INC.
RIVERSOURCE MONEY MARKET SERIES, INC.
RIVERSOURCE SECTOR SERIES, INC.
RIVERSOURCE SELECTED SERIES, INC.
RIVERSOURCE SERIES TRUST
RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC.
RIVERSOURCE STRATEGY SERIES, INC.
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC.
RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC.
RIVERSOURCE TAX-EXEMPT SERIES, INC.
RIVERSOURCE VARIABLE SERIES TRUST
By: /s/ Patrick T. Bannigan
-----------------------------------
Patrick T. Bannigan
President
AMERIPRISE FINANCIAL, INC. RIVERSOURCE INVESTMENTS, LLC.
By: /s/ William F. Truscott By: /s/ William F. Truscott
----------------------------------- -------------------------------
William F. Truscott William F. Truscott
President - U.S. Asset President and Chief
Management and Chief Investment Officer
Investment Officer
RIVERSOURCE DISTRIBUTORS, INC. RIVERSOURCE SERVICE CORPORATION
By: /s/ William F. Truscott By: /s/ Lyn Kephart-Strong
----------------------------------- -------------------------------
William F. Truscott Lyn Kephart-Strong
Vice President President
|
Fee Cap/Fee Waiver Agreement
SCHEDULE A - FUNDS
Each Registrant is a Minnesota corporation, except RiverSource California Tax-Exempt Trust, RiverSource Series Trust, RiverSource Special Tax-Exempt Series Trust and RiverSource Variable Series Trust, which are Massachusetts business trusts.
RIVERSOURCE BOND SERIES, INC.
RiverSource Floating Rate Fund
RiverSource Income Opportunities Fund
RiverSource Inflation Protected Securities Fund
RiverSource Limited Duration Bond Fund
RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST
RiverSource California Tax-Exempt Fund
RIVERSOURCE DIMENSIONS SERIES, INC.
RiverSource Disciplined Small and Mid Cap Equity Fund
RiverSource Disciplined Small Cap Value Fund
RIVERSOURCE DIVERSIFIED INCOME SERIES, INC.
RiverSource Diversified Bond Fund
RIVERSOURCE EQUITY SERIES, INC.
RiverSource Mid Cap Growth Fund
RIVERSOURCE GLOBAL SERIES, INC.
RiverSource Absolute Return Currency and Income Fund
RiverSource Emerging Markets Bond Fund
RiverSource Global Bond Fund
RiverSource Global Technology Fund
Threadneedle Emerging Markets Fund
Threadneedle Global Equity Fund
RIVERSOURCE GOVERNMENT INCOME SERIES, INC.
RiverSource Short Duration U.S. Government Fund
RiverSource U.S. Government Mortgage Fund
RIVERSOURCE HIGH YIELD INCOME SERIES, INC.
RiverSource High Yield Bond Fund
RIVERSOURCE INCOME SERIES, INC.
RiverSource Income Builder Basic Income Fund
RiverSource Income Builder Enhanced Income Fund
RiverSource Income Builder Moderate Income Fund
RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC.
RiverSource Partners International Select Growth Fund
RiverSource Partners International Select Value Fund
RiverSource Partners International Small Cap Fund
RIVERSOURCE INTERNATIONAL SERIES, INC.
RiverSource Disciplined International Equity Fund
Threadneedle European Equity Fund
Threadneedle International Opportunity Fund
RIVERSOURCE INVESTMENT SERIES, INC.
RiverSource Balanced Fund
RiverSource Disciplined Large Cap Growth Fund
RiverSource Disciplined Large Cap Value Fund
RiverSource Diversified Equity Income Fund
RiverSource Mid Cap Value Fund
RIVERSOURCE LARGE CAP SERIES, INC.
RiverSource Disciplined Equity Fund
RiverSource Growth Fund
RiverSource Large Cap Equity Fund
RiverSource Large Cap Value Fund
RIVERSOURCE MANAGERS SERIES, INC.
RiverSource Partners Aggressive Growth Fund
RiverSource Partners Fundamental Value Fund
RiverSource Partners Select Value Fund
RiverSource Partners Small Cap Equity Fund
RiverSource Partners Small Cap Value Fund
RIVERSOURCE MARKET ADVANTAGE SERIES, INC.
RiverSource Portfolio Builder Aggressive Fund
RiverSource Portfolio Builder Conservative Fund
RiverSource Portfolio Builder Moderate Aggressive Fund
RiverSource Portfolio Builder Moderate Conservative Fund
RiverSource Portfolio Builder Moderate Fund
RiverSource Portfolio Builder Total Equity Fund
RiverSource S&P 500 Index Fund
RiverSource Small Company Index Fund
RIVERSOURCE MONEY MARKET SERIES, INC.
RiverSource Cash Management Fund
RIVERSOURCE SECTOR SERIES, INC.
RiverSource Dividend Opportunity Fund
RiverSource Real Estate Fund
RIVERSOURCE SELECTED SERIES, INC.
RiverSource Precious Metals and Mining Fund
RIVERSOURCE SERIES TRUST
RiverSource 120/20 Contrarian Equity Fund
RiverSource 130/30 U.S. Equity Fund
RiverSource Retirement Plus 2010 Fund
RiverSource Retirement Plus 2015 Fund
RiverSource Retirement Plus 2020 Fund
RiverSource Retirement Plus 2025 Fund
RiverSource Retirement Plus 2030 Fund
RiverSource Retirement Plus 2035 Fund
RiverSource Retirement Plus 2040 Fund
RiverSource Retirement Plus 2045 Fund
RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
RiverSource Minnesota Tax-Exempt Fund
RiverSource New York Tax-Exempt Fund
RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC.
RiverSource Strategic Allocation Fund
RiverSource Strategic Income Allocation Fund
RIVERSOURCE STRATEGY SERIES, INC.
RiverSource Equity Value Fund
RiverSource Partners Small Cap Growth Fund
RiverSource Small Cap Advantage Fund
Fee Cap/Fee Waiver Agreement
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC.
RiverSource Tax-Exempt High Income Fund
RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC.
RiverSource Tax-Exempt Money Market Fund
RIVERSOURCE TAX-EXEMPT SERIES, INC.
RiverSource Intermediate Tax-Exempt Fund
RiverSource Tax-Exempt Bond Fund
RIVERSOURCE VARIABLE SERIES TRUST
Discipline Asset Allocation Portfolios - Aggressive
Discipline Asset Allocation Portfolios - Conservative
Discipline Asset Allocation Portfolios - Moderate
Discipline Asset Allocation Portfolios - Moderately Aggressive
Discipline Asset Allocation Portfolios - Moderately Conservative
RiverSource Partners Variable Portfolio - Fundamental Value Fund
RiverSource Partners Variable Portfolio - Select Value Fund
RiverSource Partners Variable Portfolio - Small Cap Value Fund
RiverSource Variable Portfolio - Core Equity Fund
RiverSource Variable Portfolio - Global Bond Fund
RiverSource Variable Portfolio - Global Inflation Protected Securities Fund
RiverSource Variable Portfolio - Income Opportunities Fund
RiverSource Variable Portfolio - Large Cap Value Fund
RiverSource Variable Portfolio - Mid Cap Value Fund
RiverSource Variable Portfolio - S&P 500 Index Fund
RiverSource Variable Portfolio - Small Cap Advantage Fund
Fee Cap/Fee Waiver Agreement
SCHEDULE B - FEE CAPS/FEE WAIVERS
Schedule B is separately maintained and updated from time to time to reflect current fee cap/fee waiver commitments, as they have been approved by the Funds' Board of Directors. Current fee cap/fee waiver commitments are reflected in Fund registration statements as applicable.
EXHIBIT(h)(5)
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization dated as of September 11, 2007 (the "Agreement") is between each selling entity identified in Schedules A, B and C hereto (each a "Selling Corporation")(1), on behalf of each series thereof identified in Schedules A, B and C hereto as a Selling Fund (each a "Selling Fund"), the corresponding buying entity identified in Schedules A, B and C hereto (the "Buying Trust")(2), on behalf of each series thereof identified in Schedules A, B and C hereto as the corresponding Buying Fund (each a "Buying Fund"), and RiverSource Investments, LLC (solely for the purposes of Sections 3c and 11 of this Agreement).
This Agreement and Plan of Reorganization addresses three sets of reorganizations, the "RIC Redomiciling Reorganizations" identified in Schedule A, the "Non-RIC Redomiciling Reorganizations" identified in Schedule B, and the "Core Bond-Diversified Bond Fund Reorganization" identified in Schedule C.
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. CONTRACT HOLDER APPROVAL. Each Selling Fund will call a meeting of its contract holders 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 RIC Redomiciling Reorganizations and the Core Bond - Diversified Bond Fund Reorganization will be reorganizations within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). The Non-RIC Redomiciling Reorganizations will be liquidations of the relevant Selling Fund into the Relevant Buying Fund for federal income tax purposes. It is intended that the Plans of Reorganization for the Non-RIC Redomiciling Reorganizations will also serve as Plans of Liquidations for federal income tax purposes. At the Closing, each relevant Selling Corporation will convey all of the assets of each relevant Selling Fund to the corresponding relevant Buying Fund. Each relevant Buying Fund will assume all liabilities of the corresponding relevant Selling Fund. At the Closing, the Buying Trust will deliver shares of each relevant 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 relevant Selling Fund, computed as described in paragraph 3(a), by the net asset value of one share of the corresponding relevant Buying Fund, computed as described in paragraph 3(b). Each relevant Selling Fund will not pay a sales charge on the receipt of the corresponding relevant Buying Fund's shares in exchange for the assets of such relevant Selling Fund. In addition, the separate account shareholders of each relevant Selling Fund will not pay a sales charge on distribution to them of shares of the corresponding relevant 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 contract holders of each Selling Fund and receipt of all necessary regulatory approvals, or such later date as the parties may agree.
(1) As noted in Schedule C, the Selling Corporation for the Core Bond - Diversified Bond Fund Reorganization will be either RiverSource Variable Portfolio - Income Series, Inc., a Minnesota corporation on behalf of its series, RiverSource Variable Portfolio - Core Bond Fund (in the event that shareholders of the RiverSource Variable Portfolio - Core Bond Fund do not approve the RIC Redomiciling Reorganization of their fund described in Schedule A) or RiverSource Variable Series Trust, on behalf of its series RiverSource Variable Portfolio - Core Bond (in the event that shareholders of the RiverSource Variable Portfolio - Core Bond Fund approve the RIC Redomiciling Reorganization of their fund described in Schedule A).
(2) As noted in Schedule C, the Buying Trust will be either RiverSource
Variable Portfolio - Income Series, Inc., a Minnesota corporation on
behalf of its series, RiverSource Variable Portfolio - Diversified Bond
Fund (in the event that shareholders of the RiverSource Variable Portfolio
- Diversified Bond Fund do not approve the RIC Redomiciling Reorganization
of their fund described in Schedule A), or RiverSource Variable Portfolio
- Diversified Bond Fund, a series of RiverSource Variable Series Trust in
the event that shareholders of the RiverSource Variable Portfolio -
Diversified Bond Fund approve the RIC Redomiciling reorganization of their
fund described in Schedule A.
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 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.
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 TRUST.
With respect to each Reorganization, the Buying Trust represents and warrants to the corresponding Selling Fund as follows:
a. Organization, Existence, etc. The Buying Trust is a Massachusetts business trust that is duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts (for the Core Bond - Diversified Bond Fund Reorganization, in the event that shareholders of the RiverSource Variable Portfolio - Diversified Bond Fund do not approve the RIC Redomiciling Reorganization of their fund described in Schedule A, the Buying Trust 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 Trust, registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end, management investment company.
c. Capitalization. The beneficial interest in the Buying Trust shall at all times be divided into an unlimited number of shares, without par value (for the Core Bond - Diversified Bond Fund Reorganization, in the event that shareholders of the RiverSource Variable Portfolio - Diversified Bond Fund do not approve the RIC Redomiciling Reorganization of their fund described in Schedule A, the Buying Trust has authorized capital of 10,000,000,000 shares of common stock, par value $0.01 per share). For each Reorganization other than the Core Bond - Diversified Bond Fund Reorganization, the Buying Trust was formed for the purpose of the Redomiciling Reorganizations, and has no shares of beneficial interest issued and outstanding. All of the outstanding shares of the Buying Trust will be duly authorized and will be validly issued, fully paid and non- assessable. Since the Buying Fund will be engaged in the continuous offering and redemption of its shares, the number of outstanding shares may vary daily.
d. Financial Statements. For the Core Bond - Diversified Bond Fund Reorganization, 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 Trust 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 Trustees of Buying Trust and no other proceedings by the Buying Trust or the Buying Fund are necessary.
g. No Violation. The Buying Trust 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 (for the Core Bond - Diversified Bond Fund Reorganization described in Schedule C, in the event that shareholders of the RiverSource Variable Portfolio - Diversified Bond Fund do not approve the RIC Redomiciling Reorganization of their fund described in Schedule A, the Buying Fund 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 Charter Documents or Articles, as the case may be, 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 previously disclosed to the Selling Fund. For the Core Bond - Diversified Bond Fund Reorganization, 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 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. With respect to each RIC Redomiciling Reorganization, the Buying Fund intends to meet the requirements of subchapter M of the Code for treatment as a "regulated investment company" within the meaning of Section 851 of the Code in respect of each taxable year beginning with the commencement of operations on the Closing Date. With respect to each RIC Redomiciling Reorganization, each Buying Fund intends to comply in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its shares of beneficial interest and to withholding in respect of dividends and other distributions to shareholders and to avoid any potential material penalties that could be imposed thereunder. With respect to the Core Bond - Diversified Bond Fund Reorganization, in the event that shareholders of the RiverSource Variable Portfolio - Diversified Bond Fund do not approve the RIC Redomiciling Reorganization of their fund described in Schedule A, the Buying Fund will have qualified as a regulated investment company under the Internal Revenue Code with respect to its first taxable year since commencement of its operations and will qualify as a regulated investment company at all times through Closing, and in the event that the shareholders of RiverSource Variable Portfolio - Diversified Bond Fund do approve the RIC Redomiciling Reorganization of their fund described in Schedule A, the Buying Fund will intend to qualify as a regulated investment company under the Internal Revenue Code with respect to its first taxable year.
l. Taxes. Except with respect to the Core Bond - Diversified Bond Fund Reorganization, as of the Closing, no federal or state tax returns of a Buying Fund will have been required by law to be filed and no federal or state taxes will be due; each Buying Fund will not have been required to pay any assessments; and each Buying Fund will not have any tax liabilities. Consequently, each Buying Fund will not have any tax deficiency or liability asserted against it or question with respect thereto raised, and each Buying Fund will 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. For Core Bond - Diversified Bond Fund Reorganization, the Buying Fund will (i) have filed all federal and other tax returns and reports that have been required to be filed, (ii) have paid or provided for payment of all federal and other taxes shown to be due on such returns or on any assessments received, (iii) have adequately provided for all tax liabilities on its books, (iv) except as disclosed to the Selling Fund, not have had any tax deficiency or liability asserted against it or question with respect thereto raised, and (v) except as disclosed to the Selling Fund, not be under audit by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid.
m. Registration Statement. With respect to the Core Bond - Diversified Bond Fund Reorganization, 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. With respect to each RIC Redomiciling Reorganization and each Non-RIC Redomiciling Reorganization, and the Core Bond Fund - Diversified Bond Fund Reorganization in the event that shareholders of the RiverSource Variable Portfolio - Diversified Bond Fund do approve the RIC Redomiciling Reorganization of their fund described in Schedule A, the Buying Fund will not carry on any business activities between the date hereof and the Closing Date, it being understood that the Buying Fund was formed solely for the purpose of consummating the corresponding Reorganization. With respect to the Core Bond - Diversified Bond Fund Reorganization, in the event that shareholders of the RiverSource Variable Portfolio - Diversified Bond Fund do not approve the RIC Redomiciling Reorganization of their fund described in Schedule A, the Buying Fund will operate its business in the ordinary course between the Closing Date of that Redomiciling Reorganization and the Closing Date of the Core Bond - Diversified Bond Fund Reorganization, 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 EACH 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 Core Bond - Diversified Bond Fund Reorganization described in Schedule C, in the event that shareholders of RiverSource Variable Portfolio - Core Bond Fund approve the RIC Redomiciling Reorganization of their fund described in Schedule A, 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 its corresponding 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 Core Bond - Diversified Bond Fund Reorganization described in Schedule C, in the event that shareholders of RiverSource Variable Portfolio - Core Bond Fund approve the RIC Redomiciling Reorganization of their fund described in Schedule A, 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 or the Board of Trustees, as the case may be, of the Selling Corporation and no other proceedings by the Selling Corporation or the corresponding 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 Core Bond - Diversified Bond Fund Reorganization described in Schedule C, in the event that shareholders of RiverSource Variable Portfolio - Core Bond Fund approve the RIC Redomiciling Reorganization of their fund described in Schedule A, the Selling Corporation is not in violation of its Charter Documents). 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 each Selling 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 each 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 corresponding 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 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 Trust, 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. With the exception of the Selling Fund in the Core Bond - Diversified Bond Fund Reorganization in the event that the shareholders of RiverSource Variable Portfolio - Diversified Bond Fund do approve the RIC Redomiciling Reorganization of their fund described in Schedule A, each 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. Each Selling Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its shares of beneficial interest and to withholding in respect of dividends and other distributions to shareholders and is not liable for any material penalties that could be imposed thereunder.
k. Taxes. As of the Closing, each 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 corresponding 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 corresponding 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 each Selling Fund as of the Closing will be owned by such Selling Fund free and clear of any encumbrances, except as indicated in the schedule.
m. Registration Statement. With respect to the Core Bond - Diversified Bond Fund Reorganization described in Schedule C, the Selling Fund will cooperate with the corresponding 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 listed, will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. However, the representations and warranties in this subsection apply only to statements in or omissions from the Registration Statement made in reliance upon information furnished by the Selling Corporation or the Selling Fund for use in the Registration Statement.
n. Provision of Books and Records. The Selling Fund will provide its books and records to the corresponding Buying Fund for purposes of preparing any tax returns required by law to be filed after the Closing date, including (1) the tax return for the period ending on the Closing date, and (2) the tax return for the period beginning the date after the Closing and ending the earlier of the current fiscal year-end of the Buying Fund and the taxable year end chosen by the corresponding 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 TRUST. The obligations of the Buying Trust with respect to each Reorganization are subject to the satisfaction of the following conditions:
a. Contract Holder 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 corresponding 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 corresponding Selling Fund since the date of its last financial statement, except as otherwise indicated in any financial statements, certified by an officer of each 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 Trust 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 Core Bond - Diversified Bond Fund Reorganization described in Schedule C in the event that shareholders of RiverSource Variable Portfolio - Core Bond Fund approve the RIC Redomiciling Reorganization of their fund described in Schedule A, the Selling Corporation is a Massachusetts business trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts); (ii) each Selling Fund is a series of the corresponding 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 each Selling Corporation and each Selling Fund and this Agreement has been duly executed by, and is a valid and binding obligation of, each Selling Corporation.
e. Declaration of Dividend. With respect to the Non-RIC Redomiciling Reorganizations and the Core Bond - Diversified Bond Fund Reorganization, each 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 each Selling Fund shareholders (i) all of the excess of (x) each Selling Fund's investment income excludable from gross income under Section 103 of the Code over (y) each Selling Fund's deductions disallowed under Sections 265 and 171 of the Code, (ii) all of each 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 each 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. Contract Holder 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 Trust 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 Trust, 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 Trust, dated as of the Closing, to
the effect that: (i) the Buying Trust is a corporation duly
organized and validly existing under the laws of the state of
Minnesota (for the Core Bond - Diversified Bond Fund Reorganization
described in Schedule C, in the event that shareholders of
RiverSource Variable Portfolio - Core Bond Fund approve the RIC
Redomiciling Reorganization of their fund described in Schedule A,
the Buying Trust is a Massachusetts business trust duly organized
and validly existing under the laws of the Commonwealth of
Massachusetts); (ii) the Buying Fund is a series of the Buying
Trust, 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 Trust and this
Agreement has been duly executed by, and is a valid and binding
obligation of, the Buying Trust; 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 EACH OF THE SELLING CORPORATION AND THE BUYING TRUST. The obligations of each of the Selling Corporation and the Buying Trust with respect to each Reorganization are subject to the satisfaction of the following conditions:
Tax Opinion. With respect to each RIC Redomiciling Reorganization and the Core Bond - Diversified Bond Fund 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:
a. 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;
b. 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;
c. 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;
d. 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;
e. 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;
f. 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;
g. 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;
h. 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
i. 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.
Tax Opinion. With respect to each Non-RIC Redomiciling Reorganization identified in Schedule B, the 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 Selling Fund's distribution (in a form qualifying for the deduction for dividends paid) of any gain the Selling Fund recognizes in the Non-RIC Redomiciling Reorganization will eliminate any tax liability of the Selling Fund on such gain.
The opinions will be based on certain factual certifications made by officers of the Selling Fund and the corresponding Buying Fund and 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 either party or its respective directors, officers, or shareholders, on written notice to the other party, and shall be terminated without liability as of the close of business on 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 (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 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 Variable 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 the relevant Acquiring Fund.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be signed.
RIVERSOURCE VARIABLE PORTFOLIO -- INCOME SERIES, INC., on behalf of
RiverSource Variable Portfolio -- Core Bond Fund
RiverSource Variable Portfolio -- Diversified Bond Fund
RiverSource Variable Portfolio -- Global Bond Fund
RiverSource Variable Portfolio -- Global Inflation Protected Securities Fund
RiverSource Variable Portfolio -- High Yield Bond Fund
RiverSource Variable Portfolio -- Income Opportunities Fund
RiverSource Variable Portfolio -- Short Duration U.S. Government Fund
RIVERSOURCE VARIABLE PORTFOLIO -- INVESTMENT SERIES, INC., on behalf of
RiverSource Variable Portfolio -- Emerging Markets Fund
RiverSource Variable Portfolio -- Growth Fund
RiverSource Variable Portfolio -- International Opportunity Fund
RiverSource Variable Portfolio -- Large Cap Equity Fund
RiverSource Variable Portfolio -- Large Cap Value Fund
RiverSource Variable Portfolio -- Mid Cap Growth Fund
RiverSource Variable Portfolio -- Mid Cap Value Fund
RiverSource Variable Portfolio -- S&P 500 Index Fund
RiverSource Variable Portfolio -- Small Cap Advantage Fund
RIVERSOURCE VARIABLE PORTFOLIO -- MANAGED SERIES, INC., on behalf of
RiverSource Variable Portfolio -- Balanced Fund
RiverSource Variable Portfolio -- Diversified Equity Income Fund
RIVERSOURCE VARIABLE PORTFOLIO -- MANAGERS SERIES, INC., on behalf of
RiverSource Variable Portfolio -- Fundamental Value Fund
RiverSource Variable Portfolio -- Select Value Fund
RiverSource Variable Portfolio -- Small Cap Value Fund
RIVERSOURCE VARIABLE PORTFOLIO -- MONEY MARKET SERIES, INC., on behalf of
RiverSource Variable Portfolio -- Cash Management Fund
RIVERSOURCE VARIABLE PORTFOLIO -- SELECT SERIES INC., on behalf of
RiverSource Variable Portfolio -- Core Equity Fund
By: /s/ Patrick T. Bannigan Name: Patrick T. Bannigan Title: President |
RIVERSOURCE VARIABLE SERIES TRUST, on behalf of
RiverSource Variable Portfolio -- Balanced Fund
RiverSource Variable Portfolio -- Cash Management Fund
RiverSource Variable Portfolio -- Core Bond Fund
RiverSource Variable Portfolio -- Core Equity Fund
RiverSource Variable Portfolio -- Diversified Bond Fund
RiverSource Variable Portfolio -- Diversified Equity Income Fund
RiverSource Variable Portfolio -- Emerging Markets Fund
RiverSource Variable Portfolio -- Fundamental Value Fund
RiverSource Variable Portfolio -- Global Bond Fund
RiverSource Variable Portfolio -- Global Inflation Protected Securities Fund
RiverSource Variable Portfolio -- Growth Fund
RiverSource Variable Portfolio -- High Yield Bond Fund
RiverSource Variable Portfolio -- Income Opportunities Fund
RiverSource Variable Portfolio -- International Opportunity Fund
RiverSource Variable Portfolio -- Large Cap Equity Fund
RiverSource Variable Portfolio -- Large Cap Value Fund
RiverSource Variable Portfolio -- Mid Cap Growth Fund
RiverSource Variable Portfolio -- Mid Cap Value Fund
RiverSource Variable Portfolio -- S&P 500 Index Fund
RiverSource Variable Portfolio -- Select Value Fund
RiverSource Variable Portfolio -- Short Duration U.S. Government Fund
RiverSource Variable Portfolio -- Small Cap Advantage Fund
RiverSource Variable Portfolio -- Small Cap Value Fund
By: /s/ Patrick T. Bannigan Name: Patrick T. Bannigan Title: President |
The undersigned is a party to this Agreement for the purposes of Section 3c and 11 only.
RIVERSOURCE INVESTMENTS, LLC
By: /s/ William F. Truscott Name: William F. Truscott Title: President and Chief Investment Officer |
SCHEDULE A
RIC REDOMICILING REORGANIZATIONS
BUYING ENTITY
(EACH A SERIES OF RIVERSOURCE VARIABLE
SELLING ENTITY SELLING FUNDS SERIES TRUST)
---------------------------- -------------------------------------------------- -------------------------------------------------
RiverSource Variable
Portfolio -- Income Series,
Inc.
RiverSource Variable Portfolio -- Core Bond Fund RiverSource Variable Portfolio -- Core Bond Fund
RiverSource Variable Portfolio -- Diversified Bond RiverSource Variable Portfolio -- Diversified Bond
Fund Fund
RiverSource Variable Portfolio -- Global Bond Fund RiverSource Variable Portfolio -- Global Bond Fund
RiverSource Variable Portfolio -- Global Inflation RiverSource Variable Portfolio -- Global Inflation
Protected Securities Fund Protected Securities Fund
RiverSource Variable Portfolio -- High Yield Bond RiverSource Variable Portfolio -- High Yield Bond
Fund Fund
RiverSource Variable Portfolio -- Income RiverSource Variable Portfolio -- Income
Opportunities Fund Opportunities Fund
RiverSource Variable Portfolio -- Short Duration RiverSource Variable Portfolio -- Short Duration
U.S. Government Fund U.S. Government Fund
RiverSource Variable
Portfolio -- Investment
Series, Inc.
RiverSource Variable Portfolio -- Emerging Markets RiverSource Variable Portfolio -- Emerging Markets
Fund Fund
RiverSource Variable Portfolio -- International RiverSource Variable Portfolio -- International
Opportunity Fund Opportunity Fund
RiverSource Variable
Portfolio -- Money Market
Series, Inc.
RiverSource Variable Portfolio -- Cash Management RiverSource Variable Portfolio -- Cash Management
Fund Fund
|
SCHEDULE B
NON-RIC REDOMICILING REORGANIZATIONS
BUYING ENTITY
(EACH A SERIES OF RIVERSOURCE VARIABLE
SELLING ENTITY SELLING FUNDS SERIES TRUST)
---------------------------- -------------------------------------------------- -------------------------------------------------
RiverSource Variable
Portfolio -- Investment
Series, Inc.
RiverSource Variable Portfolio -- Growth Fund RiverSource Variable Portfolio -- Growth Fund
RiverSource Variable Portfolio -- Large Cap Equity RiverSource Variable Portfolio -- Large Cap
Fund Equity Fund
RiverSource Variable Portfolio -- Large Cap Value RiverSource Variable Portfolio -- Large Cap
Fund Value Fund
RiverSource Variable Portfolio -- Mid Cap Growth RiverSource Variable Portfolio -- Mid Cap Growth
Fund Fund
RiverSource Variable Portfolio -- Mid Cap Value RiverSource Variable Portfolio -- Mid Cap
Fund Value Fund
RiverSource Variable Portfolio -- S&P 500 Index RiverSource Variable Portfolio -- S&P 500
Fund Index Fund
RiverSource Variable Portfolio -- Small Cap RiverSource Variable Portfolio -- Small Cap
Advantage Fund Advantage Fund
RiverSource Variable
Portfolio -- Managed
Series, Inc.
RiverSource Variable Portfolio -- Balanced Fund RiverSource Variable Portfolio -- Balanced Fund
RiverSource Variable Portfolio -- Diversified RiverSource Variable Portfolio -- Diversified
Equity Income Fund Equity Income Fund
RiverSource Variable
Portfolio -- Managers
Series, Inc.
RiverSource Variable Portfolio -- Fundamental RiverSource Variable Portfolio -- Fundamental
Value Fund Value Fund
RiverSource Variable Portfolio -- Select Value RiverSource Variable Portfolio -- Select
Fund Value Fund
RiverSource Variable Portfolio -- Small Cap Value RiverSource Variable Portfolio -- Small Cap Value
Fund Fund
RiverSource Variable
Portfolio -- Select
Series, Inc.
RiverSource Variable Portfolio -- Core RiverSource Variable Portfolio -- Core
Equity Fund Equity Fund
|
SCHEDULE C
CORE BOND -- DIVERSIFIED BOND FUND REORGANIZATION
SELLING ENTITY SELLING FUND BUYING ENTITY BUYING FUND --------------------------- --------------------------- -------------------------------- ----------------------------------- RiverSource Variable Series RiverSource Variable RiverSource Variable Series RiverSource Variable Portfolio -- Trust(1) Portfolio -- Core Bond Fund Trust(2) Diversified Bond Fund |
(1) RiverSource Variable Portfolio - Income Series, Inc. in the event that shareholders of the RiverSource Variable Portfolio - Core Bond Fund do not approve the RIC Redomiciling Reorganization of their fund described in Schedule A.
(2) RiverSource Variable Portfolio - Income Series, Inc. in the event that shareholders of the RiverSource Variable Portfolio - Diversified Bond Fund do not approve the RIC Redomiciling Reorganization of their fund described in Schedule A.
EXHIBIT (i)
April 21, 2008
RiverSource Variable Series Trust
50606 Ameriprise Financial Center
Minneapolis, Minnesota 55474
Gentlemen:
I have examined the Agreement and Declaration of Trust and the By-Laws of RiverSource Variable Series Trust (the Trust) and all necessary certificates, permits, minute books, documents and records of the Trust, and the applicable statutes of the Commonwealth of Massachusetts, and it is my opinion that the shares sold in accordance with applicable federal and state securities laws will be legally issued, fully paid, and nonassessable.
This opinion may be used in connection with this Amendment to the Registration Statement.
Sincerely,
/s/ Scott R. Plummer
-------------------------------
Scott R. Plummer
General Counsel
RiverSource Funds
|
EXHIBIT (m)
PLAN OF DISTRIBUTION AND
AMENDED AND RESTATED AGREEMENT OF DISTRIBUTION
The Plan of Distribution ("Plan") and Agreement of Distribution ("Agreement"), effective November 8, 2007, amended and restated April 10, 2008 (together "Plan and Agreement"), is by and between RiverSource Distributors, Inc. ("RiverSource Distributors" or the "Distributor"), a Delaware corporation, principle underwriter of the RiverSource Funds pursuant to a separate distribution agreement ("Distribution Agreement"), for distribution services to the funds, and RiverSource Variable Series Trust ("Registrant"), a Massachusetts business trust, on behalf of its underlying series, listed in Schedule A (each a "fund" and collectively the "funds"). The terms "Fund" or "Funds" are used to refer to either the Registrants or the underlying series as context requires.
The Plan and Agreement are separate and each has been approved by members of the Board of Trustees (the "Board") of the Funds who are not interested persons of the Funds and have no direct or indirect financial interest in the operation of the Plan and Agreement, or any related agreement, and all of the members of the Board, in person, at a meeting called for the purpose of voting on the Plan and Agreement.
1. Reimbursement Plan
1.1 The Fund will reimburse the Distributor for various costs paid and accrued in connection with the distribution of the Funds' shares and the servicing of owners of the Funds through variable life insurance or annuity contracts, pursuant to Schedule A.
2. Services Provided and Expenses Borne by Distributor
2.1 RiverSource Distributors shall provide distribution and underwriting services and shall bear all distribution related expenses to the extent specified in the Distribution Agreement.
2.2 Each Fund recognizes and agrees that RiverSource Distributors may offer the Funds' shares to one or more affiliated or unaffiliated life insurance companies ("Life Companies") for purchase on behalf of certain of their separate accounts for the purpose of funding variable life insurance contracts or variable annuity contracts or both (collectively referred to as "Variable Contracts") and may compensate such Life Companies for providing services to Variable Contract owners or in connection with the distribution of Fund shares.
3. Services
3.1 The Funds shall reimburse RiverSource Distributors at a rate not to exceed the rate set forth in Schedule A as partial consideration for the services it provides that are intended to benefit the Variable Contract owners and not the Life Companies' separate accounts that legally own the shares. Such services may include printing and mailing prospectuses, Statements of Additional Information, supplements, and reports to
existing and prospective Variable Contract owners; preparation and distribution of advertisement, sales literature, brokers' materials and promotional materials relating to the Funds; presentation of seminars and sales meetings describing or relating to the Funds; training sales personnel regarding the Funds; compensation of sales personnel for sale of the Funds' shares; compensation of sales personnel for assisting Life Companies or Variable Contract owners with respect to the Funds' shares; overhead of RiverSource Distributors and its affiliates appropriately allocated to the promotion of sale of the Funds' shares; and any other activity primarily intended to result in the sale of the Funds' shares, including payments to Life Companies.
4. Reports
4.1 RiverSource Distributors shall provide all information relevant and necessary for the Board to make informed determinations about whether each of the Plan and Agreement should be continued and shall: submit quarterly a report that sets out the expenses paid or accrued by it, the names of the Life Companies to whom the Funds' shares are sold, and the payments made to each Life Company that has been reimbursed; use its best efforts to monitor the level and quality of services provided by it and each Life Company to which payment is made and to assure that in each case legitimate services are rendered in return for the reimbursement pursuant to the Plan and Agreement; and meet with the Funds' representatives, as reasonably requested, to provide additional information.
5. Miscellaneous
5.1 RiverSource Distributors represents that it will provide full disclosure of the Funds' 12b-1 Plan and Agreement in the Funds' prospectus.
5.2 All payments by RiverSource Distributors to Life Companies shall be
made pursuant to a written agreement. The written agreement shall:
require disclosure of the fees in accordance with applicable laws;
provide for termination at any time without penalty as required by
Rule 12b-1; and continue so long as its continuance is done in
accordance with the requirements of Rule 12b-1.
5.3 The Funds represent that the Plan and the Agreement has been approved as required by Rule 12b-1 and may continue for more than one year so long as it is continued as required by Rule 12b-1. The Plan shall continue until terminated by action of the members of the Funds' Board who are not interested persons of the Funds and have no direct or indirect financial interest in the operations of the Plan, and the related Agreement will terminate automatically in the event of an assignment as that term is defined in the Investment Company Act of 1940.
5.4 Neither the Plan nor the Agreement may be amended to materially increase the amount of the payments without the approval of the outstanding voting securities.
5.5 This Plan and Agreement shall be governed by the laws of the State of Minnesota.
5.6 Each Fund is organized as a Massachusetts Business Trust. A copy of the Declaration of Trust, together with all amendments, is on file in the office of the Secretary of State of the Commonwealth of Massachusetts. The execution and delivery of this Agreement has been authorized by the Trustees and the Agreement has been signed by an authorized officer of the Fund. It is expressly agreed that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Fund, personally, but bind only the assets and property of the Fund, as provided in the Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have executed the foregoing Agreement as of the day and year first above written.
RIVERSOURCE VARIABLE SERIES TRUST
/s/ Patrick T. Bannigan --------------------------- Patrick T. Bannigan President |
RIVERSOURCE DISTRIBUTORS, INC.
/s/ William F. Truscott -------------------------- William F. Truscott Vice President |
SCHEDULE A
FUNDS
Payments under the Plan shall be made within five (5) business days after the last day of each month. At the end of each calendar year, RiverSource Distributors shall furnish a declaration setting out the actual expenses it has paid and accrued. Any money that has been paid in excess of the amount of these expenses shall be returned to the Funds.
For the following Funds, the maximum fee for services under this Plan and Agreement shall be the lesser of the amount of expenses eligible for reimbursement or, on an annual basis an amount equal to 0.125% of its daily net assets:
RiverSource Partners Variable Portfolio - Fundamental Value Fund RiverSource Partners Variable Portfolio - Select Value Fund RiverSource Partners Variable Portfolio - Small Cap Value Fund RiverSource Variable Portfolio - Balanced Fund RiverSource Variable Portfolio - Cash Management Fund RiverSource Variable Portfolio - Diversified Bond Fund RiverSource Variable Portfolio - Diversified Equity Income Fund RiverSource Variable Portfolio - Global Bond Fund RiverSource Variable Portfolio - Global Inflation Protected Securities Fund RiverSource Variable Portfolio - Growth Fund RiverSource Variable Portfolio - High Yield Bond Fund RiverSource Variable Portfolio - Income Opportunities Fund RiverSource Variable Portfolio - Large Cap Equity Fund RiverSource Variable Portfolio - Large Cap Value Fund RiverSource Variable Portfolio - Mid Cap Growth Fund RiverSource Variable Portfolio - Mid Cap Value Fund RiverSource Variable Portfolio - S&P 500 Index Fund RiverSource Variable Portfolio - Short Duration U.S. Government Fund RiverSource Variable Portfolio - Small Cap Advantage Fund Threadneedle Variable Portfolio - Emerging Markets Fund Threadneedle Variable Portfolio - International Opportunity Fund
For the following Funds, the maximum fee for services under this Plan and Agreement shall be the lesser of the amount of expenses eligible for reimbursement or, on an annual basis an amount equal to 0.25% of its daily net assets:
Disciplined Asset Allocation Portfolios - Aggressive Disciplined Asset Allocation Portfolios - Conservative Disciplined Asset Allocation Portfolios - Moderate Disciplined Asset Allocation Portfolios - Moderately Aggressive Disciplined Asset Allocation Portfolios - Moderately Conservative
EXHIBIT (p)(10)
DENVER INVESTMENT ADVISORS LLC
ETHICS RULES
INCLUDING
CODE OF ETHICS, INSIDER TRADING POLICY, AND
GIFT/ENTERTAINMENT AND OUTSIDE EMPLOYMENT POLICY
Amended Effective February 15, 2007
TABLE OF CONTENTS
I. INTRODUCTION AND STATEMENT OF POLICY 1
A. STATEMENT OF GENERAL PRINCIPLES 1
B. THE ETHICS RULES 1
II. SUMMARY OF ETHICS RULES 3
A. CODE OF ETHICS 3
1 Securities to Which the Code Applies 3
2 Persons to Whom the Code Applies and Applicable Rules 4
2.1 Access Persons 4
2.2 General 4
2.3 Preclearance and Reporting 4
2.4 Restrictions 4
B. INSIDER TRADING POLICY 4
1 General 5
2 What to do if in Possession of Material Nonpublic Information 5
C. GIFTS/ENTERTAINMENT AND OUTSIDE EMPLOYMENT POLICY 5
III. GENERAL INFORMATION 6
A. ENFORCEMENT 6
B. CAUTION REGARDING PERSONAL TRADING ACTIVITIES 6
C. COMMUNICATIONS WITH OUTSIDE DIRECTORS AND TRUSTEES OF INVESTMENT COMPANIES ADVISED BY
DENVER INVESTMENT ADVISORS 6
D. INTERNAL USE 6
E ADMINISTRATION 7
IV: APPENDICES DETAILING THE ETHICS RULES(Index) 8
|
DENVER INVESTMENT ADVISORS LLC ETHICS RULES
SECTION I: INTRODUCTION AND STATEMENT OF POLICY
A. STATEMENT OF GENERAL PRINCIPLES
Denver Investment Advisors LLC ("Denver Investment Advisors") and its members, officers, and employees (as defined herein, "Access Persons") are cognizant of and committed to the performance of their fiduciary duties under general corporate law and as more specifically articulated in the Investment Company Act of 1940 (the "1940 Act") and the Investment Advisers Act of 1940 (the "Advisers Act"), including, without limitation, proscriptions against overreaching, self-dealing, insider trading, and conflicts of interests. Moreover, with respect to certain legal matters and ethical questions arising in the course of their deliberations and actions, Denver Investment Advisors and its Access Persons regularly seek the advice of counsel.
These Ethics Rules are directed to the particular objectives of compliance with the provisions of Revised Rule 17j-1 under the 1940 Act and Rule 204A under the Advisers Act, and to the prevention of engagement in any personal securities transactions by Access Persons which might conflict with or adversely affect the interests and welfare of the Clients of Denver Investment Advisors.
The general principles and procedures which guide the activities of all Access Persons are augmented by these Ethics Rules, which are based upon the fundamental recognition that Access Persons have a fiduciary relationship with Denver Investment Advisors' clients, which requires the maintenance by all such individuals of the highest standards of integrity and conduct.
Professional and legal responsibilities to Denver Investment Advisors' Clients dictate that not only conflicts of interests, but the appearance of conflicts of interests, be avoided. Although compliance by Access Persons with the provisions of these Ethics Rules is mandatory, codes of ethics cannot define all conflict and potential conflict situations. Therefore, in addition to assuring that one's conduct comports with these Rules, Access Persons must avoid engaging in any conduct that may create a conflict of interest or the potential for a conflict of interest. Access Persons must adhere not only to the letter but also to the spirit of the Ethics Rules and the principles articulated herein.
B. THE ETHICS RULES
Denver Investment Advisors operates under this Code of Ethics, Insider Trading Policy, and Gift and Outside Employment Policy, as amended from time to time (collectively the "Ethics Rules") which apply to all members, officers and employees of Denver Investment Advisors and, in certain instances, to their family members. PERSONS SUBJECT TO THE ETHICS RULES ARE ENCOURAGED TO INVEST IN INVESTMENT COMPANIES ADVISED BY DENVER INVESTMENT ADVISORS. These persons are also permitted to personally invest in individual securities in accordance with the Ethics Rules. Outside Directors of Denver Investment Advisors advised investment companies who are not members, officers or employees of Denver Investment Advisors are not subject to the Ethics Rules.
The Ethics Rules are intended to ensure that these persons (i) at all times place first the interests of Denver Investment Advisors' clients (collectively and as applicable "Clients"), (ii) recognize, respect, and act in the best interests of the Clients, (iii) conduct all personal trading consistently with the Ethics Rules and in such a manner as to avoid any actual or potential conflict of interest or any abuse of the person's position of trust and responsibility, (iv) not take inappropriate advantage of their positions with Denver Investment Advisors, (v) not use any material nonpublic information in securities trading, and (vi) avoid any situations which might compromise their exercise of fully independent judgment in the interests of or on behalf of Clients. The Ethics Rules also require Access Persons comply with the applicable Federal Securities Laws including the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisor Act of 1940, Title V of the Gramm-Leach-Bliley Act, the Bank Secrecy Act, the Sarbanes-Oxley Act of 2002 and any other rules adopted there under by the Securities and Exchange Commission or the Department of the Treasury. In July 2004 the Investment Counsel Association of America issued the BEST PRACTICES FOR INVESTMENT ADVISORS CODE OF ETHICS. The Denver Investment Advisors' code incorporates the general principles and virtually all of the suggestions of the ICAA report. The Ethics Rules also establish policies regarding other matters, such as outside employment and the disbursement or receipt of gifts and entertainment.
Each member, officer and employee will be provided online access to the Ethics
Rules Each member, officer and employee of Denver Investment Advisors is
required to read the Ethics Rules and to sign the Acknowledgment Form upon
commencement of employment or other services, and on an annual basis thereafter.
The Acknowledgment (i) confirms that the person signing it has accessed, read
and asked any questions if necessary to understand the Ethics Rules, (ii)
evidences the person's agreement to conduct himself in accordance therewith, and
(iii) confirms that the person has complied with the Ethics Rules during such
time as the person has been with Denver Investment Advisors. Various persons
will be required to submit reports or obtain clearances as discussed more fully
below and in the applicable Appendices.
The Ethics Rules are administered by the Compliance Committee and certain matters relating to the Ethics Rules are referred specifically to the Chief Compliance Officer and other individuals with compliance responsibility. Such compliance personnel and committee members are identified in Appendix 1 Part A. The supervisory procedures relating to the Ethics Rules and the duties and operations of the Compliance Committee are discussed in Appendix 5 Parts A and B, respectively.
DENVER INVESTMENT ADVISORS LLC ETHICS RULES
SECTION II: SUMMARY OF ETHICS RULES
The Ethics Rules, including especially the Code of Ethics and the Insider Trading Policy discussed below, apply to transactions in Covered Securities for your personal accounts and any other accounts in which you have any BENEFICIAL OWNERSHIP. Generally speaking, you may be deemed the beneficial owner of any account in which you have a direct or indirect financial interest. Such accounts include, without limitation, accounts held in the name of your spouse, your minor children or a relative sharing your home. See Appendix 1 Part B for a more complete discussion of beneficial ownership.
A. CODE OF ETHICS
The Code of Ethics (the "Code") imposes certain investment restrictions and prohibitions, and requires certain reports as set forth below:
1 SECURITIES TO WHICH THE CODE APPLIES
The Code applies to Covered Securities, which are subject to various trading prohibitions and reporting obligations. "Covered Securities" generally include all securities and their derivatives, whether publicly or privately traded. However, Covered Securities do not include
- shares of registered open-end investment companies not advised or sub-advised by Denver Investment Advisors LLC ("Affiliated Funds"),
- direct obligations of the U.S. government,
- high quality short-term debt instruments, including but not limited to bankers acceptances, bank certificates of deposit, commercial paper, and repurchase agreements, and
- Exempt Investments as defined in Appendix 2, Section A.2.1.4.
Some Covered Securities, such as transactions in shares of Affiliated Funds, direct obligations of foreign governments, derivatives on indices, and various securities acquired through pre-approved automatic investment plans, dividends, pro rata rights, or other corporate actions, must be reported but are exempt from some of the trading prohibitions.
Affiliated Funds currently include the Westcore Funds and Dunham Small-Cap Value Fund. However, each quarterly report request will identify any Affiliated Funds at that time.
See Appendix 2 Part A for additional information.
2 PERSONS TO WHOM THE CODE APPLIES AND APPLICABLE RULES
2.1 ACCESS PERSONS. For purposes of these Ethics Rules, "Access Persons" include all members, officers and employees of Denver Investment Advisors. The Code applies to all Access Persons.
2.2 GENERAL. Any person subject to the Code is prohibited from:
2.2.1 Engaging in short sales of Covered Securities known by such person to be owned by Clients;
2.2.2 Purchasing initial public offerings and hot issues;
2.2.3 Short-term trading;
2.2.4 Benefitting personally from actions taken for Clients;
2.2.5 Profiting from the market effect of Client transactions;
2.2.6 Disclosing Client portfolio transactions without prior approval;
2.2.7 Engaging in fraudulent conduct; or
2.2.8 Investing in derivatives to evade application of the Code.
See Appendix 2 Part B for additional information.
2.3 PRECLEARANCE AND REPORTING. Access Persons must preclear all transactions in Covered Securities, must provide periodic reports regarding their holdings and personal transactions in Covered Securities, and are subject to various additional investment restrictions.
2.4 RESTRICTIONS. The following is a list of some restrictions applicable to Access Persons:
2.4.1 Blackout Period
2.4.2 Restrictions on Service as a Director
2.4.3 Disclosure of Interests 2.4.4 Broker-Dealer Investments
2.4.5 Hedge Funds, Investment Clubs, and Other Groups
2.4.6 Investments in Investment Companies advised by Denver Investment Advisors
See Appendix 2 Part C for additional information.
B. INSIDER TRADING POLICY
The Insider Trading Policy prohibits persons from communicating or acting on material nonpublic information and requires persons to report such information to a Compliance Committee Member.
1 GENERAL
The Insider Trading Policy (the "Policy") applies to every member, officer and employee of Denver Investment Advisors and prohibits such persons, as well as their spouses and others, from trading on material nonpublic information, either personally or on behalf of others (including Clients), and from communicating material nonpublic information to others in violation of the law. Material nonpublic information is commonly known as "Inside Information," and trading on such information is commonly referred to as "Insider Trading." The Policy is drafted broadly, and will be applied and interpreted in a similar manner. See Appendix 3 Part B for additional information on Insider Trading and the proper treatment of Inside Information.
2 WHAT TO DO IF IN POSSESSION OF MATERIAL NONPUBLIC INFORMATION
If you think you may have Inside Information, you should immediately report such information to one of the Compliance Committee Members and refrain from discussing it with any other person. See Appendix 3 Part B for additional information on these and related procedures.
C. GIFTS, ENTERTAINMENT AND OUTSIDE EMPLOYMENT POLICY
The Ethics Rules prohibit persons from giving or receiving certain business-related gifts and entertainment. The Ethics Rules also prohibit any member, officer or employee from engaging in outside employment unless he or she has given written notice to a Compliance Committee Member and, in the case of securities-related employment, has received the prior written approval of the Chief Compliance Officer. See Appendix 4 for additional information.
DENVER INVESTMENT ADVISORS LLC ETHICS RULES
SECTION III: GENERAL INFORMATION
A. ENFORCEMENT
Upon discovering a violation of the Ethics Rules, all Access Persons must promptly report violations to the Chief Compliance Officer. Denver Investment Advisors may impose such sanctions as it deems appropriate, including termination of employment. For more information about sanctions which may be imposed, see Appendix 5 Part C.
B. CAUTION REGARDING PERSONAL TRADING ACTIVITIES
Certain personal trading activities may be risky not only because of the nature of the transactions, but also because the potential action necessary to close out a position may, for some personnel, become prohibited while the position remains open. For example, the fulfillment of the obligations owed by Access Persons to Denver Investment Advisors may heighten the risks associated with various investments, such as short sales and transactions in derivatives.
Furthermore, if Denver Investment Advisors becomes aware of material nonpublic information, or if a Client is active in a given security, some personnel may find themselves "frozen" in a position. Denver Investment Advisors will not bear any losses in personal accounts resulting from the implementation of these Ethics Rules.
C. COMMUNICATIONS WITH OUTSIDE DIRECTORS AND TRUSTEES OF INVESTMENT COMPANIES ADVISED OR SUB-ADVISED BY DENVER INVESTMENT ADVISORS
As a regular business practice, Denver Investment Advisors attempts to keep the Trustees and Directors of its investment company clients informed with respect to its investment activities through reports and other information provided to them in connection with board meetings and other events. In addition, personnel are encouraged to respond to inquiries from Trustees and Directors, particularly as they relate to general strategy considerations or economic or market conditions affecting the funds. However, it is Denver Investment Advisors' policy not to communicate specific trading information and advice on specific securities to the Trustees, Directors or any other persons outside of Denver Investment Advisors; i.e., no information should be given on securities for which current activity is being considered for Clients. Any pattern of repeated requests by a Trustee, Director or any other persons outside of Denver Investment Advisors should be reported to a Compliance Committee Member.
D. INTERNAL USE
The Ethics Rules are intended solely for internal use. For more information regarding limitations on disclosing to others the Ethics Rules and actions taken pursuant to the Rules, see Appendix 5 Part C.
E. ADMINISTRATION
The Ethics Rules recordkeeping shall be maintained online in a company intranet application located at http://intranet.denveria.com/Depts/Compliance/ETS/ logon.asp, referred to as the Employee Trading System or "ETS". All employees will be assigned user names and passwords during a new hire orientation Ethics Rules meeting.
DENVER INVESTMENT ADVISORS LLC ETHICS RULES
SECTION IV: APPENDICES DETAILING THE ETHICS RULES
(INDEX)
The following appendices set forth in detail the Ethics Rules summarized above. Such appendices are incorporated herein by reference.
APPENDICES
1 DEFINITIONS
A. Personnel 1-1
B. Beneficial Ownership 1-1
2 CODE OF ETHICS
A. Overview and Covered Securities (including exemptions) 2-1
B. Periodic Acknowledgments and General Prohibitions 2-3
C. Investment and Trade Limitations 2-5
3 INSIDER TRADING POLICY
A. Background Information 3-1
B. Procedures to Implement Policy 3-3
4 GIFTS, ENTERTAINMENT AND OUTSIDE EMPLOYMENT POLICY
A. Gifts 4-1
B. Entertainment 4-1
C. Outside Employment 4-1
5 OTHER
A. Supervisory and Compliance Review Procedures 5-1
B. Role of the Compliance Committee in Compliance 5-4
C. General Information About the Ethics Rule 5-6
|
Appendix 1 page 1
DENVER INVESTMENT ADVISORS LLC ETHICS RULES
APPENDIX 1 DEFINITIONS
A. PERSONNEL
References in the Ethics Rules to the following persons are defined in the Denver Investment Advisors's current organizational chart:
Chief Compliance Officer
- Compliance Committee Member
Designated Trading Representatives - Corporate Bonds - Director of Fixed Income Designated Trading Representatives - Municipal Bonds - Municipal Fund Portfolio Manager
B. BENEFICIAL OWNERSHIP
The provisions of the Ethics Rules apply to transactions in securities for any account "beneficially owned" by a person subject to the Rules. "Beneficial ownership" shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Rule 16a-1(a)(2) of the Securities Exchange Act of 1934 and the rules and regulations thereunder. Thus, for example, you should be aware that the term "beneficial ownership" encompasses securities held in the name of your spouse, your minor children, or a relative sharing your home (collectively "Related Parties"), or held under any other arrangement in which you share a pecuniary interest (that is, the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in a Covered Security). The Chief Compliance Officer may, on a case-by-case basis, exempt certain accounts and transactions from any provision of the Ethics Rules (except initial public offering and restricted securities preclearance or any of the reporting requirements), if, in his view, application of the Ethics Rules is not necessary or appropriate.
The provisions of these Ethics Rules shall not apply to purchases or sales effected in any account over which there is no direct or indirect influence or control. Access Persons relying upon this provision will be required to submit an ETS Non-influence and Non-control Over Beneficially Owned Accounts certification.
"Managed Accounts," defined as accounts for members, officers or employees, or their family members, that are managed by Denver Investment Advisors or other investment advisers in a discretionary capacity, except for reporting requirements, are not covered by these Ethics Rules so long as such person has no direct or indirect influence or control over the account. The employment relationship between the account holder and the individual managing the account, in the absence of other facts indicating control, will not be deemed to give such account holder influence or control over the account.
Appendix 1 page 2
DENVER INVESTMENT ADVISORS LLC ETHICS RULES
APPENDIX 2 CODE OF ETHICS
A. OVERVIEW AND COVERED SECURITIES (INCLUDING EXEMPTIONS)
Following is an overview of the Code and a discussion of securities covered by, and exempted from the Code.
1 OVERVIEW
In general, it is unlawful for persons affiliated with investment advisers and investment companies to engage in personal transactions in securities which are held or are to be acquired by the investment adviser or the registered investment company, if such personal transactions are made in contravention of rules which the Securities and Exchange Commission (the "SEC") has adopted to prevent fraudulent, deceptive and manipulative practices. Such rules require each registered investment company and each investment adviser for such investment company to adopt its own written code of ethics containing provisions reasonably necessary to prevent its access persons from engaging in such conduct, and to maintain records, use reasonable diligence, and institute such procedures as are reasonably necessary to prevent violations of such code. This Code and information reported hereunder will enable Denver Investment Advisors to fulfill its obligations under such rules.
2 COVERED SECURITIES (INCLUDING EXEMPTIONS)
2.1 CODE APPLICABILITY AND DEFINITION OF COVERED SECURITIES. The trading prohibitions and reporting obligations of the Code apply to all direct or indirect acquisitions or dispositions of Covered Securities, whether by purchase, sale, gift, inheritance, or otherwise, including Covered Securities acquired in any Denver Investment Advisors compensation benefit or retirement plan. Employees do not need to separately report on Denver Investment Advisors benefit and retirement plan. Compliance staff will review files maintained by the personnel department to ensure compliance. "Covered Securities" generally include all securities, whether publicly or privately traded, including limited offerings, and any option, or forward contract, or other obligation, including a security whose value is derived or based on any of the above (a "derivative").
However, the following shall not be deemed to be Covered Securities and shall be exempt from the trading prohibitions, preclearance requirements, and reporting obligations of this Code:
2.1.1 Shares of registered open-end investment companies, except for certain reporting requirements in 2.2.6 below;
Appendix 2 page 1
2.1.1.1 See Appendix 2, Section C. 12 for specific restrictions on investments in open-end investment companies advised or sub-advised by Denver Investment Advisors.
2.1.2 Direct obligations of the U.S. government;
2.1.3 High quality short-term debt instruments, including, but not limited to, bank certificates of deposit, bankers' acceptances, repurchase agreements, and commercial paper; and
2.1.4 "Exempt Investments" include all obligations that are not securities as defined in the Investment Company Act of 1940, as amended, including, but not limited to; commodities, derivatives not traded on a national securities exchange on commodities or currencies, and life insurance or annuity contracts.
2.2 COVERED SECURITIES AND/OR TRANSACTIONS EXEMPT FROM TRADING PROHIBITIONS (BUT REPORTABLE)
The following Covered Securities and/or transactions are exempt from some of the trading prohibitions and preclearance requirements, but are nevertheless subject to the reporting obligations, of this Code:
2.2.1 the purchase or receipt of direct obligations of a foreign government for which a liquid market exists;
2.2.2 the purchase or receipt of index securities or any derivative on any index of securities (not otherwise exempted as an Exempt Investment above);
2.2.3 the acquisition of securities through a pre-approved automatic investment plan, stock dividends, dividend reinvestments, stock splits, reverse stock splits, mergers, consolidations, spin-offs, or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of such securities; and
2.2.4 the acquisition of securities through the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent the rights were acquired in the issue.
2.2.5 the acquisition of Exchange Traded Funds.
2.2.6 the purchase or sale of mutual funds advised or sub-advised by the Company shall be reported by: direct investment reports provided by fund Transfer Agents, reports provided by the Company's retirement plan trustee, or by Access Persons arranging for duplicate statements to be provided to the Company if held in a brokerage account. Transactions through automatic purchase plans or dividend reinvestment are exempted.
Appendix 2 page 2
B. PERIODIC ACKNOWLEDGMENTS AND GENERAL PROHIBITIONS
All Access Persons must submit online Acknowledgments and comply with the General Prohibitions as discussed below and must also comply with the applicable provisions of Part C below.
1 ACKNOWLEDGMENT FORMS
Each ACCESS PERSON must, within 10 calendar days of commencement of services and at least annually thereafter, submit an Acknowledgment stating that he or she has reviewed and complied with the Ethics Rules including the Code of Ethics, Insider Trading Policy, and Gifts/Entertainment and Outside Employment Policy and has disclosed or reported all applicable securities transactions. Each Access Person must also complete a Business Position Report within 10 calendar days of commencement of services. Each Access Person must provide copies of account statements or a detailed listing of all security holdings which includes: the title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each reportable security in which the access person has any direct or indirect beneficial ownership; the name of any broker, dealer or bank with which the access person maintains an account in which any securities are held for the access person's direct or indirect benefit; and the date the access person submits the report. Access persons must each submit a holdings report no later than 10 days after the person becomes an access person, and the information must be current as of a date no more than 45 days prior to the date the person becomes an access person.
2 GENERAL PROHIBITIONS
Any Access Person subject to this Code is prohibited from:
2.1 Engaging in short sales of Covered Securities that such person knows are held by or being considered for sale by, any Client.
2.2 Purchasing, in an initial public offering, Covered Securities for which no public market in the same or similar securities of that issuer has previously existed. No securities may be purchased in an offering that constitutes a "new issue" as defined in the rules of the NASD. Such securities may be purchased, however, where the individual has an existing right to purchase the security based on his or her status as an investor, policyholder or depositor of the issuer and the Access Person has obtained preclearance for the transaction in accordance with section C.1 of this code. In addition, securities issued in reorganizations are also outside the scope of this prohibition if the transaction involves no investment decision on the part of the employee except in connection with a shareholder vote.
Appendix 2 page 3
2.3 Inducing or causing a Client to take action, or to fail to take action, to benefit an account in which the person has a beneficial interest, rather than to benefit such Client. For example, an employee would violate this Code by causing a Client to purchase a security owned by the employee for the purpose of supporting or increasing the price of that security or causing a Client to refrain from selling a security in an attempt to protect a personal investment, such as an option on that security.
2.4 Using knowledge of portfolio transactions made or contemplated for Clients to profit by the market effect of such transactions, including knowledge of possible IPO investments by Affiliated Funds.
2.5 Disclosing current portfolio transactions made or contemplated for Clients as well as client holdings or securities recommendations and any other nonpublic information to anyone outside of Denver Investment Advisors without the prior written approval of the Chief Compliance Officer.
2.6 Engaging in fraudulent conduct in connection with the purchase or sale, directly or indirectly, of a security held or to be acquired by a Client, including without limitation:
- Employing any device, scheme or artifice to defraud any Client;
- Making to any Client any untrue statement of material fact or omitting to state to any Client a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
- Engaging in any act, practice or course of business which operates or would operate as a fraud or deceit upon any Client; or
- Engaging in any manipulative practice with respect to any Client.
For purposes of this Section 2.6, a security held or to be acquired by a Client means any Covered Security as defined herein which, within the most recent 15-day period, is or has been held by a Client or is being or has been considered by Denver Investment Advisors for purchase by a Client.
The provisions of these Ethics Rules have been instituted, in part, in an effort to ensure that Access Persons do not, inadvertently or otherwise, violate these proscriptions.
2.7 Investing in derivatives to evade the restrictions of this Code. Accordingly, individuals may not use derivatives to take positions in securities which the Code would prohibit if the positions were taken directly.
Appendix 2 page 4
Persons who violate any prohibition in this Section 2 shall disgorge any profits realized on such trades to the appropriate Client(s), or alternatively, to a charitable organization, as the Chief Compliance Officer, in his sole discretion, shall determine.
C. INVESTMENT AND TRADE LIMITATIONS
The following sets forth various investment and trade limitations. If reimbursement is required under more than one of the following, the Chief Compliance Officer shall, in his sole discretion, determine under which provision reimbursement shall be required.
1 PROCEDURES AND LIMITATIONS REGARDING TRADE EXECUTION
ACCESS PERSONS must preclear and execute trades as noted below. Access persons who fail to preclear a trade or who execute a trade by means of a prohibited brokerage arrangement must disgorge any profits realized on such trades to the appropriate Client(s), or alternatively, to a charitable organization, as the Chief Compliance Officer, in his sole discretion, shall determine.(1)
1.1 PRECLEARANCE OF TRANSACTIONS. ACCESS PERSONS must obtain preclearance prior to engaging in any personal transaction in Covered Securities. The procedures for preclearing transactions are set forth below.
Clearances to trade will be in effect only for the day of their authorization through the ETS preclearance system, or by a Compliance Committee Member. Open orders, including stop loss orders, will not be allowed. Precleared transactions not executed on the day of their authorization must be precleared again before execution. The preclearance requirement applies to transactions in which the Access Person has a beneficial interest as defined in Appendix 1 Part B.
Any Access Person who has obtained approval to purchase a restricted security and who has purchased and continues to maintain the security in reliance upon such approval must disclose the investment to appropriate personnel in any instance in
(1) Restrictions on personal transactions apply to transactions involving Covered Securities as well as any derivatives thereof. When determining the amount of disgorgement required with respect to derivatives, consideration will be given to price differences in both the derivative and the underlying securities, with the smaller difference being used for purposes of computing disgorgement. For example, in determining whether a reimbursement is required when the applicable personal trade is in a derivative and the Client transaction is in the underlying security, the amount shall be calculated using the lesser of (a) the difference between the price paid or received for the derivative and the closing bid or ask price (as appropriate) for the derivative on the date of the Client transaction, or (b) the difference between the last sale price, or the last bid or ask price (as appropriate) of the underlying security on the date of the derivative transaction, and the price received or paid by the Client for the underlying security. Neither preclearance nor disgorgement shall be required if such person's transaction is to close, sell or exercise a derivative within five days of its expiration.
Appendix 2 page 5
which the Access Person is involved in consideration by a client of an investment in the issuer of the restricted security. In any such instance, the decision of a Client to purchase an investment in the issuer of the restricted security must be reviewed independently by one or more investment personnel of Denver Investment Advisors, selected by the Chief Compliance Officer, who has no personal interest in the issuer, who must execute written approval of the investment in the issuer prior to the investment's being made.
For purposes of the above paragraph, a restricted security is defined as a security which is not readily marketable and a security which cannot be resold or distributed to the public or to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as Amended (the "1933 Act"), without an effective registration statement under the 1933 Act. A security which is not readily marketable is one which, for whatever reason, cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the security is reasonably valued.
1.2 PRECLEARANCE. General preclearance may be obtained from the ETS preclearance system.
- The ETS preclearance system will provide clearance if the security is not being purchased or sold for a Client. A security is being purchased or sold when, within the most recent seven calendar day period, a transaction in such security has been effected for a Client, or when a transaction in such security is pending or in progress for a Client. Any profits realized on transactions which occur during the proscribed period shall be disgorged, with the profit to be allocated in whole or in part to the appropriate Client(s), if any, or alternatively to a charitable organization, as the Chief Compliance Officer in his sole discretion shall determine; provided, however, that such disgorgement of short-term trading profits shall not apply to securities transactions of Access Persons under circumstances, determined in the sole discretion of the Chief Compliance Officer, in which disgorgement of profits would be inequitable.
- For preclearance purposes, Client transactions of 500 shares or less in securities of an issuer having a market capitalization of $10 billion or greater will be excluded from the definition of a security being purchased or sold.
1.3 SPECIAL PRECLEARANCE. Special Preclearance may be obtained from a Compliance Committee Member for an investment by an Access Person that would otherwise be prohibited by the Code. To obtain special preclearance, an Access Person must submit an ETS special preclearance request to a Compliance Committee Member who may provide specific preclearance if it is determined that the particular circumstances of the person's proposed trade make it unlikely that the trade would disadvantage any Client.
Appendix 2 page 6
1.4 EVALUATION OF CLIENT INTERESTS. The Ethics Rules require Access Persons to at all times place the interests of Clients first and to conduct all personal trading consistently with the Ethics Rules and in such a manner as to avoid any actual or potential conflict of interest. Accordingly, any Access Person contemplating a personal investment that has not been made or considered for Client accounts for which the Access Person has investment responsibility is reminded to evaluate the appropriateness or inappropriateness of the investment for those accounts.
2 SEVEN DAY AFTER RULE
If a transaction in a security has been effected for a Client or when a transaction in the security is pending or in progress, preclearance may be given on the eighth calendar day after the transaction is executed or withdrawn. The existence of pending transactions will be checked as a part of the preclearance process discussed above.
3 SHORT-TERM TRADING RULE
Every Access Person who obtains a profit from a purchase and sale, or a sale and purchase, of the same or equivalent securities, including Exchange Traded Funds, within sixty (60) calendar days shall disgorge such profit, with the profit to be allocated in whole or in part to the appropriate Client(s), if any, or alternatively to a charitable organization, as the Chief Compliance Officer in his sole discretion shall determine; provided, however, that such disgorgement of short-term trading profits shall not apply to securities transactions of Access Persons under circumstances, determined in the sole discretion of the Chief Compliance Officer, in which disgorgement of profits would be inequitable.
The Chief Compliance Officer may provide for preclearance of a short-term trading transaction in instances in which no abuse would be involved and the equities of the situation support an exemption from the prohibition.
The Chief Compliance Officer will periodically review Affiliated Funds transactions for short-term trading activity and reserves the right to require an Access Person to disgorge profit, with the profit to be paid to the appropriate Affiliated Fund.
4 DE MINIMUS RULE
Employees will be allowed to make de minimus trades which would otherwise be subject to the preclearance requirements if the following guidelines are adhered to:
- A de minimus trade may be made for any security in which the issuer has a market capitalization of equal to or greater than $10 billion.
- The total dollar amount of a de minimus trade may not exceed $15,000.
- A large cap deminimus trade may be made for any security in which the issuer has a market capitalization of $35 billion or greater. There is no limit to the amount or number of these trades by an employee.
Appendix 2 page 7
De minimus trades will not be subject to either the seven day preclearance or the seven day post-trade blackout period provisions of the Code of Ethics. Employees must submit an ETS de minimus preclearance request.
De minimus trades will still be subject to the sixty day short-term trading rule and initial public offerings, limited private offerings and restricted security pre-clearance.
Furthermore, employees should also note that the de minimus rule does not exempt employees from violations of the insider trading rules. Employee trades will be monitored to ensure that a pattern of trading with client accounts is not present.
De minimus rules do not apply to any limited offerings, i.e. private placements of a public company; any initial public offerings or restricted securities.
5 SERVICE AS A DIRECTOR
No ACCESS PERSON may serve on the board of directors of a publicly traded company without prior authorization of the Chief Compliance Officer. No such service shall be approved without a finding by the Chief Compliance Officer that the board service would not be inconsistent with the interests of Clients. If board service is authorized, the Access Person serving as a director normally should be isolated through "Chinese Walls" or other procedures from persons making investment decisions with respect to the company involved.
6 CREDITORS COMMITTEES
No Access Person may serve on a creditor committee of a publicly traded company without prior authorization of the Chief Compliance Officer in cases where it is part of the person's employment duties. If creditor committee service is authorized, the Access Person serving should adhere to the Insider Trading Policies with respect to information obtained in such a role.
7 DISCLOSURE OF INTERESTS
No ACCESS PERSON shall, for or on behalf of a Client, recommend or invest in entities with which the Access Person or a Related Party (as defined in Appendix 1 Part B) has a material business interest, without first disclosing such interest to a Compliance Committee Member or subjecting the recommendation or investment to an independent review and approval by the Management Committee with no such interest. A material business interest may be direct or indirect and may include, without limitation, beneficial ownership of publicly or privately traded securities (including derivatives, options, warrants or rights), offices, directorships, significant contracts, or similar interests or relationships held by such person or a Related Party, which might affect such person's judgment.
Appendix 2 page 8
8 NOT USED
9 HEDGE FUNDS AND OTHER GROUPS
No ACCESS PERSON may participate in hedge funds or similar investment groups except as a passive investor.
10 INVESTMENT CLUBS
ACCESS PERSONS may participate in investment clubs provided the club's transactions are reported as if they were made directly on behalf of the Access Person, and all trades by the investment club are effected in conformance with the prohibitions, restrictions and procedures in this Code of Ethics.
11 PROHIBITED BROKERAGE ARRANGEMENTS
No ACCESS PERSON may place his or her personal securities transactions through a Denver Investment Advisors trading desk employee or through an individual broker that does business with Denver Investment Advisors without written permission from the Chief Compliance Officer. The Chief Compliance Officer may, from time to time, grant exceptions from this prohibition when particular circumstances make it unlikely that such trading activity would disadvantage Clients. Employees should submit an ETS special preclearance form with details of the arrangement for Compliance Committee member approval.
12 INVESTMENTS IN AFFILIATE FUNDS ADVISED OR SUB-ADVISED BY DENVER INVESTMENT ADVISORS
12.1 Investment Companies may have greater volatility, therefore, investments in such funds will be monitored for the following:
Denver Investment Advisors employee trades will be monitored for possible trading in anticipation of IPO's acquired by the funds and short-term trading within 90 days with proprietary information.
Employees that benefit from short-term trading of Affiliated Funds may be required to disgorge inappropriately gained profits or may have their trades cancelled and monies returned to them.
12.2 A portfolio manager who wishes to make redemptions from a fund that he/she manages which are greater than $250,000 or 1% of the fund's net asset value, whichever is less, in any 90 day period must seek and receive the approval of the Chief Compliance Officer prior to making such redemptions and document such on an ETS special preclearance.
13 REQUIRED REPORTS
Appendix 2 page 9
13.1 DUPLICATE ACCOUNT INFORMATION AND NOTIFICATION. ACCESS PERSONS must arrange for their brokers, investment advisers, trustees or custodians to provide, on a timely basis, to the Compliance Committee, duplicate account statements and confirmation of all transactions in Covered Securities for all accounts in which they have a beneficial interest (see Appendix 1 Part B regarding beneficial ownership). Access Persons must also notify the Compliance Committee of each such account, indicating the name of the brokerage firm, the name under which the account is carried and the date the account was established. An Account Information Form should be completed for this purpose. Duplicate account information will be organized and filed by the Compliance Committee and exceptions will be reviewed by the Compliance Committee to determine that no trades violate the Code of Ethics and that there is no pattern of trading that suggests a potential violation.
13.2 QUARTERLY ACKNOWLEDGMENTS AND VERIFICATIONS. Access persons must, no later than 30 days after the end of a calendar quarter, verify all open accounts and all security transactions for the quarter unless such information has already been provided to the Company by supplying brokerage confirms for all transactions in Covered Securities and Affiliated Funds. Access persons must verify even if they have no accounts or transactions during the quarter.
13.3 INITIAL AND ANNUAL HOLDINGS REPORTS. Each ACCESS PERSON must, within 10 calendar days of commencement of services and at least annually thereafter, submit a Holdings Report which includes all Covered and Reportable Securities: the title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each Reportable Security in which the access person has any direct or indirect beneficial ownership; the name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person's direct or indirect benefit; and the date the Access Person submits the report. The holdings information must be current as of a date no more than 45 days prior to the reporting date. An Access Person satisfies the annual holdings report for brokerage accounts by arranging for duplicate statements to be sent to the Company.
It is each Access Person's responsibility to provide the Company with duplicate confirmations and statements if the Company has not received them directly from the brokerage firm. The Compliance Committee may request Access Persons to provide confirmations and/or statements regardless of whether their broker has been instructed to provide such reports. This is to allow the Compliance Committee for example, to check that all applicable confirmations are being received or to supplement the requested confirmations where a broker is difficult to work with or otherwise fails to provide duplicate confirmations on a timely basis. Such reports will be requested if the confirmations do not provide adequate information.
13.4 CORPORATE AUTOMATIC INVESTMENT PLANS. To exempt pre-set Corporate Automatic Investment purchases from the pre-clearance requirements, Access Persons must submit the "Corporate Automatic Investment Plans" form prior to the establishment of such a plan or upon a change to the pre-set amount or frequency.
Appendix 2 page 10
13.5 REVIEW OF REPORTS. The Compliance Committee shall, on a timely basis, review all reports submitted pursuant to this Section 13 to determine whether trading patterns and other activities of Access Persons may suggest either violations of the Ethics Rules or a failure to comply not only with the letter, but also with the spirit, of the Ethics Rules and their general principles.
Appendix 2 page 11
DENVER INVESTMENT ADVISORS LLC ETHICS RULES
APPENDIX 3 INSIDER TRADING POLICY
A. BACKGROUND INFORMATION
The term "insider trading" is not defined in the federal securities statutes, but generally is used to refer to the use of material nonpublic information to trade in securities (whether or not one is an "insider") or to communications of material nonpublic information to others.
While the law concerning insider trading is not settled, it is appropriate to assume that the law prohibits:
- trading by an insider, while in possession of material nonpublic information, or
- trading by a non-insider, while in possession of material nonpublic information, where the information either was disclosed to the non-insider (directly or through one or more intermediaries) in violation of an insider's duty to keep it confidential or was misappropriated or otherwise improperly obtained by the non-insider, or
- communicating material nonpublic information to others in breach of a duty not to disclose such information.
Trading based on material nonpublic information about an issuer does not violate
this policy unless the trader (i) is an "insider" with respect to an issuer;
(ii) receives the information from someone that the trader knows received the
information from an insider, either directly or indirectly, or (iii)
misappropriates the nonpublic information or obtains or misuses it in breach of
a duty of trust and confidence. Accordingly, trading based on material nonpublic
information about an issuer can be, but is not necessarily, a violation of this
Policy.
Application of the law of insider trading to particular transactions can be difficult, particularly if it involves a determination about trading based on material nonpublic information. An individual legitimately may be uncertain about the application of this Policy in particular circumstances. If you have any questions regarding the application of the Policy, you should contact a Compliance Committee Member. You should also notify a Compliance Committee Member immediately if you have any reason to believe that a violation of the Policy has occurred or is about to occur.
The following discussion is intended to help you understand the principal concepts involved in insider trading.
Appendix 3 page 1
1 WHO IS AN INSIDER?
The concept of "insider" is broad. It includes officers, directors and employees of a company. In addition, a person can be a "temporary insider" if he or she enters into a special confidential relationship in the conduct of a company's affairs and as a result is given access to information solely for the company's purposes. A temporary insider can include, among others, a company's attorneys, accountants, consultants, bank lending officers, and the employees of such organizations. In addition, Denver Investment Advisors may become a temporary insider of a company it advises or for which it performs other services. To be considered an insider, the company must expect the outsider to keep the disclosed nonpublic information confidential and/or the relationship must at least imply such a duty.
2 WHEN IS INFORMATION NONPUBLIC?
Information remains nonpublic until it has been made public. Information becomes public when it has been effectively communicated to the market place, such as by a public filing with the SEC or other governmental agency, inclusion in the Dow Jones "tape" or publication in the Wall Street Journal or another publication of general circulation. Moreover, sufficient time must have passed so that the information has been disseminated widely.
3 WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the information is material. "Material information" generally means information for which there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions, or information that is reasonably certain to have a substantial effect on the price of a company's securities. Information that should be considered material includes, but is not limited to: dividend changes, earnings estimates, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments.
Material information may also relate to the market for a company's securities.
Information about a significant order to purchase or sell securities may, in some contexts, be deemed material. Similarly, prepublication information regarding reports in the financial press also may be deemed material. For example, the Supreme Court upheld the criminal convictions of insider trading defendants who capitalized on prepublication information about the Wall Street Journal's "Heard on the Street" column.
Appendix 3 page 2
4 PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material nonpublic information are severe, both for individuals involved in such unlawful conduct and their employers or other controlling persons. A person can be subject to some or all of the penalties below even if he or she does not personally benefit from the violation. Penalties include:
- civil injunctions
- treble damages
- disgorgement of profits
- jail sentences for up to 10 years
- fines up to $1,000,000 (or $2,500,000 for corporations and other entities)
- civil penalties for the person who committed the violation of up to three times the profit gained or loss avoided, whether or not the person actually benefitted, and
- civil penalties for the employer or other controlling person of up to the greater of $1,000,000 or three times the amount of the profit gained or loss avoided.
In addition, any violation can be expected to result in serious sanctions by Denver Investment Advisors, including termination of employment.
5 WHO IS A CONTROLLING PERSON?
Included as controlling persons are Denver Investment Advisors and its members and officers. If you are a member or officer, you have a duty to act to prevent insider trading. Failure to fulfill such a duty may result in penalties as described in Part A, 4, above.
B. PROCEDURES TO IMPLEMENT POLICY
The following procedures have been established to aid the members, officers and employees of Denver Investment Advisors in avoiding insider trading, and to aid Denver Investment Advisors in preventing, detecting and imposing sanctions against insider trading.
1 IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including Clients, in the securities of a company about which you may have potential inside information, ask yourself the following questions:
1.1 To whom has this information been provided? Has the information been effectively communicated to the marketplace?
1.2 Is the information material? Is this information that an investor would consider important in making his or her investment decisions? Is this information that would affect the market price of the securities if generally disclosed?
Appendix 3 page 3
2 REPORTING INSIDE INFORMATION
If, after consideration of the above, you believe that the information is material and nonpublic, or if you have questions as to whether the information is material and nonpublic, you should take the following steps.
2.1 Do not purchase or sell the securities on behalf of yourself or others, including Clients.
2.2 Do not communicate the information inside or outside of Denver Investment Advisors, other than to a Compliance Committee Member.
2.3 Immediately advise a Compliance Committee Member of the nature and source of such information, and he/she will provide the necessary information to the Chief Compliance Officer.
2.4 Depending upon the determination made by the Chief Compliance Officer, you, or you and others may be instructed to continue the prohibition against trading and communication. Alternatively, if it is determined that the information obtained is not material nonpublic information, you may be allowed to trade and communicate the information.
3 PROTECTING INFORMATION
Members, officers and employees of Denver Investment Advisors shall not disclose any nonpublic information (whether or not it is material) relating to Denver Investment Advisors or its securities transactions to any person outside Denver Investment Advisors (unless such disclosure has been authorized by the Chief Compliance Officer). Material nonpublic information may not be communicated to anyone, including any member, officer or employee of Denver Investment Advisors, except as provided in this Policy. Access to such information must be restricted. For example, access to files containing material nonpublic information and computer files containing such information should be restricted, and conversations pertaining to such information, if appropriate at all, should be conducted in private.
To avoid unintended disclosures, it is important that all employees take the following steps to safeguard the confidentiality of material and nonmaterial nonpublic information:
- Do not discuss confidential information in public places such as elevators, hallways or social gatherings;
- To the extent practical, limit access to the areas of the firm where confidential information could be observed or overheard by employees with a business need for being in the area;
- Avoid use of speaker phones in areas where unauthorized persons may overhear conversations;
Appendix 3 page 4
- Exercise care to avoid placing documents containing confidential information in areas where they may be read by unauthorized persons and to store such documents in secure locations when they are not in use; and
- Destroy copies of confidential documents in the secure shredding bins if no longer needed for a project unless required to be saved pursuant to applicable recordkeeping policies or requirements.
4 RESPONSIBILITY TO MONITOR TRANSACTIONS
The Compliance Committee will monitor Client and employee transactions for which reports are received to detect the existence of any unusual trading activities. The Compliance Committee Member will immediately report any unusual trading activity directly to Compliance Committee, which will be responsible for determining what, if any, action should be taken.
5 PRECLEARANCE AND OTHER REQUIREMENTS
No person to whom this Policy applies may trade, either personally or on behalf of others (including Clients), while in possession of material nonpublic information, nor may such Denver Investment Advisors personnel communicate material nonpublic information to others in violation of the law. Even if information is not deemed to be material nonpublic information, Denver Investment Advisors personnel must nevertheless comply with the other provisions of the Ethics Rules. For example, please refer to Appendix 2 Part C, 1.1 of the Ethics Rules, regarding the preclearance requirement applicable to Access Persons.
6 TENDER OFFERS
Tender offers represent a particular concern in the law of insider trading for two reasons. First, tender offer activity often produces extraordinary gyrations in the price of the target company's securities. Trading during this time period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule which expressly forbids trading and "tipping" while in possession of material nonpublic information regarding a tender offer received from the tender offeror, the target company or anyone acting on behalf of either. Denver Investment Advisors employees and others subject to this Policy should exercise particular caution any time they become aware of nonpublic information relating to a tender offer.
Appendix 3 page 5
DENVER INVESTMENT ADVISORS LLC ETHICS RULES
APPENDIX 4 GIFTS, ENTERTAINMENT AND OUTSIDE EMPLOYMENT POLICY
A. GIFTS
The following outlines the policy on giving and receiving gifts.
1 GIVEN
No MEMBER, OFFICER OR EMPLOYEE shall, directly or indirectly, give or permit to be given gifts in excess of $100 per person per year, to existing clients, prospective clients, or any entity that does business with or on behalf of Denver Investment Advisors without the pre-approval by the Chief Compliance Officer. Gifts made to charitable organizations on behalf of a client interest must be reported to Compliance for review.
2 RECEIVED
No MEMBER, OFFICER OR EMPLOYEE may receive any gift or other thing of value in excess of $100 per person per year from any person or entity that does business or seeks to do business with or on behalf of Denver Investment Advisors or any Client without the pre-approval by the Chief Compliance Officer, provided however, receipt of the following shall not be prohibited:
B. ENTERTAINMENT
- Each member, officer or employee may give or receive an occasional meal, ticket to a sporting event or the theater, or comparable entertainment, which is neither so frequent nor so costly as to raise any question of impropriety if the person or entity providing the entertainment is present.
C. OUTSIDE EMPLOYMENT
No MEMBER, OFFICER OR EMPLOYEE of Denver Investment Advisors shall be employed by, or accept compensation from any other person as a result of any business activity, other than a passive investment, outside the scope of his relationship with Denver Investment Advisors unless such person has provided prompt notice of such employment to the Compliance Committee, and, in the case of securities-related employment or compensation, has received the prior written approval of the Chief Compliance Officer. The ETS Business Positions Report should be submitted at the commencement and updated at the termination of outside employment.
Appendix 4 page 1
DENVER INVESTMENT ADVISORS LLC ETHICS RULES
APPENDIX 5 OTHER
A. SUPERVISORY AND COMPLIANCE REVIEW PROCEDURES
Supervisory procedures can be divided into two classifications: prevention of violations and detection of violations. Compliance review procedures include preparation of special and annual reports, record maintenance and review, and confidentiality preservation.
1 PREVENTION OF VIOLATIONS
In an effort to prevent violations of the Ethics Rules, the Compliance Committee Member should, in addition to the procedures previously outlined in the Ethics Rules:
1.1 Review and update the Ethics Rules as necessary, at least once annually, including but not limited to a review of the Code by the Chief Compliance Officer and/or counsel;
1.2 Answer questions regarding the Ethics Rules;
1.3 With such assistance from the Compliance Committee Member, outside counsel, or Human Resources Manager as may be appropriate, maintain a continuing education program consisting of the following:
1.3.1 orienting members, officers, and employees who are new to Denver Investment Advisors. The orientation shall include without limitation a discussion of the Ethics Rules,
1.3.2 further educating members, officers, and employees by distributing memos or other materials that may be issued by outside organizations such as the Investment Company Institute discussing the issue of insider trading and other issues raised by the Ethics Rules;
1.4 Request from all persons upon commencement of services and annually thereafter, any applicable forms and reports as required by the Ethics Rules;
1.5 Write letters to securities firms requesting duplicate confirmations and account statements where necessary; and
1.6 Resolve with the Chief Compliance Oficer issues of whether information received by a member, officer or employee of Denver Investment Advisors is material and nonpublic and determine what action, if any, should be taken.
Appendix 5 page 1
2 DETECTION OF VIOLATIONS
In an effort to detect violations of these Ethics Rules, the Chief Compliance Officer and Compliance Committee Member should, in addition to the procedures previously outlined in the Ethics Rules:
2.1 Review reports, confirmations, and statements relative to applicable restrictions, as provided under the Code;
2.2 Spot checks of certain information are permitted as noted under the Code.
3 REPORTS OF POTENTIAL DEVIATIONS OR VIOLATIONS
Upon learning of a potential deviation or violation of the Ethics Rules, a Compliance Committee Member should promptly report to the Chief Compliance Officer providing full details and recommendations for further action. The Chief Compliance Officer shall thereafter take such action as deemed appropriate.
4 ANNUAL REPORTS
The Compliance Committee Member should prepare at least annually a written summary report for the Boards of Directors of any registered investment company for which Denver Investment Advisors serves as investment adviser or sub-adviser. This report shall otherwise be confidential and set forth the following information:
4.1 Copies of the Ethics Rules, as revised, including a summary of any changes made during the past year;
4.2 Identification of any violations requiring remedial action during the past year, and the sanctions imposed for each such violation;
4.3 Recommendations, if any, regarding changes in existing restrictions or procedures based upon Denver Investment Advisor's experience under these Ethics Rules, evolving industry practices, or developments in applicable laws or regulations; and
4.4 Certification that, in the opinion of the Chief Compliance Officer, the Ethics Rules include such procedures as are reasonably necessary to prevent Access Persons from violating the Ethics Rules.
5 RECORDS
The Compliance Committee Member is responsible for ensuring that the following records are created and maintained:
5.1 A copy of the Ethics Rules which are, or at any time within the past five years have been, in effect;
Appendix 5 page 2
5.2 Files for personal securities transaction confirmations and account statements, all reports and other electronic forms submitted pursuant to these Ethics Rules and any other pertinent information;
5.3 A record of each preclearance;
5.4 A record of any violation of the Ethics Rules and of any action taken as a result of such violation;
5.5 A log noting the dates of review, annual update activity and any other information pertaining to implementation of these procedures; and
5.6 A list of all persons who are, or have been, required to make reports or who are or were responsible for reviewing such reports pursuant to these Ethics Rules.
6 INSPECTION
The records and reports maintained by the Compliance Committee Member, and the Chief Compliance Officer pursuant to the Ethics Rules shall at all times be available for inspection, without prior notice, by any member of the Management Committee.
7 RECORD RETENTION
Copies of the records specified in Section 5 above and of memoranda regarding the administration of these procedures shall be maintained by the Compliance Commiteee Member for a minimum of six years. All records listed in Section 5 above shall be kept in an easily accessible place except that the records specified in Section 5.2 need only be kept in an easily accessible place for two years.
8 CONFIDENTIALITY
All personal information maintained relating to the Code of Ethics shall be considered confidential and proprietary to Denver Investment Advisors and shall be maintained and protected accordingly. Except as otherwise required by law or this Ethics Code no disclosure shall be made about Ethics Code issues. unless approved by the Chief Compliance Officer.
Appendix 5 page 3
B. ROLE OF THE COMPLIANCE COMMITTEE IN COMPLIANCE
One of the roles of the Compliance Committee is to provide an effective mechanism for monitoring compliance with the standards and procedures contained in the Ethics Rules and to take appropriate action at such times as violations or potential violations are discovered.
1 MEMBERSHIP OF THE COMPLIANCE COMMITTEE
The members of the Compliance Committee will be the Advisor Chief Compliance Officer, Funds Chief Compliance Officer and any additional employees determined by the Advisor Chief Compliance Officer
2 COMPLIANCE COMMITTEE MEETINGS
The Chief Compliance Officer shall review on a quarterly basis or as often as necessary the operations of the Ethics Rules and consider technical deviations from operational procedures, inadvertent oversights, or any other potential violation of the Ethics Rules.
Deviations alternatively may be addressed by including them in the employee's personnel records maintained by Denver Investment Advisors. Compliance Committee reviews are primarily intended for consideration of the general operation of the compliance program and substantive or serious departures from standards and procedures in the Ethics Rules.
A Compliance Committee meeting may be attended, at the discretion of the Compliance Committee, by such other persons as the Compliance Committee shall deem appropriate. Any individual whose conduct has given rise to the meeting may also be called upon, but shall not have the right, to appear before the Compliance Committee.
It is not required that minutes of such Compliance Committee meetings be maintained; in lieu of minutes the Compliance Committee may issue a report describing any action taken. The report shall be included in the confidential file maintained by the Compliance Committee with respect to the particular employee or employees whose conduct has been the subject of the meeting.
The Compliance Committee will also prepare reports or make copies of minutes available as needed for Directors/Trustees of investment companies advised or sub-advised by Denver Investment Advisors.
C. GENERAL INFORMATION ABOUT THE ETHICS RULES
The following describes additional information generally applicable to the Ethics Rules.
Appendix 5 page 4
1 DESIGNEES
The Chief Compliance Officer may appoint designees to carry out certain functions pursuant to these Ethics Rules.
2 ENFORCEMENT
In addition to the penalties described elsewhere in the Ethics Rules, upon discovering a violation of the Ethics Rules, Denver Investment Advisors may impose such sanctions as it deems appropriate, including without limitation, a letter of censure or suspension or termination of employment or personal trading privileges of the violator or disgorgement of any profits realized on certain transactions to the appropriate client(s), or alternatively to a charitable organization, as the Chief Compliance Officer in his sole discretion shall determine. All material violations of the Ethics Rules and any sanctions imposed with respect thereto shall be reported periodically to the Management Committee.
3 INTERNAL USE
The Ethics Rules are intended solely for internal use by Denver Investment Advisors and do not constitute an admission, by or on behalf of Denver Investment Advisors, as to any fact, circumstance or legal conclusion. The Ethics Rules are not intended to evidence, describe or define any relationship of control between or among any persons. Further, the Ethics Rules are not intended to form the basis for describing or defining any conduct by a person that should result in such person being liable to any other person, except insofar as the conduct of such person in violation of the Ethics Rules may constitute sufficient cause for Denver Investment Advisors to terminate or otherwise adversely affect such person's relationship with Denver Investment Advisors.
Appendix 5 page 5