-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FbW4s5S1a/PCYSKvNrG2t12HGUXd9O9I9Kx+xtxTrqomkuLFFdaoeymAIXoO3fUh GufU4dXRxe5DcUeBUIU/YQ== 0000820027-05-000880.txt : 20051004 0000820027-05-000880.hdr.sgml : 20051004 20051004115516 ACCESSION NUMBER: 0000820027-05-000880 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20051004 DATE AS OF CHANGE: 20051004 EFFECTIVENESS DATE: 20051004 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP INVESTMENT SERIES INC CENTRAL INDEX KEY: 0000052347 IRS NUMBER: 410839315 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-11328 FILM NUMBER: 051120205 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 612-671-7981 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: IDS INVESTMENT SERIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IDS MUTUAL INC/NEW DATE OF NAME CHANGE: 19911124 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORS MUTUAL INC DATE OF NAME CHANGE: 19841003 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP GOVERNMENT INCOME SERIES INC CENTRAL INDEX KEY: 0000764802 IRS NUMBER: 412021315 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-96512 FILM NUMBER: 051120210 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6123722772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP FEDERAL INCOME FUND INC /MN/ DATE OF NAME CHANGE: 20000829 FORMER COMPANY: FORMER CONFORMED NAME: IDS FEDERAL INCOME FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP SELECTED SERIES INC CENTRAL INDEX KEY: 0000755222 IRS NUMBER: 411503588 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-93745 FILM NUMBER: 051120216 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6123722772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP PRECIOUS METALS FUND INC DATE OF NAME CHANGE: 19991126 FORMER COMPANY: FORMER CONFORMED NAME: IDS PRECIOUS METALS FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP EQUITY SERIES INC CENTRAL INDEX KEY: 0000052445 IRS NUMBER: 410839318 STATE OF INCORPORATION: MN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-13188 FILM NUMBER: 051120219 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6123722772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP EQUITY SELECT FUND INC DATE OF NAME CHANGE: 19991124 FORMER COMPANY: FORMER CONFORMED NAME: IDS EQUITY SELECT FUND INC DATE OF NAME CHANGE: 19950802 FORMER COMPANY: FORMER CONFORMED NAME: IDS EQUITY PLUS FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP MARKET ADVANTAGE SERIES INC CENTRAL INDEX KEY: 0000854669 IRS NUMBER: 411946880 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-30770 FILM NUMBER: 051120221 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/522 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6123722772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: IDS MARKET ADVANTAGE SERIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IDS INDEX ADVANTAGE SERIES INC DATE OF NAME CHANGE: 19900201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP MANAGED SERIES INC CENTRAL INDEX KEY: 0000755221 IRS NUMBER: 411503589 STATE OF INCORPORATION: MN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-93801 FILM NUMBER: 051120204 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 612-671-7981 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: IDS MANAGED RETIREMENT FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP INCOME SERIES INC CENTRAL INDEX KEY: 0000052407 IRS NUMBER: 410839316 STATE OF INCORPORATION: MN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-10700 FILM NUMBER: 051120207 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 612-671-7981 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP SELECTIVE FUND INC /MN/ DATE OF NAME CHANGE: 20000829 FORMER COMPANY: FORMER CONFORMED NAME: IDS SELECTIVE FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORS SELECTIVE FUND INC DATE OF NAME CHANGE: 19841002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP TAX-EXEMPT SERIES INC CENTRAL INDEX KEY: 0000202159 IRS NUMBER: 411284051 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-57328 FILM NUMBER: 051120213 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126712772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: IDS TAX EXEMPT BOND FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IDS MUNICIPAL BOND FUND INC DATE OF NAME CHANGE: 19770201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP STOCK SERIES INC CENTRAL INDEX KEY: 0000052423 IRS NUMBER: 410839317 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-11358 FILM NUMBER: 051120215 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126712727 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP STOCK FUND INC DATE OF NAME CHANGE: 19991124 FORMER COMPANY: FORMER CONFORMED NAME: IDS STOCK FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORS STOCK FUND INC DATE OF NAME CHANGE: 19831221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP TAX-FREE MONEY SERIES INC CENTRAL INDEX KEY: 0000315524 IRS NUMBER: 411374828 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-66868 FILM NUMBER: 051120220 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126712772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP TAX-FREE MONEY FUND INC DATE OF NAME CHANGE: 20000225 FORMER COMPANY: FORMER CONFORMED NAME: IDS TAX FREE MONEY FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP FIXED INCOME SERIES INC CENTRAL INDEX KEY: 0000049697 IRS NUMBER: 411237361 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-51586 FILM NUMBER: 051120212 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126712772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP BOND FUND INC DATE OF NAME CHANGE: 20000829 FORMER COMPANY: FORMER CONFORMED NAME: IDS BOND FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP GLOBAL SERIES INC CENTRAL INDEX KEY: 0000842918 IRS NUMBER: 411850486 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-25824 FILM NUMBER: 051120211 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126712772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: IDS GLOBAL SERIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IDS GLOBAL BOND FUND INC DATE OF NAME CHANGE: 19901011 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP STRATEGY SERIES INC CENTRAL INDEX KEY: 0000740146 IRS NUMBER: 416287631 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-89288 FILM NUMBER: 051120214 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6123722772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: IDS STRATEGY FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP HIGH YIELD INCOME SERIES INC CENTRAL INDEX KEY: 0000728374 IRS NUMBER: 411458705 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-86637 FILM NUMBER: 051120209 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6123722772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP EXTRA INCOME FUND INC/MN DATE OF NAME CHANGE: 20000825 FORMER COMPANY: FORMER CONFORMED NAME: IDS EXTRA INCOME FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP HIGH YIELD TAX-EXEMPT SERIES INC CENTRAL INDEX KEY: 0000310187 IRS NUMBER: 411347174 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-63552 FILM NUMBER: 051120208 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 612-671-7981 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP HIGH YIELD TAX-EXEMPT FUND DATE OF NAME CHANGE: 20000406 FORMER COMPANY: FORMER CONFORMED NAME: AXP HIGH YIELD TAX EXEMPT FUND DATE OF NAME CHANGE: 20000327 FORMER COMPANY: FORMER CONFORMED NAME: IDS HIGH YIELD TAX EXEMPT FUND INC /MN/ DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP INTERNATIONAL SERIES INC CENTRAL INDEX KEY: 0000750022 IRS NUMBER: 411493320 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-92309 FILM NUMBER: 051120206 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 612-671-7981 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP INTERNATIONAL FUND INC DATE OF NAME CHANGE: 19991227 FORMER COMPANY: FORMER CONFORMED NAME: IDS INTERNATIONAL FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP PARTNERS SERIES INC CENTRAL INDEX KEY: 0001137342 IRS NUMBER: 412002794 STATE OF INCORPORATION: MN FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 333-57852 FILM NUMBER: 051120217 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 612-671-7981 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP PARTNERS INTERNATIONAL SERIES INC CENTRAL INDEX KEY: 0001140531 IRS NUMBER: 412009895 STATE OF INCORPORATION: MN FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 333-64010 FILM NUMBER: 051120218 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 612-671-7981 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 497 1 s6500-20.txt STATEMENT OF ADDITIONAL INFORMATION STATEMENT OF ADDITIONAL INFORMATION Oct. 3, 2005 AXP(R) California Tax-Exempt Trust RiverSource(SM) California Tax-Exempt Fund AXP Dimensions Series, Inc. RiverSource(SM) New Dimensions Fund(R) AXP Discovery Series, Inc. RiverSource Core Bond Fund RiverSource Discovery Fund RiverSource Income Opportunities Fund RiverSource Inflation Protected Securities Fund RiverSource Limited Duration Bond Fund AXP Equity Series, Inc. RiverSource Mid Cap Growth Fund AXP Fixed Income Series, Inc. RiverSource Diversified Bond Fund AXP Global Series, Inc. RiverSource Emerging Markets Fund RiverSource Global Balanced Fund RiverSource Global Bond Fund RiverSource Global Equity Fund RiverSource Global Technology Fund AXP Government Income Series, Inc. RiverSource Short Duration U.S. Government Fund RiverSource U.S. Government Mortgage Fund AXP Growth Series, Inc. RiverSource Disciplined Equity Fund RiverSource Growth Fund RiverSource Large Cap Equity Fund RiverSource Large Cap Value Fund AXP High Yield Income Series, Inc. RiverSource High Yield Bond Fund AXP High Yield Tax-Exempt Series, Inc. RiverSource Tax-Exempt High Income Fund AXP Income Series, Inc. RiverSource Selective Fund AXP International Series, Inc. RiverSource European Equity Fund RiverSource International Opportunity Fund AXP Investment Series, Inc. RiverSource Balanced Fund RiverSource Diversified Equity Income Fund RiverSource Mid Cap Value Fund AXP Managed Series, Inc. RiverSource Strategic Allocation Fund AXP Market Advantage Series, Inc. RiverSource Portfolio Builder Aggressive Fund RiverSource Portfolio Builder Conservative Fund RiverSource Portfolio Builder Moderate Fund RiverSource Portfolio Builder Moderate Aggressive Fund RiverSource Portfolio Builder Moderate Conservative Fund RiverSource Portfolio Builder Total Equity Fund RiverSource S&P 500 Index Fund RiverSource Small Company Index Fund AXP Money Market Series, Inc. RiverSource Cash Management Fund AXP Partners International Series, Inc. RiverSource International Aggressive Growth Fund RiverSource International Equity Fund RiverSource International Select Value Fund RiverSource International Small Cap Fund AXP Partners Series, Inc. RiverSource Aggressive Growth Fund RiverSource Fundamental Growth Fund RiverSource Fundamental Value Fund RiverSource Select Value Fund RiverSource Small Cap Equity Fund RiverSource Small Cap Value Fund RiverSource Value Fund AXP Sector Series, Inc. RiverSource Dividend Opportunity Fund RiverSource Real Estate Fund AXP Selected Series, Inc. RiverSource Precious Metals Fund AXP Special Tax-Exempt Series Trust RiverSource Insured Tax-Exempt Fund RiverSource Massachusetts Tax-Exempt Fund RiverSource Michigan Tax-Exempt Fund RiverSource Minnesota Tax-Exempt Fund RiverSource New York Tax-Exempt Fund RiverSource Ohio Tax-Exempt Fund AXP Stock Series, Inc. RiverSource Stock Fund AXP Strategy Series, Inc. RiverSource Equity Value Fund RiverSource Small Cap Advantage Fund RiverSource Small Cap Growth Fund RiverSource Strategy Aggressive Fund AXP Tax-Exempt Series, Inc. RiverSource Intermediate Tax-Exempt Fund RiverSource Tax-Exempt Bond Fund AXP Tax-Free Money Series, Inc. RiverSource Tax-Exempt Money Market Fund 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 prospectus that may be obtained, without charge, from your financial advisor or investment professional or by writing to RiverSource Service Corporation, 70100 Ameriprise Financial Center, Minneapolis, MN 55474 or by calling (800) 862-7919. Each fund's financial statements for its most recent fiscal period are contained in the fund's Annual or Semiannual Report to shareholders. The Independent Registered Public Accounting Firm's Report and the Financial Statements, including Notes to the Financial Statements and the Schedule of Investments in Securities and any applicable Schedule of Affiliated Funds, contained in the Annual Report, are incorporated in this SAI by reference. No other portion of the Annual Report is incorporated by reference. The current prospectus for each of the funds also is incorporated in this SAI by reference. Each fund is governed by a Board of Directors/Trustees (Board) that meets regularly to review a wide variety of matters affecting the funds. Detailed information about fund governance, the funds' investment manager, RiverSource Investments, LLC (the investment manager or RiverSource Investments), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial), and other aspects of fund management can be found by referencing the Table of Contents below.
Table of Contents Mutual Fund Checklist ......................................................................................p. 4 Fundamental and Nonfundamental Investment Policies..........................................................p. 7 Investment Strategies and Types of Investments ............................................................p. 18 Information Regarding Risks and Investment Strategies .....................................................p. 20 Securities Transactions ...................................................................................p. 46 Brokerage Commissions Paid to Brokers Affiliated with the Investment Manager ..............................p. 55 Valuing Fund Shares .......................................................................................p. 58 Portfolio Holdings Disclosure .............................................................................p. 65 Proxy Voting ..............................................................................................p. 67 Investing in a Fund .......................................................................................p. 68 Selling Shares ............................................................................................p. 72 Pay-out Plans .............................................................................................p. 73 Capital Loss Carryover.....................................................................................p. 74 Taxes .....................................................................................................p. 76 Agreements.................................................................................................p. 80 Organizational Information ...............................................................................p. 129 Board Members and Officers ...............................................................................p. 133 Control Persons and Principal Holders of Securities.......................................................p. 142 Independent Registered Public Accounting Firm.............................................................p. 149 Appendix A: Description of Ratings.......................................................................p. 150 Appendix B: State Risk Factors...........................................................................p. 156 Appendix C: Insured Tax-Exempt Fund......................................................................p. 160 Appendix D: Additional Information about the S&P 500 Index...............................................p. 162
Statement of Additional Information - Oct. 3, 2005 Page 2 List of Tables 1. Fund Fiscal Year Ends and Investment Categories......................5 1A. Master/Feeder Funds..................................................6 2. Fundamental Policies.................................................7 3. Nonfundamental Policies.............................................12 4. Investment Strategies and Types of Investments......................18 5. Total Brokerage Commissions.........................................47 6. Brokerage Directed for Research and Turnover Rates..................49 7. Securities of Regular Brokers or Dealers............................51 8. Brokerage Commissions Paid to Investment Manager or Affiliates......55 9. Valuing Fund Shares.................................................58 10. Class A Sales Charge................................................68 11. Public Offering Price...............................................69 12. Capital Loss Carryover..............................................74 13. Corporate Deduction and Qualified Dividend Income...................77 14. Investment Management Services Agreement Fee Schedule...............80 15. Lipper Indexes......................................................84 16. Performance Incentive Adjustment Calculation........................85 17. Management Fees and Nonadvisory Expenses............................86 18. Subadvisers and Subadvisory Agreement Fee Schedules.................88 19. Subadvisory Fees....................................................90 20. Portfolio Managers..................................................92 21. Administrative Services Agreement Fee Schedule.....................120 22. Administrative Fees................................................122 23. Sales Charges Paid to Distributor..................................125 24. 12b-1 Fees.........................................................128 25. Fund History Table for All Publicly Offered RiverSource Funds......130 26. Board Members......................................................133 27. Fund Officers......................................................134 28. Committee Meetings.................................................135 29. Board Member Holdings - All Funds..................................136 30. Board Member Holdings - Individual Funds...........................136 31. Board Member Compensation - All Funds..............................138 32. Board Member Compensation - Individual Funds.......................139 32A. Board Member Compensation - Master Portfolios......................141 33. Control Persons and Principal Holders of Securities................142 Statement of Additional Information - Oct. 3, 2005 Page 3 Mutual Fund Checklist o Mutual funds are NOT guaranteed or insured by any bank or government agency. You can lose money. o Mutual funds ALWAYS carry investment risks. Some types carry more risk than others. o A higher rate of return typically involves a higher risk of loss. o Past performance is not a reliable indicator of future performance. o ALL mutual funds have costs that lower investment return. o You can buy some mutual funds by contacting them directly. Others, like these, are sold mainly through brokers, banks, financial planners, or insurance agents. If you buy through these financial professionals, you generally will pay a sales charge. o Shop around. Compare a mutual fund with others of the same type before you buy. OTHER IDEAS FOR SUCCESSFUL MUTUAL FUND INVESTING Develop a Financial Plan Have a plan -- even a simple plan can help you take control of your financial future. Review your plan with your financial advisor or investment professional at least once a year or more frequently if your circumstances change. Dollar-Cost Averaging An investment technique that works well for many investors is one that eliminates random buy and sell decisions. One such system is dollar-cost averaging. Dollar-cost averaging involves building a portfolio through the investment of fixed amounts of money on a regular basis regardless of the price or market condition. This may enable an investor to smooth out the effects of the volatility of the financial markets. By using this strategy, more shares will be purchased when the price is low and less when the price is high. As the accompanying chart illustrates, dollar-cost averaging tends to keep the average price paid for the shares lower than the average market price of shares purchased, although there is no guarantee. While this does not ensure a profit and does not protect against a loss if the market declines, it is an effective way for many shareholders who can continue investing through changing market conditions to accumulate shares to meet long-term goals. Regular Market price Shares investment of a share acquired $100 $ 6.00 16.7 100 4.00 25.0 100 4.00 25.0 100 6.00 16.7 100 5.00 20.0 - ----------------------------------------------------------------------- $500 $25.00 103.4 Average market price of a share over 5 periods: $5.00 ($25.00 divided by 5) The average price you paid for each share: $4.84 ($500 divided by 103.4) Diversify Diversify your portfolio. By investing in different asset classes and different economic environments you help protect against poor performance in one type of investment while including investments most likely to help you achieve your important goals. Understand Your Investment Know what you are buying. Make sure you understand the potential risks, rewards, costs, and expenses associated with each of your investments. Statement of Additional Information - Oct. 3, 2005 Page 4 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 Growth May 31 Equity - ----------------------------------------- ------------------------ -------------------------- Balanced September 30 Balanced - ----------------------------------------- ------------------------ -------------------------- California Tax-Exempt June 30 State tax-exempt bond - ----------------------------------------- ------------------------ -------------------------- Cash Management July 31 Taxable money market - ----------------------------------------- ------------------------ -------------------------- Core Bond July 31 Taxable bond - ----------------------------------------- ------------------------ -------------------------- Disciplined Equity July 31 Equity - ----------------------------------------- ------------------------ -------------------------- Discovery July 31 Equity - ----------------------------------------- ------------------------ -------------------------- Diversified Bond August 31 Taxable bond - ----------------------------------------- ------------------------ -------------------------- Diversified Equity Income September 30 Equity - ----------------------------------------- ------------------------ -------------------------- Dividend Opportunity June 30 Equity - ----------------------------------------- ------------------------ -------------------------- Emerging Markets October 31 Equity - ----------------------------------------- ------------------------ -------------------------- Equity Value March 31 Equity - ----------------------------------------- ------------------------ -------------------------- European Equity October 31 Equity - ----------------------------------------- ------------------------ -------------------------- Fundamental Growth May 31 Equity - ----------------------------------------- ------------------------ -------------------------- Fundamental Value May 31 Equity - ----------------------------------------- ------------------------ -------------------------- Global Balanced October 31 Balanced - ----------------------------------------- ------------------------ -------------------------- Global Bond October 31 Taxable bond - ----------------------------------------- ------------------------ -------------------------- Global Equity October 31 Equity - ----------------------------------------- ------------------------ -------------------------- Global Technology October 31 Equity - ----------------------------------------- ------------------------ -------------------------- Growth July 31 Equity - ----------------------------------------- ------------------------ -------------------------- High Yield Bond May 31 Taxable bond - ----------------------------------------- ------------------------ -------------------------- Income Opportunities July 31 Taxable bond - ----------------------------------------- ------------------------ -------------------------- Inflation Protected Securities July 31 Taxable bond - ----------------------------------------- ------------------------ -------------------------- Insured Tax-Exempt June 30 Tax-exempt bond - ----------------------------------------- ------------------------ -------------------------- Intermediate Tax-Exempt Bond November 30 Tax-exempt bond - ----------------------------------------- ------------------------ -------------------------- International Aggressive Growth October 31 Equity - ----------------------------------------- ------------------------ -------------------------- International Equity October 31 Equity - ----------------------------------------- ------------------------ -------------------------- International Opportunity October 31 Equity - ----------------------------------------- ------------------------ -------------------------- International Select Value October 31 Equity - ----------------------------------------- ------------------------ -------------------------- International Small Cap October 31 Equity - ----------------------------------------- ------------------------ -------------------------- Large Cap Equity July 31 Equity - ----------------------------------------- ------------------------ -------------------------- Large Cap Value July 31 Equity - ----------------------------------------- ------------------------ -------------------------- Limited Duration Bond July 31 Taxable bond - ----------------------------------------- ------------------------ -------------------------- Massachusetts Tax-Exempt June 30 State tax-exempt bond - ----------------------------------------- ------------------------ -------------------------- Michigan Tax-Exempt June 30 State tax-exempt bond - ----------------------------------------- ------------------------ -------------------------- Mid Cap Growth November 30 Equity - ----------------------------------------- ------------------------ -------------------------- Mid Cap Value September 30 Equity - ----------------------------------------- ------------------------ -------------------------- Minnesota Tax-Exempt June 30 State tax-exempt bond - ----------------------------------------- ------------------------ -------------------------- New Dimensions July 31 Equity - ----------------------------------------- ------------------------ -------------------------- New York Tax-Exempt June 30 State tax-exempt bond - ----------------------------------------- ------------------------ -------------------------- Ohio Tax-Exempt June 30 State tax-exempt bond - ----------------------------------------- ------------------------ -------------------------- Portfolio Builder Aggressive January 31 Funds-of-funds - equity - ----------------------------------------- ------------------------ -------------------------- Portfolio Builder Conservative January 31 Funds-of-funds - bond - ----------------------------------------- ------------------------ -------------------------- Portfolio Builder Moderate January 31 Funds-of-funds - equity - ----------------------------------------- ------------------------ -------------------------- Portfolio Builder Moderate Aggressive January 31 Funds-of-funds - equity - ----------------------------------------- ------------------------ -------------------------- Portfolio Builder Moderate Conservative January 31 Funds-of-funds - bond - ----------------------------------------- ------------------------ -------------------------- Portfolio Builder Total Equity January 31 Funds-of-funds - equity - ----------------------------------------- ------------------------ -------------------------- Precious Metals March 31 Equity - ----------------------------------------- ------------------------ -------------------------- Real Estate June 30 Equity - ----------------------------------------- ------------------------ -------------------------- S&P 500 Index January 31 Equity - ----------------------------------------- ------------------------ -------------------------- Select Value May 31 Equity - ----------------------------------------- ------------------------ -------------------------- Selective May 31 Taxable bond - ----------------------------------------- ------------------------ -------------------------- Statement of Additional Information - Oct. 3, 2005 Page 5 - ----------------------------------------- ------------------------ -------------------------- Fund Fiscal Year End Fund Investment Category - ----------------------------------------- ------------------------ -------------------------- Short Duration U.S. Government May 31 Taxable bond - ----------------------------------------- ------------------------ -------------------------- Small Cap Advantage March 31 Equity - ----------------------------------------- ------------------------ -------------------------- Small Cap Equity May 31 Equity - ----------------------------------------- ------------------------ -------------------------- Small Cap Growth March 31 Equity - ----------------------------------------- ------------------------ -------------------------- Small Cap Value May 31 Equity - ----------------------------------------- ------------------------ -------------------------- Small Company Index January 31 Equity - ----------------------------------------- ------------------------ -------------------------- Stock September 30 Equity - ----------------------------------------- ------------------------ -------------------------- Strategic Allocation September 30 Balanced - ----------------------------------------- ------------------------ -------------------------- Strategy Aggressive March 31 Equity - ----------------------------------------- ------------------------ -------------------------- Tax-Exempt Bond November 30 Tax-exempt bond - ----------------------------------------- ------------------------ -------------------------- Tax-Exempt High Income November 30 Tax-exempt bond - ----------------------------------------- ------------------------ -------------------------- Tax-Exempt Money Market December 31 Tax-exempt money market - ----------------------------------------- ------------------------ -------------------------- U.S. Government Mortgage May 31 Taxable bond - ----------------------------------------- ------------------------ -------------------------- Value May 31 Equity - ----------------------------------------- ------------------------ --------------------------
Master/Feeder Funds Each fund listed in the following table pursues its investment objective by investing all of its assets in a separate investment company (a portfolio) as shown in the table, rather than investing directly in and managing its own portfolio of securities. The portfolio has the same investment objectives, policies, and restrictions as the fund. References in this SAI, where applicable, refer to the fund and portfolio, collectively; to the fund, singularly; or to the portfolio, singularly. The Board of each feeder fund has determined that it is in the best interests of shareholders to withdraw the fund's assets from the master/feeder structure. The necessary steps to finalize the withdrawal are expected to be completed in late 2005 or early 2006. After that date, each feeder fund will invest directly in and manage its own portfolio of securities rather than investing in a master portfolio. RiverSource Investments, the investment adviser to the master portfolio, will continue to serve as investment adviser to the fund under the same terms and conditions. Table 1A. Master/Feeder Funds - -------------------------------------------- ----------------------------------- Feeder Fund Master Portfolio - -------------------------------------------- ----------------------------------- Balanced Balanced - -------------------------------------------- ----------------------------------- Diversified Equity Income Equity Income - -------------------------------------------- ----------------------------------- Emerging Markets Emerging Markets - -------------------------------------------- ----------------------------------- Global Bond World Income - -------------------------------------------- ----------------------------------- Global Equity World Growth - -------------------------------------------- ----------------------------------- Global Technology World Technologies - -------------------------------------------- ----------------------------------- Growth Growth - -------------------------------------------- ----------------------------------- High Yield Bond High Yield - -------------------------------------------- ----------------------------------- New Dimensions Growth Trends - -------------------------------------------- ----------------------------------- Selective Quality Income - -------------------------------------------- ----------------------------------- Short Duration U.S. Government Government Income - -------------------------------------------- ----------------------------------- Stock Equity - -------------------------------------------- ----------------------------------- Strategic Allocation Total Return - -------------------------------------------- ----------------------------------- Tax-Exempt High Income Tax-Free High Yield - -------------------------------------------- ----------------------------------- Funds-of-Funds Funds-of-funds invest in a combination of underlying funds. These underlying funds have their own investment policies that may be more or less restrictive than the policies of the funds-of-funds. The policies of the underlying funds may permit a funds-of-funds to engage in investment strategies indirectly that would otherwise be prohibited under the investment restrictions of the funds-of-funds. Statement of Additional Information - Oct. 3, 2005 Page 6 Fundamental and Nonfundamental Investment Policies Fundamental investment policies adopted by a fund cannot be changed without the approval of a majority of the outstanding voting securities of the fund as defined in the Investment Company Act of 1940, as amended (the 1940 Act). Nonfundamental investment policies may be changed by the Board at any time. Notwithstanding any of a fund's other investment policies, each fund may invest its assets in an open-end management investment company having substantially the same investment objectives, policies, and restrictions as the fund for the purpose of having those assets managed as part of a combined pool. Fundamental policies Fundamental policies are policies that can be changed only with shareholder approval. The chart below shows fundamental policies that are in addition to any fundamental policy described in the prospectus. The chart indicates whether or not the fund has a policy on a particular topic. The specific policy is stated in the paragraphs that follow the table. Table 2. Fundamental Policies Unless holders of a majority of the outstanding voting securities agree to make the change, the fund will not:
- ------------------------------------------------------------------------------------------------------------------------------------ A B C D E F G H I J K L M N - ------------------------------------------------------------------------------------------------------------------------------------ Buy Invest Buy more more Concen on Buy Buy than than trate margin Fund Act or or Lend Issue 10% 5% in or Buy Invest as Make sell sell fund senior of in any sell stocks, less under- cash real commode securit securit an an Borrow one Loan short bonds, than writer loans estate ties ies ies issuer issuer money industry assets (i) etc. 80% - ------------------------------------------------------------------------------------------------------------------------------------ Aggressive A1 B1 C1 D1 E1 F1 G1 H1 I1 J1 Growth - ------------------------------------------------------------------------------------------------------------------------------------ Balanced A1 B1 C1 D1 E1 G2 H2 I3 J1 K1 - ------------------------------------------------------------------------------------------------------------------------------------ California A1 B1 C1 D1 E1 I3 K1 N1 Tax-Exempt - ------------------------------------------------------------------------------------------------------------------------------------ Cash Management A1 C3 C3 E1 H3 I3 L2 M1 - ------------------------------------------------------------------------------------------------------------------------------------ Core Bond A1 B1 C1 D1 E1 F1 G1 H2 I2 J1 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined A1 B1 C1 D1 E1 F1 G1 H1 I1 J1 K1 Equity - ------------------------------------------------------------------------------------------------------------------------------------ Discovery A1 B1 C1 D1 E1 G2 H2 I3(v) J1 K1 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified A1 B1 C1 D1 E1 G2 H2 I3 J1 Bond - ------------------------------------------------------------------------------------------------------------------------------------ Diversified A1 B1 C1 D1 E1 G2 H2 I3 J1 Equity Income - ------------------------------------------------------------------------------------------------------------------------------------ Dividend A1 B1 C1 D1 E1 G2 H2 I3 Opportunity - ------------------------------------------------------------------------------------------------------------------------------------ Emerging A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1 Markets - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1 - ------------------------------------------------------------------------------------------------------------------------------------ European Equity A1 B1 C1 D1 E1 F1 I3 J1 K1 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental A1 B1 C1 D1 E1 F1 G1 H1 I1 J1 Growth - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental A1 B1 C1 D3 E1 F1 G1 H1 I1 J1 Value - ------------------------------------------------------------------------------------------------------------------------------------ Global Balanced A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1 - ------------------------------------------------------------------------------------------------------------------------------------ Global Bond A1 B1 C1 D1 E1 F1 G2 I3 J1 K1 - ------------------------------------------------------------------------------------------------------------------------------------ Global Equity A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1 - ------------------------------------------------------------------------------------------------------------------------------------ Global A1 B1 C1 D1 E1 F1 I3 K1 Technology - ------------------------------------------------------------------------------------------------------------------------------------ Growth A1 B1 C1 D1 E1 G2 H2 I3 J1 K1 - ------------------------------------------------------------------------------------------------------------------------------------ High Yield Bond A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 - ------------------------------------------------------------------------------------------------------------------------------------ Income A1 B1 C1 D1 E1 F1 G1 H2 I2 J1 Opportunities - -------------------------------------------------------------------------------------------------------------------------------- Statement of Additional Information - Oct. 3, 2005 Page 7 - ------------------------------------------------------------------------------------------------------------------------------------ A B C D E F G H I J K L M N - ------------------------------------------------------------------------------------------------------------------------------------ Buy Invest Buy more more Concen on Buy Buy than than trate margin Fund Act or or Lend Issue 10% 5% in or Buy Invest as Make sell sell fund senior of in any sell stocks, less under- cash real commode securit securit an an Borrow one Loan short bonds, than writer loans estate ties ies ies issuer issuer money industry assets (i) etc. 80% - ------------------------------------------------------------------------------------------------------------------------------------ Inflation A1 B1 C1 D1 E1 F1 I2 J1 Protected Securities - -------------------------------------------------------------------------------------------------------------------------------- Insured A1 B1 C1 D1 E1 H2 I3 K1 N3 Tax-Exempt - -------------------------------------------------------------------------------------------------------------------------------- Intermediate A1 B1 C1 D1 E1 H2(ii) I3 N4(iii) Tax-Exempt Bond - -------------------------------------------------------------------------------------------------------------------------------- International A1 B1 C1 D3 E1 F1 G1 H1 I1 J1 K1 Aggressive Growth - -------------------------------------------------------------------------------------------------------------------------------- International A1 B1 C1 D3 E1 F1 G1 H1 I1 J1 K1 Equity - -------------------------------------------------------------------------------------------------------------------------------- International A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1 Opportunity - -------------------------------------------------------------------------------------------------------------------------------- International A1 B1 C1 D3 E1 F1 G1 H1 I1 J1 K1 Select Value - -------------------------------------------------------------------------------------------------------------------------------- International A1 B1 C1 D3 E1 F1 G1 H1 I1 J1 K1 Small Cap - -------------------------------------------------------------------------------------------------------------------------------- Large Cap A1 B1 C1 D1 E1 F1 G1 H2 I2 J1 Equity - -------------------------------------------------------------------------------------------------------------------------------- Large Cap Value A1 B1 C1 D3 E1 F1 G1 H1 I2 J1 - -------------------------------------------------------------------------------------------------------------------------------- Limited A1 B1 C1 D1 E1 F1 G1 H2 I2 J1 Duration Bond - -------------------------------------------------------------------------------------------------------------------------------- Massachusetts A1 B1 C1 D1 E1 I3 K1 N1 Tax-Exempt - -------------------------------------------------------------------------------------------------------------------------------- Michigan A1 B1 C1 D1 E1 I3 K1 N1 Tax-Exempt - -------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth A1 B1 C1 D1 E1 G2 H2 I3 J1 - -------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value A1 B1 C1 D1 E1 F1 G1 H2 I2 J1 - -------------------------------------------------------------------------------------------------------------------------------- Minnesota A1 B1 C1 D1 E1 I3 K1 N1 Tax-Exempt - -------------------------------------------------------------------------------------------------------------------------------- New Dimensions A1 B1 C1 D1 E1 G2 H2 I3 J1 K1 - -------------------------------------------------------------------------------------------------------------------------------- New York A1 B1 C1 D1 E1 I3 K1 N1 Tax-Exempt - -------------------------------------------------------------------------------------------------------------------------------- Ohio A1 B1 C1 D1 E1 I3 K1 N1 Tax-Exempt - -------------------------------------------------------------------------------------------------------------------------------- Portfolio A1 B1 C1 D1 E1 F1 I2 J2 Builder Aggressive - -------------------------------------------------------------------------------------------------------------------------------- Portfolio A1 B1 C1 D1 E1 F1 I2 J2 Builder Conservative - -------------------------------------------------------------------------------------------------------------------------------- Portfolio A1 B1 C1 D1 E1 F1 I2 J2 Builder Moderate - -------------------------------------------------------------------------------------------------------------------------------- Portfolio A1 B1 C1 D1 E1 F1 I2 J2 Builder Moderate Aggressive - -------------------------------------------------------------------------------------------------------------------------------- Portfolio A1 B1 C1 D1 E1 F1 I2 J2 Builder Moderate Conservative - -------------------------------------------------------------------------------------------------------------------------------- Statement of Additional Information - Oct. 3, 2005 Page 8 - ------------------------------------------------------------------------------------------------------------------------------------ A B C D E F G H I J K L M N - ------------------------------------------------------------------------------------------------------------------------------------ Buy Invest Buy more more Concen on Buy Buy than than trate margin Fund Act or or Lend Issue 10% 5% in or Buy Invest as Make sell sell fund senior of in any sell stocks, less under- cash real commode securit securit an an Borrow one Loan short bonds, than writer loans estate ties ies ies issuer issuer money industry assets (i) etc. 80% - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio A1 B1 C1 D1 E1 F1 I2 J2 Builder Total Equity - -------------------------------------------------------------------------------------------------------------------------------- Precious Metals A1 B1 C1 D1(vi) E1 F1 I3 J3 K1 - -------------------------------------------------------------------------------------------------------------------------------- Real Estate A1 B1 C1 D1 E1 F1 I2 - -------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index A1 B1 C1 D1 E1 F1 I3 J4 K1 - -------------------------------------------------------------------------------------------------------------------------------- Select Value A1 B1 C1 D3 E1 F1 G2 H1 I1 J1 K1 - -------------------------------------------------------------------------------------------------------------------------------- Selective A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1 - -------------------------------------------------------------------------------------------------------------------------------- Short Duration A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1 U.S. Government - -------------------------------------------------------------------------------------------------------------------------------- Small Cap A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 Advantage - -------------------------------------------------------------------------------------------------------------------------------- Small Cap A1 B1 C1 D3 E1 F1 G1 H1 I1 J1 Equity - -------------------------------------------------------------------------------------------------------------------------------- Small Cap A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 Growth - -------------------------------------------------------------------------------------------------------------------------------- Small Cap Value A1 B1 C1 D3 E1 F1 I1 J1 - -------------------------------------------------------------------------------------------------------------------------------- Small Company A1 B1 C1 D1 E1 G2 H2 I3 J1 K1 Index - -------------------------------------------------------------------------------------------------------------------------------- Stock A1 B1 C1 D1 E1 G2 H2 I3 J1 - -------------------------------------------------------------------------------------------------------------------------------- Strategic A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1 Allocation - -------------------------------------------------------------------------------------------------------------------------------- Strategy A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1 Aggressive - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond A1 B1 C1 D1 E1 H2(ii) I3 N4(iv) - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt A1 B1 C1 D1 E1 H2(ii) I3 N2 High Income - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt A1 B2 C2 D2 E1 H3(ii) I3 L1 N4 Money Market - -------------------------------------------------------------------------------------------------------------------------------- U.S. Gov't A1 B1 C1 D1 E1 F1 G1 H2 I2 J1 K1 Mortgage - -------------------------------------------------------------------------------------------------------------------------------- Value A1 B1 C1 D3 E1 F1 G1 H1 I1 J1 - --------------------------------------------------------------------------------------------------------------------------------
(i) Nonfundamental policy for all funds except Cash Management and Tax-Exempt Money Market. (ii) For purposes of this policy, the terms of a municipal security determine the issuer. (iii) For purposes of this policy, the fund will not include any investments subject to the alternative minimum tax. (iv) The fund does not intend to purchase bonds or other debt securities the interest from which is subject to the alternative minimum tax. (v) For purposes of this policy, borrowing property does not include the borrowing of securities in connection with short sales. (vi) Additionally, the fund may purchase gold, silver, or other precious metals, strategic metals or other metals occurring naturally with such metals. A. Act as underwriter A1 - 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. B. Make cash loans B1 - Make cash loans if the total commitment amount exceeds 5% of the fund's total assets. B2 - Make cash loans. The fund, however, does make investments in debt securities where the sellers agree to repurchase the securities at cost plus an agreed-upon interest rate within a specified time. Statement of Additional Information - Oct. 3, 2005 Page 9 C. Buy or sell real estate C1 - 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. C2 - Invest in real estate, but the fund can invest in municipal bonds and notes secured by real estate or interest therein. For purposes of this policy, real estate includes real estate limited partnerships. C3 - Buy or sell real estate, commodities or commodity contracts. For purposes of this policy, real estate includes real estate limited partnerships. D. Buy or sell physical commodities D1 - Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. D2 - Invest in commodities or commodity contracts. D3 - Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options, futures contracts and foreign currency or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. E. Lend fund securities E1 - Lend fund securities in excess of 30% of its net assets. F. Issue senior securities F1 - Issue senior securities, except as permitted under the 1940 Act. G. Buy more than 10% of an issuer G1 - Purchase more than 10% of the outstanding voting securities of an issuer, except that up to 25% of the fund's assets may be invested without regard to this 10% limitation. G2 - Purchase more than 10% of the outstanding voting securities of an issuer. H. Invest more than 5% in an issuer H1 - Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, or other registered investment companies and except up to 25% of the fund's total assets may be invested without regard to this 5% limitation. H2 - Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, and except up to 25% of the fund's total assets may be invested without regard to this 5% limitation. H3 - Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities. I. Borrow money I1 - Borrow money in an amount not exceeding one-third of the market value of its total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. Under current Board policy, the fund has no current intention to borrow to a material extent. Statement of Additional Information - Oct. 3, 2005 Page 10 I2 - Borrow money except as a temporary measure for extraordinary or emergency purposes, in an amount not exceeding one-third of the market value of its total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. The fund has no current intention to borrow to a material extent. I3 - Borrow money or property, except as a temporary measure for extraordinary or emergency purposes, in an amount not exceeding one-third of the market value of its total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. The fund has no current intention to borrow to a material extent. J. Concentrate J1 - 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. J2 - Concentrate in any one industry. According to the present interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. The fund itself does not intend to concentrate, however the aggregation of holdings of the underlying funds may result in the fund indirectly investing more than 25% of its assets in a particular industry. The fund does not control the investments of the underlying funds and any indirect concentration will occur only as a result of the fund following its investment objectives by investing in the underlying funds. J3 - Invest less than 25% of its total assets in the precious metals industry, based on current market value at the time of purchase, unless market conditions temporarily require a defensive investment strategy. J4 - Concentrate in any one industry unless that industry represents more than 25% of the index tracked by the fund. For all other industries, in accordance with the current interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. K. Loan assets K1 - Make a loan of any part of its assets to the investment manager, to the board members and officers of the investment manager or to its own board members and officers. L. Buy on margin or sell short L1 - Buy on margin or sell short. L2 - Buy on margin or sell short or deal in options to buy or sell securities. M. Buy stocks, bonds, etc. M1 - Purchase common stocks, preferred stocks, warrants, other equity securities, corporate bonds or debentures, state bonds, municipal bonds, or industrial revenue bonds. N. Invest less than 80% N1 - Under normal market conditions, invest less than 80% of its net assets in municipal obligations that are generally exempt from federal income tax as well as respective state and local income tax. N2 - Under normal market conditions, invest less than 80% of its net assets in bonds and notes issued by or on behalf of state and local governmental units whose interest, in the opinion of counsel for the issuer, is exempt from federal income tax and is not subject to the alternative minimum tax. N3 - Under normal market conditions, invest less than 80% of its net assets in securities generally exempt from federal income tax, with principal and interest either fully insured by private insurers or guaranteed by an agency or instrumentality of the U.S. government N4 - Under normal market conditions, invest less than 80% of its net assets in bonds and other debt securities issued by or on behalf of state or local governmental units whose interest, in the opinion of counsel for the issuer, is exempt from federal income tax. Statement of Additional Information - Oct. 3, 2005 Page 11 Nonfundamental policies Nonfundamental policies are policies that can be changed by the Board without shareholder approval. The chart below shows nonfundamental policies that are in addition to those described in the prospectus. The chart indicates whether or not the fund has a policy on a particular topic. The specific policy is stated in the paragraphs that follow the table.
Table 3. Nonfundamental Policies The following are guidelines that may be changed by the Board at any time: - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- A B C D E F G H - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Fund Investing Invest to Deposit Illiquid ment Margin, Money control Foreign on securities; compan selling Market or securities Debt futures bullion ies short securities manage (G-1) securities - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Aggressive Growth A1 B1 C1 D7 E1 F1 G1-15% H8 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Balanced A1 B1 C1 D3 E1 F1 G1-25% - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- California A1 B1 D6 H18 Tax-Exempt - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Cash Management B2 C1 See H17 Table 2 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Core Bond A1 B1 C1 D3 E1 F1 G1-15% - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Disciplined Equity A1 B1 C1 D7 E1 F1 G1-20% H7 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Discovery A1 B1 C1 D8 E1 F1 G1-25%(i) H7 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Diversified Bond A1 B1 C1 D7 E1 F1 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Diversified A1 B1 C1 D3 E1 F1 G1-25% H12 Equity Income - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Dividend A1 B1 C1 D3 E1 F1 G1-25% H5 Opportunity - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Emerging Markets A1 B1 C1 D1 E1 F1 H1, H8 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Equity Value A1 B1 C1 D3 E1 F1 G1-25% H13, H15 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- European Equity A1 B1 D7 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Fundamental Growth A1 B1 C1 D7 E1 F1 G1-15% H8 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Fundamental Value A1 B1 C1 D1 E1 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Global Balanced A1 B1 C1 D1 E1 F1 H15(ii) - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Global Bond A1 B1 C1 D1 E1 F1 H15 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Global Equity A1 B1 C1 D1 E1 F1 H1, H7 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Global Technology A1 B1 C1 D1 E1 F1 H1, H7 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Growth A1 B1 C1 D7 E1 F1 G1-25% H5 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- High Yield Bond A1 B1 C1 D6 E1 F1 G1-25% - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Income A1 B1 C1 D3 E1 F1 G1-25% Opportunities - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Inflation A1 B1 C1 D3 G1-15% Protected Securities - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Insured Tax-Exempt A1 B1 J2 D6 H2, H18, H19, H20 - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- Intermediate A1 B1 J2 D2 H11 Tax-Exempt Bond - ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ ----------- - ------------------- ------------ ------------ -------- -------- I J K L - ------------------- ------------ ------------ -------- -------- Fund Invest while Divers Tax-exempt Equity borrow Ifica securities Securities ing tion - ------------------- ------------ ------------ -------- -------- Aggressive Growth - ------------------- ------------ ------------ -------- -------- Balanced - ------------------- ------------ ------------ -------- -------- California I1, I4, I7 Tax-Exempt - ------------------- ------------ ------------ -------- -------- Cash Management - ------------------- ------------ ------------ -------- -------- Core Bond - ------------------- ------------ ------------ -------- -------- Disciplined Equity - ------------------- ------------ ------------ -------- -------- Discovery - ------------------- ------------ ------------ -------- -------- Diversified Bond - ------------------- ------------ ------------ -------- -------- Diversified Equity Income - ------------------- ------------ ------------ -------- -------- Dividend Opportunity - ------------------- ------------ ------------ -------- -------- Emerging Markets - ------------------- ------------ ------------ -------- -------- Equity Value - ------------------- ------------ ------------ -------- -------- European Equity L1, L2 - ------------------- ------------ ------------ -------- -------- Fundamental Growth - ------------------- ------------ ------------ -------- -------- Fundamental Value K1 - ------------------- ------------ ------------ -------- -------- Global Balanced - ------------------- ------------ ------------ -------- -------- Global Bond - ------------------- ------------ ------------ -------- -------- Global Equity - ------------------- ------------ ------------ -------- -------- Global Technology - ------------------- ------------ ------------ -------- -------- Growth - ------------------- ------------ ------------ -------- -------- High Yield Bond J1 - ------------------- ------------ ------------ -------- -------- Income Opportunities - ------------------- ------------ ------------ -------- -------- Inflation Protected Securities - ------------------- ------------ ------------ -------- -------- Insured Tax-Exempt I1, I5, J2 I7, I8, I9 - ------------------- ------------ ------------ -------- -------- Intermediate I2, I3, J2 Tax-Exempt Bond I6, I7 - ------------------- ------------ ------------ -------- --------
Statement of Additional Information - Oct. 3, 2005 Page 12
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- A B C D E F G H - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Fund Investing Invest to Deposit Illiquid ment Margin, Money control Foreign on securities; compan selling Market or securities Debt futures bullion ies short securities manage (G-1) securities - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- International A1 B1 C1 D1 E1 Aggressive Growth - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- International A1 B1 C1 D1 E1 Equity - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- International A1 B1 C1 D1 E1 F1 Opportunity - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- International A1 B1 C1 D1 E1 Select Value - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- International A1 B1 C1 D1 E1 Small Cap - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Large Cap Equity A1 B1 C1 D7 E1 F1 G1-20% H7 - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Large Cap Value A1 B1 C1 D1 E1 F1 G1-20% H8 - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Limited Duration A1 B1 C1 D3 E1 F1 G1-15% Bond - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Massachusetts A1 B1 D6 H18 Tax-Exempt - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Michigan A1 B1 D6 H18 Tax-Exempt - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Mid Cap Growth A1 B1 C1 D1 E1 F1 G1-15% H6 - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Mid Cap Value A1 B1 C1 D3 E1 F1 G1-25% H9 - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Minnesota A1 B1 D6 H18 Tax-Exempt - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- New Dimensions A1 B1 C1 D7 E1 F1 G1-30% H7 - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- New York A1 B1 D6 H18 Tax-Exempt - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Ohio Tax-Exempt A1 B1 D6 H18 - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Portfolio Builder A1 B1 D7 Aggressive* - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Portfolio Builder A1 B1 D7 Conservative* - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Portfolio Builder A1 B1 D7 Moderate * - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Portfolio Builder A1 B1 D7 Moderate Aggressive* - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Portfolio Builder A1 B1 D7 Moderate Conservative* - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Portfolio Builder A1 B1 D7 Total Equity* - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Precious Metals A1 B1 C1 D7 E1 F1 G2, G4 H7(ii), H21 - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- Real Estate A1 B1 C1 D7 G1-10% - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- S&P 500 Index A1 B1 D3 - ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ---------- - ------------------- ---------- --------- -------- -------- I J K L - ------------------- ---------- --------- -------- -------- Fund Invest while Divers Tax-exempt Equity borrow Ifica securities Securities ing tion - ------------------- ---------- --------- -------- -------- International Aggressive Growth - ------------------- ---------- --------- -------- -------- International Equity - ------------------- ---------- --------- -------- -------- International Opportunity - ------------------- ---------- --------- -------- -------- International K1 Select Value - ------------------- ---------- --------- -------- -------- International Small Cap - ------------------- ---------- --------- -------- -------- Large Cap Equity - ------------------- ---------- --------- -------- -------- Large Cap Value - ------------------- ---------- --------- -------- -------- Limited Duration Bond - ------------------- ---------- --------- -------- -------- Massachusetts I1, I4, Tax-Exempt I7 - ------------------- ---------- --------- -------- -------- Michigan I1, I4, Tax-Exempt I7 - ------------------- ---------- --------- -------- -------- Mid Cap Growth - ------------------- ---------- --------- -------- -------- Mid Cap Value - ------------------- ---------- --------- -------- -------- Minnesota I1, I4, Tax-Exempt I7 - ------------------- ---------- --------- -------- -------- New Dimensions - ------------------- ---------- --------- -------- -------- New York I1, I4, Tax-Exempt I7 - ------------------- ---------- --------- -------- -------- Ohio Tax-Exempt I1, I4, I7 - ------------------- ---------- --------- -------- -------- Portfolio Builder Aggressive* - ------------------- ---------- --------- -------- -------- Portfolio Builder Conservative* - ------------------- ---------- --------- -------- -------- Portfolio Builder Moderate * - ------------------- ---------- --------- -------- -------- Portfolio Builder Moderate Aggressive* - ------------------- ---------- --------- -------- -------- Portfolio Builder Moderate Conservative* - ------------------- ---------- --------- -------- -------- Portfolio Builder Total Equity* - ------------------- ---------- --------- -------- -------- Precious Metals L1 - ------------------- ---------- --------- -------- -------- Real Estate - ------------------- ---------- --------- -------- -------- S&P 500 Index L1, L2 - ------------------- ---------- --------- -------- --------
Statement of Additional Information - Oct. 3, 2005 Page 13
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- A B C D E F G H - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Fund Investing Invest to Deposit Illiquid ment Margin, Money control Foreign on securities; compan selling Market or securities Debt futures bullion ies short securities manage (G-1) securities - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Select Value A1 B1 C1 D1 E1 G1-20% H4 - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Selective A1 B1 C1 D6 E1 F1 G1-25% H5 - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Short Duration A1 B1 C1 D9 E1 F1 U.S. Government - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Small Cap A1 B1 C1 D1 E1 Advantage - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Small Cap Equity A2 B1 C1 D1 E1 G1-15% - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Small Cap Growth A1 B1 C1 D1 E1 - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Small Cap Value A1 B1 C1 D1 E1 - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Small Company A1 B1 C1 D4 E1 F1 Index - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Stock A1 B1 C1 D7 E1 F1 G1-25% H7, H16 - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Strategic A1 B1 C1 D3 F1 G1-50% H3, H10 Allocation - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Strategy A1 B1 C1 D3 E1 F1 G1-25% H13, Aggressive H15(ii) - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Tax-Exempt Bond A1 B1 CJ2 D2 H22 - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Tax-Exempt High A1 B1 D2 Income - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Tax-Exempt Money B1(iii) Market - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- U.S. Gov't A1 B1 C1 D9 E1 F1 Mortgage - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- Value A1 B1 C2 D1 E1 G1-25% H14 - ------------------- -------- ----------- -------- -------- ---------- ----------- --------- ----------- - ------------------- --------- ---------- ------- -------- I J K L - ------------------- --------- ---------- ------- -------- Fund Invest while Divers Tax-exempt Equity borrow Ifica securitiesSecurities ing tion - ------------------- --------- ---------- ------- -------- Select Value - ------------------- --------- ---------- ------- -------- Selective - ------------------- --------- ---------- ------- -------- Short Duration U.S. Government - ------------------- --------- ---------- ------- -------- Small Cap Advantage - ------------------- --------- ---------- ------- -------- Small Cap Equity K1 - ------------------- --------- ---------- ------- -------- Small Cap Growth - ------------------- --------- ---------- ------- -------- Small Cap Value K1 L1, L2 - ------------------- --------- ---------- ------- -------- Small Company Index - ------------------- --------- ---------- ------- -------- Stock - ------------------- --------- ---------- ------- -------- Strategic Allocation - ------------------- --------- ---------- ------- -------- Strategy Aggressive - ------------------- --------- ---------- ------- -------- Tax-Exempt Bond I2 J2 - ------------------- --------- ---------- ------- -------- Tax-Exempt High I2, I3 Income - ------------------- --------- ---------- ------- -------- Tax-Exempt Money Market - ------------------- --------- ---------- ------- -------- U.S. Gov't Mortgage - ------------------- --------- ---------- ------- -------- Value K1 - ------------------- --------- ---------- ------- --------
* The fund invests in a combination of underlying funds. These underlying funds have adopted their own investment policies that may be more or less restrictive than those of the fund. The policies of the underlying funds may permit a fund to engage in investment strategies indirectly that would otherwise be prohibited under the fund's investment restrictions. (i) The fund has no current intention of investing more than 5% of its total assets in foreign securities. (ii) Securities that are subsequently downgraded in quality may continue to be held and will be sold only when the investment manager believes it is advantageous to do so. (iii) In determining the liquidity of municipal lease obligations, the investment manager, under guidelines established by the Board, will consider the essential nature of the leased property, the likelihood that the municipality will continue appropriating funding for the leased property, and other relevant factors related to the general credit quality of the municipality and the marketability of the municipal lease obligation. A. Deposit on futures/premiums on options A1 - No more than 5% of the fund's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures that do not offset existing investment positions. A2 - No more than 5% of the fund's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures other than for bona fide hedging purposes (within the meaning of the rules of the Commodities Futures Trading Commission). Statement of Additional Information - Oct. 3, 2005 Page 14 B. Illiquid securities B1 - No more than 10% of the fund's net assets will be held in securities and other instruments that are illiquid. B2 - The fund will not invest more than 10% of its net assets in securities that are illiquid whether or not registration or the filing of a notification under the Securities Act of 1933 or the taking of similar action under other securities laws relating to the sale of securities is required. A risk of any such investment is that it might not be able to be easily liquidated. For the purpose of this policy, repurchase agreements with maturities greater than seven days and non-negotiable fixed time deposits will be treated as illiquid securities. C. Investment companies C1 - The fund will not invest more than 10% of its total assets in the securities of investment companies. C2 - The fund will not invest more than 10% of its total assets in the securities of investment companies, unless a higher amount is permitted under an SEC exemptive order. D. Margin/selling short D1 - The fund will not buy on margin or sell securities short, except the fund may make margin payments in connection with transactions in derivative instruments. D2 - The fund will not buy on margin or sell short, except that the fund may use derivative instruments. D3 - The fund will not buy on margin or sell securities short, except the fund may make margin payments in connection with transactions in futures contracts. D4 - The fund will not buy on margin or sell short, except the fund may make margin payments in connection with transactions in options, futures contracts and other financial instruments. D5 - The fund will not buy on margin or sell securities short, except the fund may make margin payments in connection with transactions in interest rate futures contracts. D6 - The fund will not buy on margin or sell short, except the fund may enter into interest rate futures contracts. D7 - The fund will not buy on margin or sell securities short, except the fund may make margin payments in connection with transactions in stock index futures contracts. D8 - The fund will not buy on margin, except the fund may make margin payments in connection with transactions in stock index futures contracts. D9 - The fund will not buy on margin, except the fund may make margin payments in connection with interest rate futures contracts. E. Money market securities E1 - Ordinarily, less than 25% of the fund's total assets are invested in money market instruments. F. Investing to control or manage F1 - The fund will not invest in a company to control or manage it. G. Foreign securities G1 - The fund may invest its total assets, up to the amount shown, in foreign investments. G2 - Under normal market conditions, the fund intends to invest at least 50% of its total assets in foreign investments. G3 - Investments in U.S. issuers generally will constitute less than 20% of the fund's total assets. Statement of Additional Information - Oct. 3, 2005 Page 15 G4 - The fund may invest up to 10% of its total assets in gold and silver bullion, other precious metals, strategic metals and other metals occurring naturally with such metals and securities convertible into metals. The fund will invest only in metals and securities convertible into metals that are readily marketable. H. Debt securities H1 - The fund may invest up to 20% of its net assets in bonds. H2 - The fund may purchase short-term corporate notes and obligations rated in the top two classifications by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corporation (S&P) or the equivalent. H3 - The fund may invest up to 30% of its total assets in short-term debt securities rated in the top two grades or the equivalent. H4 - The fund normally will purchase only investment grade convertible debt securities with a rating of, or equivalent to, at least BBB by S&P or, in the case of unrated securities, judged by the subadviser to be of comparable quality. The fund may invest in more speculative convertible debt securities, provided that such securities have a rating of, or equivalent to, at least an S&P rating of B and provided also that the total investment in such securities remains below 15% of the fund's assets. H5 - The fund may not purchase debt securities rated below investment grade. H6 - The fund only invests in bonds given the four highest ratings by Moody's or by S&P or in bonds of comparable quality in the judgment of the investment manager. H7 - The fund will not invest more than 5% of its net assets in bonds below investment grade. H8 - The fund may invest up to 10% of its net assets in bonds rated below investment grade H9 - No more than 10% of the fund's net assets may be invested in bonds below investment grade unless the bonds are convertible securities. H10- No more than 15% of the fund's total assets will be invested in below investment-grade debt securities. H11- The fund may invest 20% of its net assets in bonds rated or considered below investment grade (less than BBB/Baa). H12- No more than 20% of the fund's net assets may be invested in bonds below investment grade unless the bonds are convertible securities. H13- The fund will not invest more than 5% of its net assets in bonds rated BB or B, or in unrated bonds of equivalent quality. H14- No more than 10% of the fund's assets will be held in debt securities rated BB/Ba or lower. H15- The fund may not invest in debt securities rated lower than B (or in unrated bonds of comparable quality). H16- The fund will not purchase securities rated below C by Moody's or S&P, or the equivalent. H17- The fund may invest in commercial paper rated in the highest rating category by at least two nationally recognized statistical rating organizations (or by one, if only one rating is assigned) and in unrated paper determined by the Board to be of comparable quality. The fund also may invest up to 5% of its total assets in commercial paper receiving the second highest rating or in unrated paper determined to be of comparable quality. H18- No more than 10% of the fund's net assets will be held in inverse floaters. H19- The fund may purchase securities rated Aaa by Moody's or AAA by S&P. In addition, the fund may purchase other securities, provided the securities are insured. H20- Under normal market conditions, at least 65% of the fund's total assets will be invested in securities that are insured and have a maturity of more than one year. H21- In the event economic, political or financial conditions adverse to gold or metals industries or the metals themselves occur, the fund temporarily may invest over 75% of its total assets in U.S. government securities or investment-grade short-term obligations (denominated either in foreign currencies or U.S. dollars). Statement of Additional Information - Oct. 3, 2005 Page 16 H22- At least 75% of the fund's investments in bonds and other debt securities must be rated in the top four grades by Moody's, S&P, or Fitch Investors Services, Inc. or be of comparable rating given by other independent rating agencies. Up to 25% of the fund's remaining investments may be in unrated bonds and other debt securities that, in the investment manager'ss opinion, are of investment grade quality. All industrial revenue bonds must be rated. I. Tax- exempt securities I1 - If, in the opinion of the investment manager, appropriate tax-exempt securities are not available, the fund may invest up to 20% of its net assets, or more on a temporary defensive basis, in taxable investments. I2 - Short-term tax-exempt debt securities rated in the top two grades or the equivalent are used to meet daily cash needs and at various times to hold assets until better investment opportunities arise. Under extraordinary conditions, where, in the opinion of the investment manager, appropriate short-term tax-exempt securities are not available, the fund may invest up to 20% of its net assets in certain taxable investments for temporary defensive purposes. I3 - The fund may invest more than 25% of its total assets in industrial revenue bonds, but it does not intend to invest more than 25% of its total assets in industrial revenue bonds issued for companies in the same industry or state. I4 - The fund may invest more than 25% of its total assets in a particular segment of the municipal securities market or in industrial revenue bonds, but does not intend to invest more than 25% of its total assets in industrial revenue bonds issued for companies in the same industry. I5 - The fund may invest more than 25% of its total assets in a particular segment of the municipal securities market or in industrial revenue bonds, but it does not intend to invest more than 25% of its total assets in industrial revenue bonds issued for companies in the same industry or state. I6 - The fund may invest more than 25% of its total assets in a particular segment of the municipal securities market or in securities relating to a particular state. Such markets may include electric revenue bonds, hospital bonds, housing bonds, industrial bonds, airport bonds, or in securities the interest on which is paid from revenues of a similar type of project. I7 - A portion of the fund's assets may be invested in bonds whose interest is subject to the alternative minimum tax computation. As long as the staff of the SEC maintains its current position that a fund calling itself a "tax-exempt" fund may not invest more than 20^% of its net assets in these bonds, the fund will limit its investments in these bonds to 20% of its net assets. I8 - Pending investment in municipal securities maturing in more than one year, or as a temporary defensive position, the fund may hold up to 35% of its net assets in short-term tax-exempt instruments that are not insured or guaranteed. The fund will purchase these instruments only if they are rated MIG-1 by Moody's or SP-1 by S&P or if the long-term debt of such issuers is rated Aaa by Moody's or AAA by S&P or the equivalent. I9 - Except for securities guaranteed by the U.S. government, or an agency thereof, and the short-term tax-exempt instruments rated MIG-1 by Moody's or SP-1 by S&P or if the long-term debt of such issuers is rated Aaa by Moody's or AAA by S&P or the equivalent, each tax-exempt security purchased by the fund will be insured either by a New Issue Insurance Policy or by a Portfolio Insurance Policy issued by MBIA Insurance Corporation, Financial Guaranty Insurance Company or a comparable insurer as long as that insurer is rated Aaa by Moody's or AAA by S&P or the equivalent. J. Equity Securities J1 - The fund may invest up to 10% of its total assets in common stocks, preferred stocks that do not pay dividends and warrants to purchase common stocks. J2 - The fund will not invest in voting securities or securities of investment companies. Statement of Additional Information - Oct. 3, 2005 Page 17 K. Invest while Borrowing K1 - The fund will not make additional investments while any borrowing remains outstanding. L. Diversification L1 - Purchase more than 10% of the outstanding voting securities of an issuer, except that up to 25% of the fund's assets may be invested without regard to this 10% limitation. L2 - Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, or other registered investment companies and except up to 25% of the fund's total assets may be invested without regard to this 5% limitation. Investment Strategies and Types of Investments This table shows many of the various investment strategies and investments that many funds are allowed to engage in and purchase. It is intended to show the breadth of investments that the investment manager 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. Investment strategies and types of investments: A black circle indicates that the investment strategy or type of investment generally is authorized for a category of funds. Exceptions are noted in the footnotes to the table. See Table 1 for fund categories.
Table 4. Investment Strategies and Types of Investments - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Investment strategy Balanced Equity Funds-of- Taxable Taxable Tax-exempt Tax-exempt State funds - bond money money bond tax-exempt equity market market bond and bond - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Agency and government o o o o o o o o securities - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Borrowing o o o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Cash/money market o o o o o o o o instruments - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Collateralized bond o o A o o o obligations - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Commercial paper o o o o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Common stock o o o B - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Convertible securities o o o C o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Corporate bonds o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Debt obligations o o o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Depositary receipts o o o D - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Derivative instruments o o o o o o (including options and futures) - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Exchange-traded funds o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Foreign currency o o o E o E transactions - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Foreign securities o o o F o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Funding agreements o o o o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Statement of Additional Information - Oct. 3, 2005 Page 18
Table 4. Investment Strategies and Types of Investments - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Investment strategy Balanced Equity Funds-of- Taxable Taxable Tax-exempt Tax-exempt State funds - bond money money bond tax-exempt equity market market bond and bond - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- High yield (high-risk) o o G o G o o debt securities (junk bonds) - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Illiquid and restricted o o o o o o o o securities - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Indexed securities o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Inflation protected o o o o o securities - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Inverse floaters o H o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Investment companies o o o o I - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Lending of portfolio o o o o o o o o securities - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Loan participations o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Mortgage-and o o J o o o o o asset-backed securities - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Mortgage dollar rolls o K o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Municipal obligations o o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Preferred stock o o o L o L o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Real estate investment o o o o o trusts - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Repurchase agreements o o o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Reverse repurchase o o o o o o agreements - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Short sales M M - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Sovereign debt o o N o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Structured investments o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Swap agreements P o P - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Variable- or o o o o o o o o floating-rate securities - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Warrants o o o o o - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- When-issued securities o o o o o and forward commitments - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- Zero-coupon, o o o o o step-coupon and pay-in-kind securities - ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
A. The following funds are not authorized to invest in collateralized bond obligations: International Aggressive Growth, International Equity, International Select Value, International Small Cap, Select Value, Small Cap Equity, Small Cap Growth, Small Cap Value, and Small Cap Advantage. B. The following funds are not authorized to invest in common stock: Short Duration, U.S. Government Mortgage. C. The following funds are not authorized to invest in convertible securities: Short Duration, U.S. Government Mortgage. D. The following funds are not authorized to invest in depositary receipts: Short Duration, U.S. Government Mortgage. E. The following funds are not authorized to engage in foreign currency transactions: Insured Tax-Exempt Bond, U.S. Government Mortgage. F. The following funds are not authorized to invest in foreign securities: U.S. Government Mortgage. G. The following funds may hold securities that are downgraded to junk bond status, if the bonds were rated investment grade at the time of purchase: Core Bond, Dividend Opportunity, Mid Cap Growth, Growth, Inflation Protected Securities, Limited Duration, International Aggressive Growth, International Equity, International Select Value, International Small Cap, Small Cap Growth, Real Estate, S&P 500 Index, Selective, Short Duration, Small Cap Advantage, Small Company Index, Tax-Exempt Bond, European Equity, International Opportunity, U.S. Government Mortgage. H. The following funds are authorized to invest in inverse floaters: Real Estate. I. The following funds are authorized to invest in investment companies: Intermediate Tax-Exempt Bond, Tax-Exempt Bond. J. The following funds are not authorized to invest in mortgage-and asset-backed securities: Small Cap Growth, Value, S&P 500 Index, Small Cap Advantage, Small Company Index. K. The following funds are authorized to invest in mortgage dollar rolls: Real Estate. Statement of Additional Information - Oct. 3, 2005 Page 19 L. The following funds are not authorized to invest in preferred stock: Tax-Exempt High Income, Intermediate Tax-Exempt Bond, Tax-Exempt Bond, Short Duration, U.S. Government Mortgage. M. The following funds are authorized to engage in short sales: S&P 500 Index, Short Duration, U.S. Government Mortgage. N. The following funds are not authorized to invest in sovereign debt: Select Value, Small Cap Equity, Small Cap Growth, Small Cap Value, Small Cap Advantage. P. The following funds are authorized to invest in swap agreements: International Select Value. Tax-exempt bond funds may invest in interest rate swap agreements. 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. The fund is actively managed and its performance therefore will reflect in part the ability of the portfolio managers to make investment decisions that are suited to achieving the fund's investment objective. Due to its active management, the fund could underperform other mutual funds with similar investment objectives. 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. The risk that the investment manager's evaluations regarding asset classes or underlying funds may be incorrect. There is no guarantee that the underlying funds will achieve their investment objectives. There is also a risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the asset class. Credit Risk. For Cash Management, Core Bond and Tax-Exempt Money Market. The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a bond or a note. If the fund purchases unrated securities, or if the rating of a security is reduced after purchase, the fund will depend on the investment manager's analysis of credit risk more heavily than usual. For all Fixed Income Funds except Core Bond, all Balanced Funds, and Strategic Allocation Fund. The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a bond or a note. If the Fund purchases unrated securities, or if the rating of a security is reduced after purchase, the Fund will depend on the investment manager's analysis of credit risk more heavily than usual. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, may react more to perceived changes in the ability of the issuing company to pay interest and principal when due than to changes in interest rates. Non-investment grade securities have greater price fluctuations and are more likely to experience a default than investment grade bonds. Statement of Additional Information - Oct. 3, 2005 Page 20 Derivatives Risk. Derivatives are financial instruments where value depends upon, or is derived from, the value of something else, such as one or more underlying investments, pools of investments, options, futures, indexes or currencies. Just as with securities in which the Fund invests directly, derivatives are subject to a number of risks, including market, correlation, liquidity, interest rate and credit risk. In addition, gains or losses involving derivatives may be substantial, because a relatively small price movement in the underlying security, currency or index may result in a substantial gain or loss for the Fund. The Fund will suffer a loss in connection with the use of derivative instruments if prices do not move in the direction anticipated by the Fund's portfolio managers when entering into the derivative instrument. Diversification Risk. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. Because each investment has a greater effect on the fund's performance, the fund may be more exposed to the risks of loss and volatility then a fund that invests more broadly. For Portfolio Builder Funds. Although most of the underlying funds are diversified funds, because the Fund invests in a limited number of underlying funds, it is considered a non-diversified fund. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. Because each investment has a greater effect on the Fund's performance, the Fund may be more exposed to the risks of loss and volatility then a fund that invests more broadly. Foreign/Emerging Markets Risk. The following are all components of foreign/emerging markets risk: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social, and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. Geographic Concentration Risk. Because state-specific tax-exempt funds invest primarily in the municipal securities issued by the state and political sub-divisions of the state, each fund will be particularly affected by political and economic conditions and developments in the state in which it invests. This vulnerability to factors affecting the state's tax-exempt investments will be significantly greater than that of a more geographically diversified fund, which may result in greater losses and volatility. See the Statement of Additional Information for details. The value of municipal securities owned by a fund also may be adversely affected by future changes in federal or state income tax laws. Statement of Additional Information - Oct. 3, 2005 Page 21 In addition, because of the relatively small number of issuers of tax-exempt securities, the fund may invest a higher percentage of assets in a single issuer and, therefore, be more exposed to the risk of loss by investing in a few issuers than a fund that invests more broadly. At times, the fund and other accounts managed by investment manager may own all or most of the debt of a particular issuer. This concentration of ownership may make it more difficult to sell, or to determine the fair value of, these investments. Indexing Risk. For funds that are managed to an index and the fund's performance therefore will rise and fall as the performance of the index rises and falls. Inflation Risk. Also known as purchasing power risk, inflation risk reflects the effects of continually rising prices on investments. If an investment's return is lower than the rate of inflation, your money will have less purchasing power as time goes on. Inflation Protected Securities Risk. Inflation-protected debt securities tend to react to change in real interest rates. Real interest rates can be described as nominal interest rates minus the expected impact of inflation. In general, the price of an inflation-protected debt security falls when real interest rates rise, and rises when real interest rates fall. Interest payments on inflation-protected debt securities will vary as the principal and/or interest is adjusted for inflation and may be more volatile than interest paid on ordinary bonds. In periods of deflation, the fund may have no income at all. Income earned by a shareholder depends on the amount of principal invested and that principal will not grow with inflation unless the investor reinvests the portion of fund distributions that comes from inflation adjustments. Interest Rate Risk. The risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with bond prices: when interest rates rise, bond prices fall. In general, the longer the maturity or duration of a bond, the greater its sensitivity to changes in interest rates. Issuer Risk. An issuer, or the value of its stocks or bonds, may perform poorly. Poor performance may be caused by poor management decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures, or other factors. Liquidity Risk. The risk associated from a lack of marketability of securities which may make it difficult or impossible to sell at desirable prices in order to minimize loss. The Fund may have to lower the selling price, sell other investments, or forego another, more appealing investment opportunity. Market Risk. For Equity Funds and Balanced Funds. 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. Additionally for Disciplined Equity Fund. 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. For Fixed Income Funds (Taxable and Tax-Exempt). 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. Statement of Additional Information - Oct. 3, 2005 Page 22 Mid-Sized Company Risk. Investments in mid-sized companies often involve greater risks than investments in larger, more established companies because mid-sized companies may lack the management experience, financial resources, product diversification, and competitive strengths of larger companies. In addition, in many instances the securities of mid-sized companies are traded only over-the-counter or on regional securities exchanges and the frequency and volume of their trading is substantially less than is typical of larger companies. Prepayment and Extension Risk. The risk that a bond or other security might be called, or otherwise converted, prepaid, or redeemed, before maturity. This risk is primarily associated with asset-backed securities, including mortgage backed securities. If a security is converted, prepaid, or redeemed, before maturity, particularly during a time of declining interest rates, the investment manager may not be able to reinvest in securities providing as high a level of income, resulting in a reduced yield to the fund. Conversely, as interest rates rise, the likelihood of prepayment decreases. The investment manager may be unable to capitalize on securities with higher interest rates because the Fund's investments are locked in at a lower rate for a longer period of time. 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. For Dividend Opportunities Fund, Global Bond Fund and Emerging Markets 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. For Global Technology Fund. The fund may invest a significant part of its total assets in securities of companies primarily engaged in the technology, media or telecommunications sectors. This may result in greater fluctuations in value than would be the case for a fund invested in a wider variety of unrelated industries. As these sectors increase or decrease in favor with the investing public, the price of securities of companies that rely heavily on those sectors could become increasingly sensitive to downswings in the economy. For Mid Cap Value Fund. Companies that operate in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. For Aggressive Growth Fund. Companies that operate in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of many different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund's principal investment strategies do not involve focusing on any particular sector, at times Columbia WAM's asset management strategy may cause the fund to invest a large portion of its assets in a particular sector. For Precious Metals Fund. The fund may invest a significant part of its total assets in securities of companies primarily engaged in exploration, mining, processing or distribution of gold and other precious metals and related minerals. This may result in greater market fluctuations than would happen with a fund invested in a wider variety of unrelated industries. As these sectors increase or decrease in favor with the investing public, the price of securities of companies that rely heavily on those sectors could become increasingly sensitive to downswings in the economy. Statement of Additional Information - Oct. 3, 2005 Page 23 For Real Estate Fund. Because of the fund's policy of concentrating its investments in securities of companies operating in the real estate industry, the Fund is more susceptible to risks associated with the ownership of real estate and with the real estate industry in general. These risks can include fluctuations in the value of the underlying properties, defaults by borrowers or tenants, market saturation, decreases in market rates for rents, and other economic, political, or regulatory occurrences affecting the real estate industry. REITs depend upon specialized management skills, may have limited financial resources, may have less trading volume, and may be subject to more abrupt or erratic price movements than the overall securities markets. REITs are also subject to the risk of failing to qualify for tax-free pass-through of income. Some REITs (especially mortgage REITs) are affected by risks similar to those associated with investments in debt securities including changes in interest rates and the quality of credit extended. REITs often do no provide complete tax information until after the calendar year-end. Consequently, because of the delay, it may be necessary for the Fund to request permission to extend the deadline for issuance of Forms 1099-DIV beyond January 31. For Money Market funds. Investments that are concentrated in a particular issuer, geographic region, or sector will be more susceptible to changes in price. The more a fund diversifies, the more it spreads risk. For example, if the fund concentrates its investments in banks, the value of these investments may be adversely affected by economic or regulatory developments in the banking industry. 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. Small Company Risk. Investments in small capitalization companies often involve greater risks than investments in larger, more established companies because small capitalization companies may lack the management experience, financial resources, product diversification, experience, and competitive strengths of larger companies. In addition, in many instances the securities of small capitalization 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. Tracking Error Risk. For funds that are managed to an index, the fund may not track the index perfectly because differences between the index and the fund's portfolio can cause differences in performance. The investment manager purchases securities and other instruments in an attempt to replicate the performance of the index. However, the tools that the investment manager uses to replicate the index are not perfect and the fund's performance is affected by factors such as the size of the fund's portfolio, transaction costs, management fees and expenses, brokerage commissions and fees, the extent and timing of cash flows in and out of the fund and changes in the index. In addition, the returns from a specific type of security (for example, mid-cap stocks) may trail returns from other asset classes or the overall market. Each type of security will go through cycles of doing better or worse than stocks or bonds in general. These periods may last for several years. Statement of Additional Information - Oct. 3, 2005 Page 24 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: Active Management Risk, Inflation Risk, Interest Rate Risk, Prepayment and Extension Risk, and Reinvestment Risk. Borrowing A fund may borrow money for temporary or emergency purposes, to make other investments or to engage in other transactions permissible under the 1940 Act that may be considered a borrowing (such as derivative instruments). Borrowings are subject to costs (in addition to any interest that may be paid) and typically reduce a fund's total return. Except as qualified above, however, a fund may not buy securities on margin. Although one or more of the other risks described in this SAI may apply, the largest risks associated with borrowing include: Active Management 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. Although one or more of the other risks described in this SAI may apply, the largest risks associated with cash/money market instruments include: Active Management Risk, Credit Risk, and Inflation Risk. Statement of Additional Information - Oct. 3, 2005 Page 25 Collateralized Bond Obligations Collateralized bond obligations (CBOs) are investment grade bonds backed by a pool of 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, earns them 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 (High-Risk) 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: Active Management Risk, 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: Active Management Risk, Credit Risk, and Liquidity Risk. Common Stock Common stock represents units of ownership in a corporation. Owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. The price of common stock is generally determined by corporate earnings, type of products or services offered, projected growth rates, experience of management, liquidity, and general market conditions for the markets on which the stock trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with common stock include: Active Management Risk, 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. Statement of Additional Information - Oct. 3, 2005 Page 26 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: Active Management Risk, 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 (High-Risk) 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: Active Management Risk, 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. Statement of Additional Information - Oct. 3, 2005 Page 27 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 (High-Risk) Debt Securities (Junk Bonds).) Generally, debt obligations that are investment grade are those that have been rated in one of the top four credit quality categories by two out of the three independent rating agencies. In the event that a debt obligation has been rated by only two agencies, the most conservative, or lower, rating must be in one of the top four credit quality categories in order for the security to be considered investment grade. If only one agency has rated the debt obligation, that rating must be in one of the top four credit quality categories for the security to be considered investment grade. See Appendix A for a discussion of securities ratings. 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: Active Management Risk, 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: Active Management Risk, 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. Statement of Additional Information - Oct. 3, 2005 Page 28 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 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, CBOE, 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. Statement of Additional Information - Oct. 3, 2005 Page 29 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 indices (such as the S&P 500 Index), foreign currencies and other financial instruments and indices. A fund may engage in futures and related options transactions to produce incremental earnings, to hedge existing positions, and to increase flexibility. The fund intends to comply with Rule 4.5 of the Commodity Futures Trading Commission (CFTC), under which a mutual fund is exempt from the definition of a "commodity pool operator." The fund, therefore, is not subject to registration or regulation as a pool operator, meaning that the fund may invest in futures contracts without registering with the CFTC. Options on Futures Contracts. Options on futures contracts give the holder a right to buy or sell futures contracts in the future. Unlike a futures contract, which requires the parties to the contract to buy and sell a security on a set date (some futures are settled in cash), an option on a futures contract merely entitles its holder to decide on or before a future date (within nine months of the date of issue) whether to enter into a contract. If the holder decides not to enter into the contract, all that is lost is the amount (premium) paid for the option. Further, because the value of the option is fixed at the point of sale, there are no daily payments of cash to reflect the change in the value of the underlying contract. However, since an option gives the buyer the right to enter into a contract at a set price for a fixed period of time, its value does change daily. One of the risks in buying an option on a futures contract is the loss of the premium paid for the option. The risk involved in writing options on futures contracts an investor owns, or on securities held in its portfolio, is that there could be an increase in the market value of these contracts or securities. If that occurred, the option would be exercised and the asset sold at a lower price than the cash market price. To some extent, the risk of not realizing a gain could be reduced by entering into a closing transaction. An investor could enter into a closing transaction by purchasing an option with the same terms as the one previously sold. The cost to close the option and terminate the investor's obligation, however, might still result in a loss. Further, the investor might not be able to close the option because of insufficient activity in the options market. Purchasing options also limits the use of monies that might otherwise be available for long-term investments. Options on Stock Indexes. Options on stock indexes are securities traded on national securities exchanges. An option on a stock index is similar to an option on a futures contract except all settlements are in cash. A fund exercising a put, for example, would receive the difference between the exercise price and the current index level. Tax and Accounting Treatment. As permitted under federal income tax laws and to the extent a fund is allowed to invest in futures contracts, a fund would intend to identify futures contracts as mixed straddles and not mark them to market, that is, not treat them as having been sold at the end of the year at market value. If a fund is using short futures contracts for hedging purposes, the fund may be required to defer recognizing losses incurred on short futures contracts and on underlying securities. Federal income tax treatment of gains or losses from transactions in options on futures contracts and indexes will depend on whether the option is a section 1256 contract. If the option is a non-equity option, a fund would either make a 1256(d) election and treat the option as a mixed straddle or mark to market the option at fiscal year end and treat the gain/loss as 40% short-term and 60% long-term. Statement of Additional Information - Oct. 3, 2005 Page 30 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: Active Management Risk, Derivatives Risk, and Liquidity Risk. Statement of Additional Information - Oct. 3, 2005 Page 31 Exchange-Traded Funds Exchange-traded funds (ETFs) represent shares of ownership in mutual funds, unit investment trusts or depositary receipts. ETFs hold portfolios of securities that closely track the performance and dividend yield of specific domestic or foreign market indexes. Although one or more of the other risks described in this SAI may apply, the largest risks associated with ETFs include: Active Management Risk and Market 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 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. A fund may enter into forward contracts to settle a security transaction or handle dividend and interest collection. When a fund enters into a contract for the purchase or sale of a security denominated in a foreign currency or has been notified of a dividend or interest payment, it may desire to lock in the price of the security or the amount of the payment in dollars. By entering into a forward contract, a fund would be able to protect itself against a possible loss resulting from an adverse change in the relationship between different currencies from the date the security is purchased or sold to the date on which payment is made or received or when the dividend or interest is actually received. 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. A fund would not enter into such forward contracts or maintain a net exposure to such contracts when consummating the contracts would obligate it to deliver an amount of foreign currency in excess of the value of its securities or other assets denominated in that currency. Statement of Additional Information - Oct. 3, 2005 Page 32 A fund may designate cash or securities in an amount equal to the value of the fund's total assets committed to consummating forward contracts entered into under the circumstance set forth immediately above. If the value of the securities declines, additional cash or securities will be designated on a daily basis so that the value of the cash or securities will equal the amount of the fund's commitments on such contracts. 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 also may 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. 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. Statement of Additional Information - Oct. 3, 2005 Page 33 A fund may write options on foreign currencies for the same types of purposes. For example, when a fund anticipates a decline in the dollar value of foreign-denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option would most likely not be exercised and the diminution in value of securities would be fully or partially offset by the amount of the premium received. Similarly, instead of purchasing a call option when a foreign currency is expected to appreciate, a fund could write a put option on the relevant currency. If rates move in the manner projected, the put option would expire unexercised and allow the fund to hedge increased cost up to the amount of the premium. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the fund would be required to buy or sell the underlying currency at a loss that may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the fund also may be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements on exchange rates. All options written on foreign currencies will be covered. An option written on foreign currencies is covered if a fund holds currency sufficient to cover the option or has an absolute and immediate right to acquire that currency without additional cash consideration upon conversion of assets denominated in that currency or exchange of other currency held in its portfolio. An option writer could lose amounts substantially in excess of its initial investments, due to the margin and collateral requirements associated with such positions. Options on foreign currencies are traded through financial institutions acting as market-makers, although foreign currency options also are traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In an over-the-counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting a fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in certain foreign countries for that purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise. Foreign Currency Futures and Related Options. A fund may enter into currency futures contracts to buy or sell currencies. It also may buy put and call options and write covered call and cash-secured put options on currency futures. Currency futures contracts are similar to currency forward contracts, except Statement of Additional Information - Oct. 3, 2005 Page 34 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: Active Management Risk, Derivatives Risk, Interest Rate Risk, and Liquidity Risk. Foreign Securities Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations involve special risks, including those set forth below, which are not typically associated with investing in U.S. securities. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic companies. Additionally, many foreign stock markets, while growing in volume of trading activity, have substantially less volume than the New York Stock Exchange, and securities of some foreign companies are less liquid and more volatile than securities of domestic companies. Similarly, volume and liquidity in most foreign bond markets are less than the volume and liquidity in the U.S. and, at times, volatility of price can be greater than in the U.S. Further, foreign markets have different clearance, settlement, registration, and communication procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions making it difficult to conduct such transactions. Delays in such procedures could result in temporary periods when assets are uninvested and no return is earned on them. The inability of an investor to make intended security purchases due to such problems could cause the investor to miss attractive investment opportunities. Payment for securities without delivery may be required in certain foreign markets and, when participating in new issues, some foreign countries require payment to be made in advance of issuance (at the time of issuance, the market value of the security may be more or less than the purchase price). Some foreign markets also have compulsory depositories (i.e., an investor does not have a choice as to where the securities are held). Fixed commissions on some foreign stock exchanges are generally higher than negotiated commissions on U.S. exchanges. Further, an investor may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. There is generally less government supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the U.S. It may be more difficult for an investor's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the U.S. and foreign countries may be less reliable than within the U.S., thus increasing the risk of delays or loss of certificates for portfolio securities. In addition, with respect to certain foreign countries, there is the possibility of nationalization, expropriation, the imposition of additional withholding or confiscatory taxes, political, social, or economic instability, Statement of Additional Information - Oct. 3, 2005 Page 35 diplomatic developments that could affect investments in those countries, or other unforeseen actions by regulatory bodies (such as changes to settlement or custody procedures). The risks of foreign investing may be magnified for investments in emerging markets, which may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. The introduction of a single currency, the euro, on Jan. 1, 1999 for participating European nations in the Economic and Monetary Union (EU) presents unique uncertainties, including the legal treatment of certain outstanding financial contracts after Jan. 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates; the fluctuation of the euro relative to non-euro currencies; whether the interest rate, tax or labor regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other EU countries such as the United Kingdom and Denmark into the euro and the admission of other non-EU countries such as Poland, Latvia, and Lithuania as members of the EU may have an impact on the euro. Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign securities include: Active Management Risk, 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 (High-Risk) 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 interest-bearing securities typically experience appreciation when interest rates decline and depreciation when interest rates rise. The market values of lower-quality and comparable unrated securities tend to reflect individual corporate developments to a greater extent than do higher rated securities, which react primarily to fluctuations in the general level of interest rates. Lower-quality and comparable unrated securities also tend to be more sensitive to economic conditions than are higher-rated securities. As a result, they generally involve more credit risks than securities in the higher-rated categories. During an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of lower-quality securities may experience financial stress and may not have sufficient revenues to meet their payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific corporate developments, the issuer's inability to meet specific projected business forecasts, or the unavailability of additional financing. The risk of loss due to default by an issuer of these securities is significantly greater than 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. Statement of Additional Information - Oct. 3, 2005 Page 36 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 (high-risk) securities include: Active Management Risk, 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: Active Management Risk and 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: Active Management Risk, Liquidity Risk, and Market Risk. Statement of Additional Information - Oct. 3, 2005 Page 37 Inflation Protected Securities Inflation is a general rise in prices of goods and services. Inflation erodes the purchasing power of an investor's assets. For example, if an investment provides a total return of 7% in a given year and inflation is 3% during that period, the inflation-adjusted, or real, return is 4%. Inflation protected securities are debt securities whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. One type of inflation-protected debt security is issued by the U.S. Treasury. The principal of these securities is adjusted for inflation as indicated by the Consumer Price Index for Urban Consumers (CPI) and interest is paid on the adjusted amount. The CPI is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and energy. If the CPI falls, the principal value of inflation-protected securities will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Conversely, if the CPI rises, the principal value of inflation-protected securities will be adjusted upward, and consequently the interest payable on these securities will be increased. Repayment of the original bond principal upon maturity is guaranteed in the case of U.S. Treasury inflation protected securities, even during a period of deflation. However, the current market value of the inflation-protected securities is not guaranteed and will fluctuate. Other inflation-indexed securities include inflation-related bonds, which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal. Other issuers of inflation-protected debt securities include other U.S. government agencies or instrumentalities, corporations and foreign governments. There can be no assurance that the CPI or any foreign inflation index will accurately measure the real rate of inflation in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the bond's inflation measure. Any increase in principal for an inflation-protected security resulting from inflation adjustments is considered by IRS regulations to be taxable income in the year it occurs. For direct holders of an inflation-protected security, this means that taxes must be paid on principal adjustments even though these amounts are not received until the bond matures. By contrast, a fund holding these securities distributes both interest income and the income attributable to principal adjustments in the form of cash or reinvested shares, which are taxable to shareholders. Although one or more of the other risks described in this SAI may apply, the largest risks associated with inflation-protected securities include: Interest Rate Risk and Market Risk. Inverse Floaters Inverse floaters are created by underwriters using the interest payment on securities. A portion of the interest received is paid to holders of instruments based on current interest rates for short-term securities. The remainder, minus a servicing fee, is paid to holders of inverse floaters. As interest rates go down, the holders of the inverse floaters receive more income and an increase in the price for the inverse floaters. As interest rates go up, the holders of the inverse floaters receive less income and a decrease in the price for the inverse floaters. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with inverse floaters include: Active Management Risk and Interest Rate Risk. Statement of Additional Information - Oct. 3, 2005 Page 38 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: Active Management Risk and Market Risk. Lending of Portfolio Securities A fund may lend certain of its portfolio securities. The current policy of the Board is to make these loans, either long- or short-term, to broker-dealers. In making loans, the lender receives the market price in cash, U.S. government securities, letters of credit, or such other collateral as may be permitted by regulatory agencies and approved by the Board. If the market price of the loaned securities goes up, the lender will get additional collateral on a daily basis. If the market price of the loaned securities goes down, the borrower may request that some collateral be returned. The risks are that the borrower may not provide additional collateral when required or return the securities when due. During the existence of the loan, the lender receives cash payments equivalent to all interest or other distributions paid on the loaned securities. The lender may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or money market instruments held as collateral to the borrower or placing broker. The lender will receive reasonable interest on the loan or a flat fee from the borrower and amounts equivalent to any dividends, interest, or other distributions on the securities loaned. Although one or more of the other risks described in this SAI may apply, the largest risks associated with the lending of portfolio securities include: Active Management Risk and 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: Active Management Risk and 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 and Principal Only. 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 Statement of Additional Information - Oct. 3, 2005 Page 39 the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. If prepayments of principal are greater than anticipated, an investor in IOs may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage-backed security. CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans or other mortgage-related securities, such as mortgage pass through securities or stripped mortgage-backed securities. CMOs may be structured into multiple classes, often referred to as "tranches," with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than its stated maturity. The yield characteristics of mortgage-backed securities differ from those of other debt securities. Among the differences are that interest and principal payments are made more frequently on mortgage-backed securities, usually monthly, and principal may be repaid at any time. These factors may reduce the expected yield. Asset-backed securities have structural characteristics similar to mortgage-backed securities. Asset-backed debt obligations represent direct or indirect participation in, or secured by and payable from, assets such as motor vehicle installment sales contracts, other installment loan contracts, home equity loans, leases of various types of property, and receivables from credit card or other revolving credit arrangements. The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancement of the securities. Payments or distributions of principal and interest on asset-backed debt obligations may be supported by non-governmental credit enhancements including letters of credit, reserve funds, overcollateralization, and guarantees by third parties. The market for privately issued asset-backed debt obligations is smaller and less liquid than the market for government sponsored mortgage-backed securities. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage and asset-backed securities include: Active Management Risk, 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: Active Management Risk, 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." Statement of Additional Information - Oct. 3, 2005 Page 40 General obligation bonds are secured by the issuer's pledge of its full faith, credit, and taxing power for the payment of interest and principal. Revenue bonds are payable only from the revenues derived from a project or facility or from the proceeds of a specified revenue source. Industrial development bonds are generally revenue bonds secured by payments from and the credit of private users. Municipal notes are issued to meet the short-term funding requirements of state, regional, and local governments. Municipal notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes, tax and revenue anticipation notes, construction loan notes, short-term discount notes, tax-exempt commercial paper, demand notes, and similar instruments. Municipal lease obligations may take the form of a lease, an installment purchase, or a conditional sales contract. They are issued by state and local governments and authorities to acquire land, equipment, and facilities. An investor may purchase these obligations directly, or it may purchase participation interests in such obligations. Municipal leases may be subject to greater risks than general obligation or revenue bonds. State constitutions and statutes set forth requirements that states or municipalities must meet in order to issue municipal obligations. Municipal leases may contain a covenant by the state or municipality to budget for and make payments due under the obligation. Certain municipal leases may, however, provide that the issuer is not obligated to make payments on the obligation in future years unless funds have been appropriated for this purpose each year. Yields on municipal bonds and notes depend on a variety of factors, including money market conditions, municipal bond market conditions, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The municipal bond market has a large number of different issuers, many having smaller sized bond issues, and a wide choice of different maturities within each issue. For these reasons, most municipal bonds do not trade on a daily basis and many trade only rarely. Because many of these bonds trade infrequently, the spread between the bid and offer may be wider and the time needed to develop a bid or an offer may be longer than other security markets. See Appendix A for a discussion of securities ratings. (See also Debt Obligations.) 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, Legal/Legislative 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: Active Management Risk, Issuer Risk, and Market Risk. Statement of Additional Information - Oct. 3, 2005 Page 41 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. Although one or more of the other risks described in this SAI may apply, the largest risks associated with REITs include: Active Management Risk, 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: Active Management Risk and Credit Risk. Reverse Repurchase Agreements In a reverse repurchase agreement, an investor sells a security and enters into an agreement to repurchase the security at a specified future date and price. The investor generally retains the right to interest and principal payments on the security. Since the investor receives cash upon entering into a reverse repurchase agreement, it may be considered a borrowing. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with reverse repurchase agreements include: Active Management Risk, Credit Risk, and Interest Rate Risk. Short Sales With short sales, an investor sells a security that it does not own in anticipation of a decline in the market value of the security. To complete the transaction, the investor must borrow the security to make delivery to the buyer. The investor is obligated to replace the security that was borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the investor sold the security. A fund that is allowed to engage in short sales will designate cash or liquid securities to cover its open short positions. Those funds also may engage in "short sales against the box," a form of short-selling that involves selling a security that an investor owns (or has an unconditioned right to purchase) for delivery at a specified date in the future. This technique allows an investor to hedge protectively against anticipated declines in the market of its securities. If the value of the securities sold short increased between the date of the short sale and the date on which the borrowed security is replaced, the investor loses the opportunity to participate in the gain. A "short sale against the box" will result in a constructive sale of appreciated securities thereby generating capital gains to a fund. Although one or more of the other risks described in this SAI may apply, the largest risks associated with short sales include: Active Management Risk and Market Risk. Statement of Additional Information - Oct. 3, 2005 Page 42 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: Active Management Risk, Credit Risk, and Foreign/Emerging Markets Risk. Structured Investments A structured investment is a security whose return is tied to an underlying index or to some other security or pool of assets. Structured investments generally are individually negotiated agreements and may be traded over-the-counter. Structured investments are created and operated to restructure the investment characteristics of the underlying security. This restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments, such as commercial bank loans, and the issuance by that entity of one or more classes of debt obligations ("structured securities") backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics, such as varying maturities, payment priorities, and interest rate provisions. The extent of the payments made with respect to structured securities is dependent on the extent of the cash flow on the underlying instruments. Because structured securities typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. Structured securities are often offered in different classes. As a result a given class of a structured security may be either subordinated or unsubordinated to the right of payment of another class. Subordinated structured securities typically have higher yields and present greater risks than unsubordinated structured securities. Structured securities are typically sold in private placement transactions, and at any given time there may be no active trading market for a particular structured security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with structured investments include: Active Management Risk, Credit Risk, and Liquidity Risk. Swap Agreements Swap agreements obligate one party to make payments to the other party based on the change in the market value of an index or other asset. In return, the other party agrees to make payments to the first party based on the return of another index or asset. Swap agreements entail the risk that a party will default on its payment obligations. Interest Rate Swaps. Interest rate swap agreements are 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. Swaps also may protect against changes in the price of securities that an investor anticipates buying or Statement of Additional Information - Oct. 3, 2005 Page 43 selling at a later date. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to several years. In a standard interest rate swap transaction, two parties agree to exchange their respective commitments to pay fixed or floating rates on a predetermined 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. Swap agreements are usually entered into at a zero net market value of the swap agreement commitments. 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 to the other. Swap agreements may include embedded interest rate caps, floor 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. Swap agreements are traded in the over-the-counter market and may be considered to be illiquid. A fund will enter into interest rate swap agreements only if the claims-paying ability of the other party or its guarantor is considered to be investment grade by the Advisor. 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. CMBS Total Return Swaps. CMBS total return swaps are bilateral financial contracts designed to replicate synthetically the total returns of collateralized mortgage-backed securities. Currency Swaps. Currency swaps are similar to interest rate swaps, except that they involve currencies instead of interest rates. Although one or more of the other risks described in this SAI may apply, the largest risks associated with swaps include: Credit Risk and Liquidity Risk. Variable- or Floating-Rate Securities Variable-rate securities provide for automatic establishment of a new interest rate at fixed intervals (e.g., 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 Statement of Additional Information - Oct. 3, 2005 Page 44 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: Active Management Risk and 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: Active Management Risk and 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: Active Management Risk and 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: Active Management Risk, Credit Risk, and Interest Rate Risk. A fund cannot issue senior securities but this does not prohibit certain investment activities for which assets of the fund are set aside, or margin, collateral or escrow arrangements are established, to cover the related obligations. Examples of those activities include borrowing money, delayed-delivery and when-issued securities transactions, and contracts to buy or sell options, derivatives, and hedging instruments. Statement of Additional Information - Oct. 3, 2005 Page 45 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 for subadvised funds is authorized to determine, consistent with a fund's investment goal and policies, which securities will be purchased, held, or sold. In determining where the buy and sell orders are to be placed, the investment manager has been directed to use its best efforts to obtain the best available price and the most favorable execution except where otherwise authorized by the Board. In selecting broker-dealers to execute transactions, the investment manager may consider the price of the security, including commission or mark-up, the size and difficulty of the order, the reliability, integrity, financial soundness, and general operation and execution capabilities of the broker, the broker's expertise in particular markets, and research services provided by the broker. Each fund, the investment manager, any subadviser and Ameriprise Financial Services, Inc. (the distributor or Ameriprise Financial Services) 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 a principal rather than an agency basis. In certain circumstances, the investment manager will trade directly with the issuer or with a dealer who buys or sells for its own account, rather than acting on behalf of another client. The investment manager does not pay the dealer commissions. Instead, the dealer's profit, if any, is the difference, or spread, between the dealer's purchase and sale price for the security. On occasion, it may be desirable to compensate a broker for research services or for brokerage services by paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge. The Board has adopted a policy authorizing the investment manager to do so to the extent authorized by law, if the investment manager determines, in good faith, that such commission is reasonable in relation to the value of the brokerage or research services provided by a broker or dealer, viewed either in the light of that transaction or the investment manager's overall responsibilities with respect to a fund and the other RiverSource funds for which it acts as investment manager (or by any fund subadviser to any other client of such subadviser). Research provided by brokers supplements the investment manager's own research activities. Such services include economic data on, and analysis of, U.S. and foreign economies; information on specific industries; information about specific companies, including earnings estimates; purchase recommendations; portfolio strategy services; political, economic, business, and industry trend assessments; historical statistical information; market data services providing information on specific issues and prices; and technical analysis of various aspects of the securities markets, including technical charts. Research services may take the form of written reports, computer software, or personal contact by telephone or at seminars or other meetings. The investment manager has obtained, and in the future may obtain, computer hardware from brokers, including but not limited to personal computers that will be used exclusively for investment decision-making purposes, which include the research, portfolio management, and trading functions and other services to the extent permitted under an interpretation by the SEC. When paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge, the investment manager must follow procedures authorized by the Board. To date, three procedures have been authorized. One procedure permits the investment manager to direct an order to buy or sell a security traded on a national securities exchange to a specific broker for research services it has provided. The second procedure permits the investment manager, in order to obtain research, to direct an order on an agency basis to buy or sell a security traded in the over-the-counter market to a firm that does not make a market in that security. The commission paid generally includes compensation for research services. The third procedure permits the investment manager, in order to obtain research and brokerage services, to cause a fund to pay a commission in excess of the amount another broker might have Statement of Additional Information - Oct. 3, 2005 Page 46 charged. The investment manager has advised the funds that it is necessary to do business with a number of brokerage firms on a continuing basis to obtain such services as the handling of large orders, the willingness of a broker to risk its own money by taking a position in a security, and the specialized handling of a particular group of securities that only certain brokers may be able to offer. As a result of this arrangement, some portfolio transactions may not be effected at the lowest commission, but the investment manager believes it may obtain better overall execution. The investment manager has represented that under all three procedures the amount of commission paid will be reasonable and competitive in relation to the value of the brokerage services performed or research provided. All other transactions will be placed on the basis of obtaining the best available price and the most favorable execution. In so doing, if in the professional opinion of the person responsible for selecting the broker or dealer, several firms can execute the transaction on the same basis, consideration will be given by such person to those firms offering research services. Such services may be used by the investment manager in providing advice to all RiverSource funds (or by any fund subadviser to any other client of such subadviser) even though it is not possible to relate the benefits to any particular fund. Each investment decision made for a fund is made independently from any decision made for another portfolio, fund, or other account advised by the investment manager. When a fund buys or sells the same security as another portfolio, fund, or account, the investment manager carries out the purchase or sale in a way believed to be fair to the fund. Although sharing in large transactions may adversely affect the price or volume purchased or sold by the fund, the fund hopes to gain an overall advantage in execution. On occasion, a fund may purchase and sell a security simultaneously in order to profit from short-term price disparities. On a periodic basis, the investment manager makes a comprehensive review of the broker-dealers and the overall reasonableness of their commissions. The review evaluates execution, operational efficiency, and research services. The Board has adopted a policy prohibiting the investment manager, 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. The following table shows total brokerage commissions paid in the last three fiscal periods. Substantially all firms through whom transactions were executed provide research services. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
Table 5. Total Brokerage Commissions - ---------------------------------------------------------------------------------------------------------------- Total Brokerage Commissions - ---------------------------------------------------------------------------------------------------------------- Fund 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 - ---------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive $0(a) N/A N/A - -------------------------------------------------------- ------------------ ----------------- ------------------ Portfolio Builder Conservative 0(a) N/A N/A - -------------------------------------------------------- ------------------ ----------------- ------------------ Portfolio Builder Moderate 0(a) N/A N/A - -------------------------------------------------------- ------------------ ----------------- ------------------ Portfolio Builder Moderate Aggressive 0(a) N/A N/A - -------------------------------------------------------- ------------------ ----------------- ------------------ Portfolio Builder Moderate Conservative 0(a) N/A N/A - -------------------------------------------------------- ------------------ ----------------- ------------------ Portfolio Builder Total Equity 0(a) N/A N/A - -------------------------------------------------------- ------------------ ----------------- ------------------ Small Company Index 37,118 23,893 50,976 - -------------------------------------------------------- ------------------ ----------------- ------------------ S&P 500 Index 49,048 24,729 43,486 - ---------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - ---------------------------------------------------------------------------------------------------------------- Equity Value 858,846 1,852,684 2,826,803 - -------------------------------------------------------- ------------------ ----------------- ------------------ Precious Metals 1,245,421 956,649 1,290,528 - -------------------------------------------------------- ------------------ ----------------- ------------------ Small Cap Advantage 3,294,757 4,102,653 3,784,304 - -------------------------------------------------------- ------------------ ----------------- ------------------ Small Cap Growth 2,105,168 3,334,707 3,301,903 - -------------------------------------------------------- ------------------ ----------------- ------------------ Strategy Aggressive 933,213 1,563,638 1,954,985 - ---------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - ---------------------------------------------------------------------------------------------------------------- Aggressive Growth 181,981 72,985 8,489(b) - -------------------------------------------------------- ------------------ ----------------- ------------------ Fundamental Growth 180,023 46,313 7,136(b) - -------------------------------------------------------- ------------------ ----------------- ------------------ Fundamental Value 314,501 162,856 205,143 - -------------------------------------------------------- ------------------ ----------------- ------------------ High Yield Bond 0 876 0 - -------------------------------------------------------- ------------------ ----------------- ------------------
Statement of Additional Information - Oct. 3, 2005 Page 47
- ---------------------------------------------------------------------------------------------------------------- Total Brokerage Commissions - -------------------------------------------------------- ------------------ ----------------- ------------------ Fund 2005 2004 2003 - -------------------------------------------------------- ------------------ ----------------- ------------------ Select Value 310,913 539,192 532,619 - -------------------------------------------------------- ------------------ ----------------- ------------------ Selective 45,224 77,261 317,778 - -------------------------------------------------------- ------------------ ----------------- ------------------ Short Duration U.S. Government 95,868 407,216 552,895 - -------------------------------------------------------- ------------------ ----------------- ------------------ Small Cap Equity 429,969 846,218 273,634 - -------------------------------------------------------- ------------------ ----------------- ------------------ Small Cap Value 2,439,209 3,185,306 2,505,457 - -------------------------------------------------------- ------------------ ----------------- ------------------ U.S. Government Mortgage 10,708 31,267 23,812 - -------------------------------------------------------- ------------------ ----------------- ------------------ Value 363,273 389,539 629,327 - ---------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - ---------------------------------------------------------------------------------------------------------------- California Tax-Exempt 0 0 0 - -------------------------------------------------------- ------------------ ----------------- ------------------ Dividend Opportunity 621,168 3,783,128 6,633,939 - -------------------------------------------------------- ------------------ ----------------- ------------------ Insured Tax-Exempt 0 0 0 - -------------------------------------------------------- ------------------ ----------------- ------------------ Massachusetts Tax-Exempt 0 0 0 - -------------------------------------------------------- ------------------ ----------------- ------------------ Michigan Tax-Exempt 0 0 0 - -------------------------------------------------------- ------------------ ----------------- ------------------ Minnesota Tax-Exempt 0 0 0 - -------------------------------------------------------- ------------------ ----------------- ------------------ New York Tax-Exempt 0 0 0 - -------------------------------------------------------- ------------------ ----------------- ------------------ Ohio Tax-Exempt 0 0 0 - -------------------------------------------------------- ------------------ ----------------- ------------------ Real Estate 185,877 34,975(c) 0 - ---------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - ---------------------------------------------------------------------------------------------------------------- Cash Management 0 0 0 - -------------------------------------------------------- ------------------ ----------------- ------------------ Core Bond 3,612 1,451 244(d) - -------------------------------------------------------- ------------------ ----------------- ------------------ Disciplined Equity 35,948 5,731 1,574(e) - -------------------------------------------------------- ------------------ ----------------- ------------------ Discovery 423,268 1,171,529 903,078 - -------------------------------------------------------- ------------------ ----------------- ------------------ Growth 15,623,111 22,702,374 38,887,668 - -------------------------------------------------------- ------------------ ----------------- ------------------ Income Opportunities 0 0 0(d) - -------------------------------------------------------- ------------------ ----------------- ------------------ Inflation Protected Securities 0 0(f) - - -------------------------------------------------------- ------------------ ----------------- ------------------ Large Cap Equity 6,832,334 1,306,601 311,242 - -------------------------------------------------------- ------------------ ----------------- ------------------ Large Cap Value 189,029 146,077 85,741 - -------------------------------------------------------- ------------------ ----------------- ------------------ Limited Duration Bond 3,268 839 40(d) - -------------------------------------------------------- ------------------ ----------------- ------------------ New Dimensions 29,467,597 20,989,555 11,242,565 - -------------------------------------------------------- ------------------ ----------------- ------------------ 2004 2003 2002 - ---------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - ---------------------------------------------------------------------------------------------------------------- Diversified Bond 160,646 319,860 146,984 - ---------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - ---------------------------------------------------------------------------------------------------------------- Balanced 1,314,212 2,778,748 8,761,286 - -------------------------------------------------------- ------------------ ----------------- ------------------ Diversified Equity Income 2,416,265 2,987,610 3,970,853 - -------------------------------------------------------- ------------------ ----------------- ------------------ Mid Cap Value 365,435 345,711 226,161(g) - -------------------------------------------------------- ------------------ ----------------- ------------------ Stock 4,128,770 5,096,474 6,450,898 - -------------------------------------------------------- ------------------ ----------------- ------------------ Strategic Allocation 279,233 379,561 1,112,766 - ---------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - ---------------------------------------------------------------------------------------------------------------- Emerging Markets 2,022,969 2,106,670 2,989,019 - -------------------------------------------------------- ------------------ ----------------- ------------------ European Equity 324,079 783,457 979,690 - -------------------------------------------------------- ------------------ ----------------- ------------------ Global Balanced 189,252 175,551 323,220 - -------------------------------------------------------- ------------------ ----------------- ------------------ Global Bond 7,760 23,297 9,621 - -------------------------------------------------------- ------------------ ----------------- ------------------ Global Equity 1,992,985 1,582,657 3,706,450 - -------------------------------------------------------- ------------------ ----------------- ------------------ Global Technology 4,193,021 5,595,324 3,248,305 - -------------------------------------------------------- ------------------ ----------------- ------------------ International Aggressive Growth 598,644 495,189 509,926 - -------------------------------------------------------- ------------------ ----------------- ------------------ International Equity 315,047 144,417 16,699(h) - -------------------------------------------------------- ------------------ ----------------- ------------------ International Opportunity 1,303,677 2,047,954 2,953,477 - -------------------------------------------------------- ------------------ ----------------- ------------------ International Select Value 839,270 411,763 399,835 - -------------------------------------------------------- ------------------ ----------------- ------------------ International Small Cap 179,076 66,511 8,184(h) - ---------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - ---------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Bond 0 0 0 - -------------------------------------------------------- ------------------ ----------------- ------------------ Mid Cap Growth 1,630,670 1,597,573 746,295 - -------------------------------------------------------- ------------------ ----------------- ------------------ Tax-Exempt Bond 0 0 0 - -------------------------------------------------------- ------------------ ----------------- ------------------ Tax-Exempt High Income 0 0 2,507 - ---------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - ---------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 0 0 0 - -------------------------------------------------------- ------------------ ----------------- ------------------
Statement of Additional Information - Oct. 3, 2005 Page 48 (a) For the period from March 4, 2004 (when shares became publicly available) to Jan. 31, 2005. (b) For the period from April 24, 2003 (when shares became publicly available) to May 31, 2003. (c) For the period from March 4, 2004 (when shares became publicly available) to June 30, 2004. (d) For the period from June 19, 2003 (when shares became publicly available) to July 31, 2003. (e) For the period from April 24, 2003 (when shares became publicly available) to July 31, 2003. (f) For the period from March 4, 2004 (when shares became publicly available) to July 31, 2004. (g) For the period from Feb. 14, 2002 (when shares became publicly available) to Sept. 30, 2002. (h) For the period from Oct. 3, 2002 (when shares became publicly available) to Oct. 31, 2002. For the last fiscal period, transactions were specifically directed to firms in exchange for research services as shown in the following table. The table also shows portfolio turnover rates for the last two fiscal periods. Higher turnover rates may result in higher brokerage expenses and taxes. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
Table 6. Brokerage Directed for Research and Turnover Rates - ------------------------------------------ ------------------------------------- -------------------------- Fund Brokerage directed for research Turnover rates - ------------------------------------------ ----------------- ------------------- -------------------------- Amount of Amount of commissions transactions imputed or paid - ------------------------------------------ ----------------- ------------------- -------------------------- 2005 2004 - -------------------------------------------------------------------------------- ------------- ------------ For funds with fiscal period ending January 31 - ----------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive $0 $0 38%(a) N/A - ------------------------------------------ ----------------- ------------------- ------------- ------------ Portfolio Builder Conservative 0 0 51(a) N/A - ------------------------------------------ ----------------- ------------------- ------------- ------------ Portfolio Builder Moderate 0 0 28(a) N/A - ------------------------------------------ ----------------- ------------------- ------------- ------------ Portfolio Builder Moderate Aggressive 0 0 31(a) N/A - ------------------------------------------ ----------------- ------------------- ------------- ------------ Portfolio Builder Moderate Conservative 0 0 28(a) N/A - ------------------------------------------ ----------------- ------------------- ------------- ------------ Portfolio Builder Total Equity 0 0 39(a) N/A - ------------------------------------------ ----------------- ------------------- ------------- ------------ Small Company Index 0 0 12 10 - ------------------------------------------ ----------------- ------------------- ------------- ------------ S&P 500 Index 0 0 6 4 - ----------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - ----------------------------------------------------------------------------------------------------------- Equity Value 0 0 25 39 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Precious Metals 0 0 196 173 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Small Cap Advantage 43,909,384 121,834 101 110 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Small Cap Growth 46,579,305 115,768 153 224 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Strategy Aggressive 0 0 35 55 - ----------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - ----------------------------------------------------------------------------------------------------------- Aggressive Growth 4,034,256 6,709 218 189 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Fundamental Growth 206,318 221 122 66 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Fundamental Value 0 0 2 5 - ------------------------------------------ ----------------- ------------------- ------------- ------------ High Yield Bond 0 0 105 140 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Select Value 73,512,978 115,967 12 15 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Selective 0 0 297 292 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Short Duration U.S. Government 0 0 169 125 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Small Cap Equity 2,239,076 5,359 88 139 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Small Cap Value 107,548,552 94,171 70 97 - ------------------------------------------ ----------------- ------------------- ------------- ------------ U.S. Government Mortgage 0 0 137 163 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Value 0 0 40 34 - ----------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - ----------------------------------------------------------------------------------------------------------- California Tax-Exempt 0 0 28 30 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Dividend Opportunity 0 0 24 118 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Insured Tax-Exempt 0 0 34 23 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Massachusetts Tax-Exempt 0 0 9 14 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Michigan Tax-Exempt 0 0 9 32 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Minnesota Tax-Exempt 0 0 15 23 - ------------------------------------------ ----------------- ------------------- ------------- ------------ New York Tax-Exempt 0 0 30 36 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Ohio Tax-Exempt 0 0 33 17 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Real Estate 1,683,089 2,960 63 49(b) - ----------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - ----------------------------------------------------------------------------------------------------------- Cash Management 0 0 N/A N/A - ------------------------------------------ ----------------- ------------------- ------------- ------------ Core Bond 0 0 313 310 - ------------------------------------------ ----------------- ------------------- ------------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 49
- ------------------------------------------ ------------------------------------- -------------------------- Fund Brokerage directed for research Turnover rates - ------------------------------------------ ----------------- ------------------- -------------------------- Amount of Amount of transactions commissions imputed or paid - ------------------------------------------ ----------------- ------------------- -------------------------- 2005 2004 - -------------------------------------------------------------------------------- ------------- ------------ Disciplined Equity 0 0 64 64 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Discovery 2,807,817 5,265 82 136 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Growth 112,613,001 257,216 136 171 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Income Opportunities 0 0 124 133 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Inflation Protected Securities 0 0 43 11(c) - ------------------------------------------ ----------------- ------------------- ------------- ------------ Large Cap Equity 55,693,151 112,862 128 99 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Large Cap Value 2,335,458 3,065 57 59 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Limited Duration Bond 0 0 316 317 - ------------------------------------------ ----------------- ------------------- ------------- ------------ New Dimensions 139,768,556 184,742 75 49 - -------------------------------------------------------------------------------- ------------- ------------ 2004 2003 - ----------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - ----------------------------------------------------------------------------------------------------------- Diversified Bond 0 0 279 256 - ----------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - ----------------------------------------------------------------------------------------------------------- Balanced 25,916,512 38,380 131 130 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Diversified Equity Income 20,152,447 35,693 18 38 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Mid Cap Value 2,031,218 10,965 9 36 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Stock 76,937,816 106,000 76 68 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Strategic Allocation 0 0 127 196 - ----------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - ----------------------------------------------------------------------------------------------------------- Emerging Markets 0 0 128 174 - ------------------------------------------ ----------------- ------------------- ------------- ------------ European Equity 0 0 73 186 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Global Balanced 0 0 74 90 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Global Bond 0 0 92 117 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Global Equity 0 0 104 132 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Global Technology 21,309,491 84,503 349 546 - ------------------------------------------ ----------------- ------------------- ------------- ------------ International Aggressive Growth 114,966,759 202,719 87 116 - ------------------------------------------ ----------------- ------------------- ------------- ------------ International Equity 14,835,692 26,595 111 58 - ------------------------------------------ ----------------- ------------------- ------------- ------------ International Opportunity 0 0 98 147 - ------------------------------------------ ----------------- ------------------- ------------- ------------ International Select Value 544,373,529 831,282 23 18 - ------------------------------------------ ----------------- ------------------- ------------- ------------ International Small Cap 26,901,119 53,060 66 87 - ----------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - ----------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Bond 0 0 25 59 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Mid Cap Growth 0 0 26 26 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Tax-Exempt Bond 0 0 21 92 - ------------------------------------------ ----------------- ------------------- ------------- ------------ Tax-Exempt High Income 0 0 22 44 - ----------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - ----------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 0 0 N/A N/A - ------------------------------------------ ----------------- ------------------- ------------- ------------
(a) For the period from March 4, 2004 (when shares became publicly available) to Jan. 31, 2005. (b) For the period from March 4, 2004 (when shares became publicly available) to June 30, 2004. (c) For the period from March 4, 2004 (when shares became publicly available) to July 31, 2004. As of the end of the most recent fiscal period, the fund held securities of its regular brokers or dealers or of the parent of those brokers or dealers that derived more than 15% of gross revenue from securities-related activities as presented below. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Statement of Additional Information - Oct. 3, 2005 Page 50
Table 7. Securities of Regular Brokers or Dealers - ------------------------------------------ --------------------------------------------- ---------------------- Fund Issuer Value of securities owned at end of fiscal period - --------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 - --------------------------------------------------------------------------------------------------------------- - ------------------------------------------ --------------------------------------------- ---------------------- Portfolio Builder Aggressive None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Portfolio Builder Conservative None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Portfolio Builder Moderate None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Portfolio Builder Moderate Aggressive None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Portfolio Builder Moderate Conservative None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Portfolio Builder Total Equity None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Small Company Index Investment Technology Group $2,067,454 Piper Jaffray Companies 1,947,534 - ------------------------------------------ --------------------------------------------- ---------------------- S&P 500 Index American Express 1,956,185 Bear Stearns Companies 304,797 Citigroup 7,436,421 Citigroup Global Markets Holdings 9,999,306 E*TRADE Financial 149,325 Franklin Resources 494,360 Goldman Sachs Group 1,525,107 Lehman Brothers Holdings 717,392 JP Morgan Chase & Co. 3,884,971 Merrill Lynch & co. 1,634,204 Morgan Stanley 1,789,097 PNC Financial Services Group 444,589 Charles Schwab 442,316 - --------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - --------------------------------------------------------------------------------------------------------------- - ------------------------------------------ --------------------------------------------- ---------------------- Equity Value Citigroup 39,340,476 JP Morgan Chase & Co. 8,513,814 Lehman Brothers Holdings 20,705,784 Merrill Lynch & Co. 17,608,260 Morgan Stanley 18,497,475 - ------------------------------------------ --------------------------------------------- ---------------------- Precious Metals None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Small Cap Advantage Investment Technology Group 361,165 Jefferies Group 1,948,056 Knight Trading Group 186,659 - ------------------------------------------ --------------------------------------------- ---------------------- Small Cap Growth Affiliated Managers Group 1,111,267 Citigroup 3,399,731 Investment Technology Group 378,175 Jefferies Group 438,595 - ------------------------------------------ --------------------------------------------- ---------------------- Strategy Aggressive None N/A - --------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - --------------------------------------------------------------------------------------------------------------- - ------------------------------------------ --------------------------------------------- ---------------------- Aggressive Growth Affiliated Managers Group 532,933 Jefferies Group 160,761 Legg Mason 478,863 - ------------------------------------------ --------------------------------------------- ---------------------- Fundamental Growth Schwab (Charles) 979,889 - ------------------------------------------ --------------------------------------------- ---------------------- Fundamental Value Citigroup 30,305,863 JP Morgan Chase & Co. 44,370,754 Morgan Stanley 6,771,168 - ------------------------------------------ --------------------------------------------- ---------------------- High Yield Bond LaBranche & Co. 16,010,175 - ------------------------------------------ --------------------------------------------- ---------------------- Select Value Bear Stearns Companies 693,280 BKF Capital Group 181,500 Merrill Lynch & Co. 1,899,100 - ------------------------------------------ --------------------------------------------- ----------------------
Statement of Additional Information - Oct. 3, 2005 Page 51
- ------------------------------------------ --------------------------------------------- ---------------------- Fund Issuer Value of securities owned at end of fiscal period - ------------------------------------------ --------------------------------------------- ---------------------- Selective Bear Stearns Adjustable Rate Mtge Trust 2,191,863 Bear Stearns Commercial Mtge Securities 5,347,849 Citigroup 8,545,622 Citigroup Commercial Mtge Trust 4,490,508 CS First Boston Mtge Securities 4,628,259 Goldman Sachs Group 2,106,773 J.P. Morgan Chase & Co. 2,428,993 J.P. Morgan Chase Commercial Mtge Securities 9,413,657 LB-UBS Commercial Mtge Trust 18,947,351 Morgan Stanley 928,881 Morgan Stanley Capital 1 7,691,766 Morgan Stanley, Dean Witter Capital 1 2,426,912 - ------------------------------------------ --------------------------------------------- ---------------------- Short Duration U.S. Government Bears Stearns Alternative Trust 8,575,000 LB-UBS Commercial Mtge Trust 6,128,195 Morgan Stanley Capital I 12,092,686 Morgan Stanley Mtge Loan Trust 3,549,817 - ------------------------------------------ --------------------------------------------- ---------------------- Small Cap Equity Affiliated Managers Group 546,940 Investment Technology Group 1,103,466 - ------------------------------------------ --------------------------------------------- ---------------------- Small Cap Value Affiliated Managers Group 1,855,928 Investment Technology Group 1,304,814 Options Xpress Holdings 271,188 - ------------------------------------------ --------------------------------------------- ---------------------- U.S. Government Mortgage CS First Boston Mtge Securities 367,506 - ------------------------------------------ --------------------------------------------- ---------------------- Value Citigroup 7,141,876 Goldman Sachs Group 4,182,750 Merrill Lynch & Co. 4,134,612 JP Morgan Chase & Co. 10,167,157 - --------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - --------------------------------------------------------------------------------------------------------------- - ------------------------------------------ --------------------------------------------- ---------------------- California Tax-Exempt None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Dividend Opportunity Citigroup 27,770,361 Friedman, Billings, Ramsey Group CIA 2,562,560 JP Morgan Chase & Co. 9,822,492 - ------------------------------------------ --------------------------------------------- ---------------------- Insured Tax-Exempt None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Massachusetts Tax-Exempt None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Michigan Tax-Exempt None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Minnesota Tax-Exempt None N/A - ------------------------------------------ --------------------------------------------- ---------------------- New York Tax-Exempt None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Ohio Tax-Exempt None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Real Estate None N/A - --------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - --------------------------------------------------------------------------------------------------------------- - ------------------------------------------ --------------------------------------------- ---------------------- Cash Management Bear Stearns Companies 78,410,961 Credit Suisse First Boston NY 79,971,289 Goldman Sachs Group 75,000,000 Lehman Brothers Holdings 42,000,000 Morgan Stanley & Co. 44,105,490 - ------------------------------------------ --------------------------------------------- ---------------------- Core Bond Bear Stearns Commercial Mtge Securities 1,608,803 Bear Stearns Adjustable Rate Mortgage Trust 899,429 Citigroup 2,480,986 Citigroup Commercial Mortgage Trust 757,003 CS First Boston Mtge Securities 643,161 GS Mtg Securities 370,305 LB-UBS Commercial Mtge Trust 3,135,156 JP Morgan Chase Commercial Mtge Securities 2,160,054 Merrill Lynch Mtge Trust 323,480 Morgan Stanley Capital 1 406,481 - ------------------------------------------ --------------------------------------------- ---------------------- Disciplined Equity Bear Stearns Companies 303,981 Citigroup 2,851,817 Franklin Resources 890,557 Lehman Brothers Holdings 691,019 Merrill Lynch & Co. 226,597 Morgan Stanley 120,264 PNC Financial Services Group 554,285 - ------------------------------------------ --------------------------------------------- ----------------------
Statement of Additional Information - Oct. 3, 2005 Page 52
- ------------------------------------------ --------------------------------------------- ---------------------- Fund Issuer Value of securities owned at end of fiscal period - ------------------------------------------ --------------------------------------------- ---------------------- Discovery Affiliated Managers Group 424,235 Investment Technology Group 928,520 - ------------------------------------------ --------------------------------------------- ---------------------- Growth Franklin Resources 10,555,092 - ------------------------------------------ --------------------------------------------- ---------------------- Income Opportunities LaBranche & Co. 1,892,550 - ------------------------------------------ --------------------------------------------- ---------------------- Inflation Protected Securities None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Large Cap Equity Citigroup 25,890,939 Citigroup Funding 19,794,538 E*Trade Financial 1,660,097 Franklin Resources 6,005,007 Legg Mason 1,157,564 Lehman Brothers Holdings 5,310,957 Merrill Lynch & Co. 3,107,522 JP Morgan Chase & Co. 14,572,909 Morgan Stanley 10,152,019 PNC Financial Services Group 4,508,671 - ------------------------------------------ --------------------------------------------- ---------------------- Large Cap Value Citigroup 4,454,096 E*Trade Financial 147,128 Franklin Resources 531,068 Legg Mason 317,891 Lehman Brothers Holdings 814,758 Merrill Lynch & Co. 883,405 JP Morgan Chase & Co. 2,588,131 Morgan Stanley 1,703,860 PNC Financial Services Group 683,386 - ------------------------------------------ --------------------------------------------- ---------------------- Limited Duration Bond Bear Stearns Commercial Mtge Securities 1,393,235 Bear Stearns Adjustable Rate Mortgage Trust 956,758 Citigroup 2,476,073 Citigroup Commercial Mortgage Trust 851,629 CS First Boston Mtge Securities 881,742 GS Mtg Securities 419,679 LB-UBS Commercial Mtge Trust 3,651,486 JP Morgan Chase Commercial Mtge Securities 2,884,355 Merrill Lynch Mtge Trust 362,690 Morgan Stanley Capital 1 509,109 - ------------------------------------------ --------------------------------------------- ---------------------- New Dimensions Citigroup 191,123,340 Schwab (Charles) 236,626,414 - --------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - --------------------------------------------------------------------------------------------------------------- - ------------------------------------------ --------------------------------------------- ---------------------- Diversified Bond Bear Stearns Commercial Mtge Securities 5,960,760 CS First Boston Mtge Securities 15,098,075 LB-UBS Commercial Mtge Trust 100,675,087 J.P. Morgan Chase 5,009,840 J.P. Morgan Chase Commercial Mtge Securities 28,372,181 Merrill Lynch Mtge Trust 4,144,448 Morgan Stanley Auto Loan Trust 4,300,000 Morgan Stanley Capital 1 20,394,595 Morgan Stanley, Dean Witter Capital 1 6,453,149 Morgan Stanley Mtge Loan Trust 14,255,772 - --------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - --------------------------------------------------------------------------------------------------------------- - ------------------------------------------ --------------------------------------------- ---------------------- Balanced Bear Stearns Commercial Mtge Securities 990,750 Citigroup 38,981,627 Citigroup Global Markets Holdings Inc. 3,294,432 CS First Boston Mtge Securities 2,590,447 Franklin Resources 1,053,864 JPMorgan Chase 24,018,900 JPMorgan Chase Commercial Mtge Securities 3,931,377 LB-UBS Commercial Mtge Trust 13,683,500 Merrill Lynch & Co. 11,032,868 Morgan Stanley 12,433,460 Morgan Stanley Capital 1 4,323,123 Morgan Stanley Dean Witter Capital 1 908,380 PNC Financial Services Group 4,257,670 - ------------------------------------------ --------------------------------------------- ----------------------
Statement of Additional Information - Oct. 3, 2005 Page 53
- ------------------------------------------ --------------------------------------------- ---------------------- Fund Issuer Value of securities owned at end of fiscal period - ------------------------------------------ --------------------------------------------- ---------------------- Diversified Equity Income Citigroup 105,305,616 JP Morgan Chase & Co. 30,890,393 Lehman Brothers Holdings 11,487,652 Merrill Lynch & Co. 23,144,660 Morgan Stanley 23,915,430 - ------------------------------------------ --------------------------------------------- ---------------------- Mid Cap Value Bear Stearns Companies 6,525,135 - ------------------------------------------ --------------------------------------------- ---------------------- Stock Citigroup 52,944,000 Goldman Sachs Group 18,648,000 Morgan Stanley 14,790,000 - ------------------------------------------ --------------------------------------------- ---------------------- Strategic Allocation Bear Stearns Companies 1,252,037 Citigroup 550,684 CS First Boston Mtge Securities 244,748 Investment Technology Group Inc. 262,028 JPMorgan Chase 5,723,301 JPMorgan Chase Commercial Mtge Securities 259,953 Knight Trading Group 69,908 LaBranche 180,250 LB-UBS Commercial Mtge Trust 2,293,968 PNC Financial Services Group 195,085 Schwab (Charles) 2,138,917 - --------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - --------------------------------------------------------------------------------------------------------------- - ------------------------------------------ --------------------------------------------- ---------------------- Emerging Markets None N/A - ------------------------------------------ --------------------------------------------- ---------------------- European Equity Credit Suisse Group 906,216 - ------------------------------------------ --------------------------------------------- ---------------------- Global Balanced Ameritrade Holding 209,622 Bear Stearns Companies 592,661 Citigroup 1,725,816 Goldman Sachs Group 540,599 - ------------------------------------------ --------------------------------------------- ---------------------- Global Bond Bear Stearns Commercial Mtge Securities 2,268,820 Citigroup 3,380,448 CS First Boston Mtge Securities 248,320 Goldman Sachs Group 557,710 LB-UBS Commercial Mtge Trust 2,269,733 J.P. Morgan Chase & Co. 1,793,898 Morgan Stanley Capital 1 1,016,380 Morgan Stanley Group 3,181,144 - ------------------------------------------ --------------------------------------------- ---------------------- Global Equity Ameritrade Holding 5,251,617 Bear Stearns Companies 3,564,211 Citigroup 18,148,572 Goldman Sachs Group 6,145,996 - ------------------------------------------ --------------------------------------------- ---------------------- Global Technology None N/A - ------------------------------------------ --------------------------------------------- ---------------------- International Aggressive Growth Pargesa Holdings 617,420 - ------------------------------------------ --------------------------------------------- ---------------------- International Equity None N/A - ------------------------------------------ --------------------------------------------- ---------------------- International Opportunity Credit Suisse Group 2,135,848 - ------------------------------------------ --------------------------------------------- ---------------------- International Select Value Credit Suisse Group 10,302,663 - ------------------------------------------ --------------------------------------------- ---------------------- International Small Cap None N/A - --------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - --------------------------------------------------------------------------------------------------------------- - ------------------------------------------ --------------------------------------------- ---------------------- Intermediate Tax-Exempt Bond None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Mid Cap Growth Legg Mason 51,786,400 - ------------------------------------------ --------------------------------------------- ---------------------- Tax-Exempt Bond None N/A - ------------------------------------------ --------------------------------------------- ---------------------- Tax-Exempt High Income None N/A - --------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - --------------------------------------------------------------------------------------------------------------- - ------------------------------------------ --------------------------------------------- ---------------------- Tax-Exempt Money Market None N/A - ------------------------------------------ --------------------------------------------- ----------------------
Statement of Additional Information - Oct. 3, 2005 Page 54 Brokerage Commissions Paid to Brokers Affiliated with the Investment Manager Affiliates of RiverSource Investments may engage in brokerage and other securities transactions on behalf of a fund according to procedures adopted by the Board and to the extent consistent with applicable provisions of the federal securities laws. Subject to approval by the Board, the same conditions apply to transactions with broker-dealer affiliates of any subadviser. The investment manager will use an affiliate only if (i) the investment manager determines that the fund will receive prices and executions at least as favorable as those offered by qualified independent brokers performing similar brokerage and other services for the fund and (ii) the affiliate charges the fund commission rates consistent with those the affiliate charges comparable unaffiliated customers in similar transactions and if such use is consistent with terms of the Investment Management Services Agreement. Information about any brokerage commissions paid by a fund in the last three fiscal periods to brokers affiliated with the fund's investment manager is contained in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
Table 8. Brokerage Commissions Paid to Investment Manager or Affiliates - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Percent of aggregate Aggregate dollar Aggregate Aggregate dollar Percent of amount of dollar dollar Fund amount of aggregate transactions amount of amount of Nature of commissions brokerage involving commissions commissions Broker affiliation paid to commissions payment of paid to paid to broker commissions broker broker - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- 2005 2004 2003 - ----------------------- ------------------------------------------------------------------------- ------------- ------------- - ----------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Portfolio Builder None 0 0 Aggressive - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Portfolio Builder None 0 0 Conservative - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Portfolio Builder None 0 0 Moderate - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Portfolio Builder None 0 0 Moderate Aggressive - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Portfolio Builder None 0 0 Moderate Conservative - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Portfolio Builder None 0 0 Total Equity - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Small Company Index None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- S&P 500 Index None 0 0 - ----------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Equity Value American 1 10,142* 1.18 1.64 14,787* 5,415* Enterprise Investment Services, Inc. (AEIS) - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Precious Metals AEIS 1 3,614* 0.29 0.65 24,650* 67,515* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Small Cap Advantage AEIS 1 0 0 0 360* 683* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Small Cap Growth SBCI 4 0 0 0 757* 0 Securities - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Neuberger 5 0 0 0 0 40,332* Berman - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Strategy Aggressive AEIS 1 7,880* 0.84 2.51 5,432* 41,748 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Statement of Additional Information - Oct. 3, 2005 Page 55
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Percent of aggregate Aggregate dollar Aggregate Aggregate dollar Percent of amount of dollar dollar Fund amount of aggregate transactions amount of amount of Nature of commissions brokerage involving commissions commissions Broker affiliation paid to commissions payment of paid to paid to broker commissions broker broker - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- 2005 2004 2003 - ----------------------- ------------------------------------------------------------------------- ------------- ------------- - ----------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - ----------------------------------------------------------------------------------------------------------------------------- Aggressive Growth JP Morgan 2 27* 0.01 0.02 103 50(a) Chase - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Fundamental Value None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Fundamental Growth Goldman Sachs 6 38 0.02 0.01 0 0 & Co. - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Raymond James 7 0 0 0 15 0(a) Financial - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- High Yield Bond None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Selective None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Select Value Gabelli & Co. 8 143,463 46.14 43.33 464,895 264,461 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Short Duration None 0 0 U.S. Government - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Small Cap Equity None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Small Cap Value Goldman Sachs 6 1,943 0.08 0.09 46,047 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Janney 9 0 0 0 5,130 0 Montgomery Scott - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Legg Mason 9 2,700 0.11 0.13 0 0 Wood Walker, Inc. - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- M.J. Whitman 10 0 0 0 425,573 286,906 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- U.S. Gov't Mortgage None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Value None 0 0 - ----------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- California Tax-Exempt None - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Dividend Opportunity AEIS 1 20,898* 3.36 7.33 217,347* 753,855* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Insured Tax-Exempt None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Massachusetts None 0 0 Tax-Exempt - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Michigan Tax-Exempt None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Minnesota Tax-Exempt None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- New York Tax-Exempt None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Ohio Tax-Exempt None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Real Estate None 0 0 - ----------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Cash Management None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Core Bond None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Disciplined Equity None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Discovery None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Growth AEIS 1 13,720* 0.09 0.31 336,098* 745,620* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Income Opportunities None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Inflation Protected None 0 0 Securities - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Large Cap Equity AEIS 1 10,214* 0.15 0.33 6,644* 353* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Large Cap Value AEIS 1 276* 0.15 0.17 595* 1,577* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Limited Duration Bond None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- New Dimensions AEIS 1 108,435* 0.37 0.77 1,018,149* 324,088* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Statement of Additional Information - Oct. 3, 2005 Page 56
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Percent of aggregate Aggregate dollar Aggregate Aggregate dollar Percent of amount of dollar dollar Fund amount of aggregate transactions amount of amount of Nature of commissions brokerage involving commissions commissions Broker affiliation paid to commissions payment of paid to paid to broker commissions broker broker - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- 2004 2003 2002 - ----------------------- ------------------------------------------------------------------------- ------------- ------------- - ----------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - ----------------------------------------------------------------------------------------------------------------------------- Diversified Bond None 0 0 - ----------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Balanced AEIS 1 8,440* 0.64 0.70 82,086* 209,163* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Diversified Equity AEIS 1 73,448* 3.04 6.97 73,410* 53,400* Income - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Mid Cap Value AEIS 1 39,552* 10.82 19.40 23,417* 16,706* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Stock AEIS 1 514,423* 12.46 22.44 329,816* 527,433* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Strategic Allocation AEIS 1 0 0 0 0 6,461* - ----------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Emerging Markets None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- European Equity None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Global Balanced None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Global Bond None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Global Equity None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Global Technology AEIS 1 97,718* 2.33 4.97 495,249* 202,910* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- International J. P. Morgan 2 22,343 3.73 3.25 0 0 Aggressive Growth Securities, Inc. - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- J.P. Morgan 2 0 0 0 0 9,567 Chase - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- International Equity None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- International None 0 0 Opportunity - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- International Select Sanford C. 3 20,637 2.46 1.07 0 0 Value Bernstein & Co. LLC - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- International Small None 0 0 Cap - ----------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Intermediate None 0 0 Tax-Exempt Bond - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Mid Cap Growth AEIS 1 17,994* 1.10 1.67 48,993* 56,544* - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Tax-Exempt Bond None 0 0 - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Tax-Exempt High Income None 0 0 - ----------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- ------------- Tax-Exempt Money None 0 0 Market - ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
*Represents brokerage clearing fees. (1) American Enterprise Investment Services, Inc., a wholly-owned subsidiary of Ameriprise Financial. (2) Affiliate of American Century, a subadviser. (3) Affiliate of Alliance Capital, a subadviser. (4) Affiliate of UBS, a subadviser. (5) Affiliate of Neuberger Berman Management, Inc., a former subadviser, terminated July 24, 2003. (6) Affiliate of Goldman Sachs Asset Management, L.P. (7) Affiliate of Eagle Asset Management, Inc., a former subadviser, terminated April 2005. (8) Affiliate of GAMCO Investors, Inc. (9) Affiliate of Royce & Associates, LLC. (10) Affiliate of Third Avenue Management, LLC. (a) For the period from April 24, 2003 (when shares became publicly available) to May 31, 2003. Statement of Additional Information - Oct. 3, 2005 Page 57 Valuing Fund Shares As of the end of the most recent fiscal period, the computation of net asset value was based on net assets divided by shares outstanding as shown in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
Table 9. Valuing Fund Shares - --------------------------------------- --------------------- ----------------------- ------------------------------- Fund Net assets Shares outstanding Net asset value of one share - --------------------------------------- --------------------- ----------------------- ------------------------------- - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 - --------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Class A $119,627,607 $11,362,951 $10.53 Class B 35,834,966 3,418,749 10.48 Class C 3,083,372 294,292 10.48 Class Y 47,631 4,524 10.53 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Portfolio Builder Conservative Class A 39,897,123 3,898,848 10.23 Class B 20,554,920 2,013,651 10.21 Class C 4,481,347 439,018 10.21 Class Y 10,201 1,000 10.20 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Portfolio Builder Moderate Class A 189,888,226 18,140,369 10.47 Class B 71,814,179 6,883,820 10.43 Class C 7,955,750 761,900 10.44 Class Y 40,620 3,879 10.47 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Portfolio Builder Moderate Aggressive Class A 245,769,977 23,417,138 10.50 Class B 67,228,623 6,423,185 10.47 Class C 6,552,993 626,119 10.47 Class Y 33,480 3,188 10.50 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Portfolio Builder Moderate Conservative Class A 77,638,291 7,502,281 10.35 Class B 33,819,808 3,276,549 10.32 Class C 5,954,341 576,615 10.33 Class Y 10,338 1,000 10.34 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Portfolio Builder Total Equity Class A 92,091,638 8,732,306 10.55 Class B 28,227,386 2,688,269 10.50 Class C 2,332,601 222,136 10.50 Class Y 83,553 7,917 10.55 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Small Company Index Class A 844,467,080 102,911,670 8.21 Class B 433,644,981 57,128,419 7.59 Class Y 19,752,240 2,373,075 8.32 - ----------------------------------------- --------------------- ----------------------- ------------------------------- S&P 500 Index Class D 69,204,754 15,205,187 4.55 Class E 301,359,081 65,939,676 4.57 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - ----------------------------------------------------------------------------------------------------------------------- Equity Value Class A 864,772,364 85,483,171 10.12 Class B 275,043,516 27,137,439 10.14 Class C 3,418,344 339,746 10.06 Class I 10,834 1,070 10.13 Class Y 7,588,846 749,495 10.13 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Precious Metals Class A 62,278,310 6,936,541 8.98 Class B 16,662,847 1,947,682 8.56 Class C 1,639,458 193,412 8.48 Class I 8,918 989 9.02 Class Y 43,718 4,837 9.04 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Small Cap Advantage Class A 621,674,455 87,943,516 7.07 Class B 234,464,316 34,760,836 6.75 Class C 12,376,977 1,834,812 6.75 Class I 5,533,930 771,966 7.17 Class Y 558,895 78,327 7.14 - ----------------------------------------- --------------------- ----------------------- -------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 58
- ----------------------------------------- --------------------- ----------------------- ------------------------------- Fund Net assets Shares outstanding Net asset value of one share - ----------------------------------------- --------------------- ----------------------- ------------------------------- Small Cap Growth Class A 153,495,002 36,595,831 4.19 Class B 70,741,549 17,412,915 4.06 Class C 6,481,577 1,595,042 4.06 Class I 5,507,843 1,300,608 4.23 Class Y 115,147 27,301 4.22 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Strategy Aggressive Class A 453,020,526 39,643,036 11.43 Class B 150,640,501 14,822,706 10.16 Class C 1,837,142 180,759 10.16 Class I 10,749 919 11.70 Class Y 1,740,559 149,294 11.66 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - --------------------------------------------------------------------------------------------------------------------- Aggressive Growth Class A 25,011,144 3,432,844 7.29 Class B 6,887,053 959,077 7.18 Class C 441,567 61,518 7.18 Class I 39,475,546 5,390,829 7.32 Class Y 35,231 4,821 7.31 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Fundamental Growth Class A 18,325,202 3,167,522 5.79 Class B 6,916,701 1,216,017 5.69 Class C 318,666 55,965 5.69 Class I 62,881,753 10,805,834 5.82 Class Y 20,924 3,597 5.82 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Fundamental Value Class A 641,156,030 117,692,649 5.45 Class B 293,904,772 55,227,068 5.32 Class C 17,116,872 3,204,289 5.34 Class I 38,341,137 6,987,269 5.49 Class Y 513,806 93,892 5.47 - ----------------------------------------- --------------------- ----------------------- ------------------------------- High Yield Bond Class A 1,734,607,908 606,766,116 2.86 Class B 628,996,597 220,191,985 2.86 Class C 36,119,894 12,717,550 2.84 Class I 10,072 3,521 2.86 Class Y 510,977 178,795 2.86 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Select Value Class A 525,317,144 79,034,723 6.65 Class B 202,624,816 31,180,806 6.50 Class C 11,856,832 1,824,372 6.50 Class I 13,938,125 2,079,347 6.70 Class Y 66,312 9,928 6.68 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Selective Class A 591,107,900 68,029,020 8.69 Class B 124,736,789 14,357,845 8.69 Class C 4,242,590 488,313 8.69 Class I 143,290,359 16,490,222 8.69 Class Y 50,484,935 5,815,214 8.68 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Short Duration U.S. Government Class A 894,085,093 186,727,963 4.79 Class B 588,209,128 122,837,566 4.79 Class C 23,606,429 4,929,965 4.79 Class I 31,332,182 6,535,370 4.79 Class Y 99,574,002 20,793,917 4.79 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Small Cap Equity Class A 122,560,969 21,107,913 5.81 Class B 46,071,722 8,146,718 5.66 Class C 3,743,293 662,650 5.65 Class I 7,041,819 1,202,122 5.86 Class Y 135,399 23,158 5.85 - ----------------------------------------- --------------------- ----------------------- -------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 59
- ----------------------------------------- --------------------- ----------------------- ------------------------------- Fund Net assets Shares outstanding Net asset value of one share - ----------------------------------------- --------------------- ----------------------- ------------------------------- Small Cap Value Class A 746,569,553 112,761,101 6.62 Class B 347,749,645 53,888,572 6.45 Class C 21,382,301 3,306,736 6.47 Class I 9,252,001 1,384,674 6.68 Class Y 237,915 35,744 6.66 - ----------------------------------------- --------------------- ----------------------- ------------------------------- U.S. Government Mortgage Class A 159,223,769 31,128,293 5.12 Class B 97,863,453 19,124,334 5.12 Class C 10,556,978 2,062,750 5.12 Class I 9,924 1,942 5.11 Class Y 34,968 6,838 5.11 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Value Class A 266,775,559 49,757,191 5.36 Class B 145,697,978 27,768,947 5.25 Class C 9,149,580 1,739,170 5.26 Class I 48,010,163 8,894,177 5.40 Class Y 158,895 29,513 5.38 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - --------------------------------------------------------------------------------------------------------------------- California Tax-Exempt Class A 189,684,740 35,995,218 5.27 Class B 16,159,650 3,068,100 5.27 Class C 3,056,044 579,245 5.28 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Dividend Opportunity Class A 808,056,488 110,670,374 7.30 Class B 297,235,931 40,987,439 7.25 Class C 11,875,411 1,638,182 7.25 Class I 11,068 1,513 7.32 Class Y 168,909 23,085 7.32 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Insured Tax-Exempt Class A 323,488,272 58,836,401 5.50 Class B 46,534,461 8,464,126 5.50 Class C 5,852,002 1,062,313 5.51 Class Y 1,443 263 5.49 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Massachusetts Tax-Exempt Class A 56,077,745 10,296,587 5.45 Class B 17,522,009 3,217,293 5.45 Class C 1,368,946 251,459 5.44 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Michigan Tax-Exempt Class A 53,273,688 9,955,048 5.35 Class B 5,477,255 1,023,070 5.35 Class C 1,841,153 343,994 5.35 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Minnesota Tax-Exempt Class A 341,393,866 63,764,004 5.35 Class B 48,659,135 9,087,318 5.35 Class C 9,005,026 1,681,783 5.35 - ----------------------------------------- --------------------- ----------------------- ------------------------------- New York Tax-Exempt Class A 72,589,870 14,013,395 5.18 Class B 10,908,968 2,105,995 5.18 Class C 1,372,838 265,013 5.18 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Ohio Tax-Exempt Class A 51,047,773 9,547,336 5.35 Class B 8,148,165 1,523,978 5.35 Class C 1,913,283 357,731 5.35 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Real Estate Class A 61,688,427 4,590,743 13.44 Class B 18,120,502 1,355,604 13.37 Class C 930,923 69,635 13.37 Class I 52,785,478 3,922,401 13.46 Class Y 35,779 2,669 13.41 - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 60
- ----------------------------------------------------------------------------------------------------------------------- Fund Net assets Shares outstanding Net asset value of one share - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - --------------------------------------------------------------------------------------------------------------------- Cash Management Class A 3,053,596,963 3,053,389,372 1.00 Class B 129,253,208 129,443,572 1.00 Class C 2,169,631 2,169,977 1.00 Class I 12,099,006 12,099,403 1.00 Class Y 139,530,681 139,596,472 1.00 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Core Bond Class A 39,922,457 4,107,510 9.72 Class B 11,959,070 1,230,,225 9.72 Class C 595,484 61,240 9.72 Class I 113,058,521 11,642,707 9.71 Class Y 100,477 10,341 9.72 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Disciplined Equity Class A 28,058,336 4,189,337 6.70 Class B 9,287,787 1,402,057 6.62 Class C 188,938 28,519 6.62 Class I 81,805,703 12,152,084 6.73 Class Y 34,351 5,118 6.71 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Discovery Class A 150,554,497 16,143,047 9.33 Class B 12,996,095 1,539,633 8.44 Class C 26,679 3,168 8.42 Class Y 2,778,376 293,582 9.46 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Growth Class A 2,101,095,913 74,131,468 28.34 Class B 578,073,340 22,222,644 26.01 Class C 14,995,769 576,446 26.01 Class I 146,738,136 5,072,507 28.93 Class Y 304,157,098 10,557,701 28.81 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Income Opportunities Class A 196,563,730 18,663,072 10.53 Class B 79,198,259 7,522,267 10.53 Class C 6,860,418 651,716 10.53 Class I 68,574,958 6,502,225 10.55 Class Y 406,041 38,524 10.54 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Inflation Protected Securities Class A 86,210,888 8,606,293 10.02 Class B 48,510,793 4,844,943 10.01 Class C 3,772,778 376,805 10.01 Class I 51,702,672 5,161,341 10.02 Class Y 10,016 1,000 10.02 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Large Cap Equity Class A 1,030,109,387 195,824,050 5.26 Class B 471,864,336 91,616,485 5.15 Class C 9,284,115 1,799,299 5.16 Class I 42,610,172 8,026,676 5.31 Class Y 208,437 39,442 5.28 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Large Cap Value Class A 74,114,932 12,713,655 5.83 Class B 28,468,201 4,935,011 5.77 Class C 1,392,159 241,376 5.77 Class I 37,827,081 6,453,226 5.86 Class Y 140,096 23,947 5.85 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Limited Duration Bond Class A 83,392,570 8,517,001 9.79 Class B 25,023,689 2,555,305 9.79 Class C 1,611,885 164,656 9.79 Class I 70,057,990 7,154,021 9.79 Class Y 59,896 6,118 9.79 - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 61
- ----------------------------------------------------------------------------------------------------------------------- Fund Net assets Shares outstanding Net asset value of one share - ----------------------------------------- --------------------- ----------------------- ------------------------------- New Dimensions Class A 6,845,241,780 285,315,473 23.99 Class B 2,003,569,556 88,486,457 22.64 Class C 45,662,322 2,019,120 22.61 Class I 69,748,064 2,889,590 24.14 Class Y 2,557,141,395 106,000,741 24.12 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - --------------------------------------------------------------------------------------------------------------------- Diversified Bond Class A 1,932,496,967 396,460,333 4.87 Class B 628,262,697 128,868,605 4.88 Class C 20,877,765 4,277,175 4.88 Class I 9,932 2,037 4.88 Class Y 203,377,008 41,712,199 4.88 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - --------------------------------------------------------------------------------------------------------------------- Balanced Class A 1,077,076,237 116,405,595 9.25 Class B 112,782,778 12,273,591 9.19 Class C 2,911,211 316,788 9.19 Class Y 181,701,926 19,639,186 9.25 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Diversified Equity Income Class A 2,455,128,497 248,435,750 9.88 Class B 876,753,088 88,974,448 9.85 Class C 38,083,847 3,868,662 9.84 Class I 17,793,479 1,798,472 9.89 Class Y 66,730,603 6,748,297 9.89 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Mid Cap Value Class A 330,631,850 48,565,529 6.81 Class B 127,763,466 19,061,202 6.70 Class C 6,512,086 971,383 6.70 Class I 20,020,114 2,915,630 6.87 Class Y 355,295 51,901 6.85 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Stock Class A 1,595,974,238 88,586,618 18.02 Class B 145,515,711 8,148,843 17.86 Class C 3,147,113 176,940 17.79 Class I 12,191,913 676,783 18.01 Class Y 437,771,200 24,301,388 18.01 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Strategic Allocation Class A 886,278,845 101,576,047 8.73 Class B 90,417,191 10,439,704 8.66 Class C 4,134,779 478,256 8.65 Class Y 5,395,258 618,480 8.72 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - --------------------------------------------------------------------------------------------------------------------- Emerging Markets Class A 190,500,049 30,359,602 6.27 Class B 73,255,622 12,316,180 5.95 Class C 1,211,363 203,071 5.97 Class I 12,706,944 1,999,415 6.36 Class Y 18,013,900 2,838,508 6.35 - ----------------------------------------- --------------------- ----------------------- ------------------------------- European Equity Class A 87,389,098 23,559,683 3.71 Class B 36,333,900 9,954,837 3.65 Class C 1,472,996 403,503 3.65 Class I 10,646 2,865 3.72 Class Y 16,178 4,358 3.71 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Global Balanced Class A 56,802,615 10,819,137 5.25 Class B 29,946,507 5,813,358 5.15 Class C 788,884 153,660 5.13 Class Y 12,506,399 2,368,527 5.28 - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 62
- ----------------------------------------------------------------------------------------------------------------------- Fund Net assets Shares outstanding Net asset value of one share - ----------------------------------------- --------------------- ----------------------- ------------------------------- Global Bond Class A 388,702,892 55,378,028 7.02 Class B 141,856,065 20,209,576 7.02 Class C 4,716,721 674,551 6.99 Class I 24,020,955 3,414,514 7.03 Class Y 78,443 11,149 7.04 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Global Equity Class A 364,487,949 70,705,385 5.16 Class B 103,737,319 21,300,358 4.87 Class C 958,277 197,511 4.85 Class Y 4,482,992 862,149 5.20 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Global Technology Class A 146,065,605 79,952,878 1.83 Class B 59,344,328 36,990,705 1.60 Class C 3,952,783 2,457,559 1.61 Class I 10,781 5,882 1.83 Class Y 412,777 225,433 1.83 - ----------------------------------------- --------------------- ----------------------- ------------------------------- International Aggressive Growth Class A 151,029,652 22,062,205 6.85 Class B 43,847,769 6,551,452 6.69 Class C 2,733,926 408,576 6.69 Class I 21,060,831 3,054,317 6.90 Class Y 194,904 28,337 6.88 - ----------------------------------------- --------------------- ----------------------- ------------------------------- International Equity Class A 97,591,124 13,879,271 7.03 Class B 21,998,053 3,168,563 6.94 Class C 1,535,888 221,140 6.95 Class I 21,597,503 3,057,583 7.06 Class Y 82,712 11,738 7.05 - ----------------------------------------- --------------------- ----------------------- ------------------------------- International Opportunity Class A 347,164,473 52,723,946 6.58 Class B 74,433,389 11,592,373 6.42 Class C 1,792,168 280,894 6.38 Class I 21,542,373 3,240,063 6.65 Class Y 30,660,554 4,629,728 6.62 - ----------------------------------------- --------------------- ----------------------- ------------------------------- International Select Value Class A 626,407,916 81,535,854 7.68 Class B 219,316,011 29,207,356 7.51 Class C 11,798,008 1,572,120 7.50 Class I 22,052,586 2,854,070 7.73 Class Y 487,420 63,137 7.72 - ----------------------------------------- --------------------- ----------------------- ------------------------------- International Small Cap Class A 53,310,958 6,744,610 7.90 Class B 12,742,956 1,637,077 7.78 Class C 564,033 72,292 7.80 Class I 10,684,163 1,345,331 7.94 Class Y 74,286 9,371 7.93 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - --------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Bond Class A 125,807,592 23,343,822 5.39 Class B 22,556,935 4,188,280 5.39 Class C 9,148,911 1,698,678 5.39 Class Y 1,302 243 5.36 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Mid Cap Growth Class A 1,489,202,349 117,818,422 12.64 Class B 407,744,077 34,919,110 11.68 Class C 14,571,251 1,248,024 11.68 Class I 12,461,840 973,107 12.81 Class Y 233,309,493 18,259,470 12.78 - -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 63
- ----------------------------------------------------------------------------------------------------------------------- Fund Net assets Shares outstanding Net asset value of one share - ----------------------------------------- --------------------- ----------------------- ------------------------------- Tax-Exempt Bond Class A 674,338,988 173,415,848 3.89 Class B 36,040,487 9,267,790 3.89 Class C 4,656,372 1,197,023 3.89 Class Y 1,894 487 3.89 - ----------------------------------------- --------------------- ----------------------- ------------------------------- Tax-Exempt High Income Class A 3,913,819,641 886,250,598 4.42 Class B 249,987,882 56,626,191 4.41 Class C 27,765,310 6,285,479 4.42 Class Y 1,992 451 4.42 - ----------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - --------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market N/A N/A 1.00 - ---------------------------------------------------------------------------------------------------------------------
For Funds other than Money Market Funds. In determining net assets before shareholder transactions, a fund's securities are valued as follows as of the close of business of the New York Stock Exchange (the Exchange): o Securities traded on a securities exchange for which a last-quoted sales price is readily available are valued at the last-quoted sales price on the exchange where such security is primarily traded. o Securities traded on a securities exchange for which a last-quoted sales price is not readily available are valued at the mean of the closing bid and asked prices, looking first to the bid and asked prices on the exchange where the security is primarily traded and, if none exist, to the over-the-counter market. o Securities included in the NASDAQ National Market System are valued at the last-quoted sales price in this market. o Securities included in the NASDAQ National Market System for which a last-quoted sales price is not readily available, and other securities traded over-the-counter but not included in the NASDAQ National Market System are valued at the mean of the closing bid and asked prices. o Futures and options traded on major exchanges are valued at the last-quoted sales price on their primary exchange. o Foreign securities traded outside the United States are generally valued as of the time their trading is complete, which is usually different from the close of the Exchange. Foreign securities quoted in foreign currencies are translated into U.S. dollars at the current rate of exchange. o Occasionally, events affecting the value of securities occur between the time the primary market on which the securities are traded closes and the close of the Exchange. If events materially affect the value of securities, the securities will be valued at their fair value according to procedures decided upon in good faith by the Board. This occurs most commonly with foreign securities, but may occur in other cases. The fair value of a security is likely to be different from the quoted or published price. o Short-term securities maturing more than 60 days from the valuation date are valued at the readily available market price or approximate market value based on current interest rates. Short-term securities maturing in 60 days or less that originally had maturities of more than 60 days at acquisition date are valued at amortized cost using the market value on the 61st day before maturity. Short-term securities maturing in 60 days or less at acquisition date are valued at amortized cost. Amortized cost is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. o Securities without a readily available market price and other assets 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 a Fund-of-Funds are valued as described above. Statement of Additional Information - Oct. 3, 2005 Page 64 For Money Market Funds. In accordance with Rule 2a-7 of the 1940 Act, all of the securities in the fund's portfolio are valued at amortized cost. The amortized cost method of valuation is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. Amortized cost does not take into consideration unrealized capital gains or losses. The Board has established procedures designed to stabilize the fund's price per share for purposes of sales and redemptions at $1, to the extent that it is reasonably possible to do so. These procedures include review of the fund's securities by the Board, at intervals deemed appropriate by it, to determine whether the fund's net asset value per share computed by using available market quotations deviates from a share value of $1 as computed using the amortized cost method. The Board must consider any deviation that appears and, if it exceeds 0.5%, it must determine what action, if any, needs to be taken. If the Board determines a deviation exists that may result in a material dilution of the holdings of current shareholders or investors, or in another unfair consequences for shareholders, it must undertake remedial action that it deems necessary and appropriate. Such action may include withholding dividends, calculating net asset value per share for purposes of sales and redemptions using available market quotations, making redemptions in kind, and selling securities before maturity in order to realize capital gains or losses or to shorten average portfolio maturity. While the amortized cost method provides certainty and consistency in portfolio valuation, it may result in valuations of securities that are either somewhat higher or lower than the prices at which the securities could be sold. This means that during times of declining interest rates the yield on the fund's shares may be higher than if valuations of securities were made based on actual market prices and estimates of market prices. Accordingly, if using the amortized cost method were to result in a lower portfolio value, a prospective investor in the fund would be able to obtain a somewhat higher yield than the investor would get if portfolio valuations were based on actual market values. Existing shareholders, on the other hand, would receive a somewhat lower yield than they would otherwise receive. The opposite would happen during a period of rising interest rates. Portfolio Holdings Disclosure The funds' Board and the investment manager believe that the investment ideas of the investment manager with respect to management of a fund should benefit the fund and its shareholders, and do not want to afford speculators an opportunity to profit by anticipating fund trading strategies or by using fund portfolio holdings information for stock picking. However, each fund's Board also believes that knowledge of the fund's portfolio holdings can assist shareholders in monitoring their investments, making asset allocation decisions, and evaluating portfolio management techniques. Each fund's Board has therefore adopted the investment manager's policies and approved the investment manager's procedures, including the investment manager's oversight of subadviser practices relating to disclosure of the fund's portfolio securities. These policies and procedures are intended to protect the confidentiality of fund portfolio holdings information and generally prohibit the release of such information until such information is made public, unless such persons have been authorized to receive such information on a selective basis, as described below. It is the policy of the fund not to provide or permit others to provide holdings information on a selective basis, and the investment manager does not intend to selectively disclose holdings information or expect that such holdings information will be selectively disclosed, except where necessary for the fund's operation or where there are legitimate business purposes for doing so and, in any case, where conditions are met that are designed to protect the interests of the fund and its shareholders. Although the investment manager seeks to limit the selective disclosure of portfolio holdings information and such selective disclosure is monitored under the fund's compliance program for conformity with the policies and procedures, there can be no assurance that these policies will protect the fund from the potential misuse of holdings information by individuals or firms in Statement of Additional Information - Oct. 3, 2005 Page 65 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 website (www.riversource.com), and it may be mailed, e-mailed or otherwise transmitted to any person. In addition, the investment manager makes publicly available, on a monthly basis, information regarding a fund's top ten holdings (including name and percentage of a fund's assets invested in each such holding) and the percentage breakdown of a fund's investments by country, sector and industry, as applicable. This holdings information is generally made available through the website, marketing communications (including printed advertisements and sales literature), and/or telephone customer service centers that support the fund. This holdings information is generally not released until it is at least 30 days old. From time to time, the investment manager may make partial or complete fund holdings information that is not publicly available on the website or otherwise available in advance of the time restrictions noted above (1) to its affiliated and unaffiliated service providers that require the information in the normal course of business in order to provide services to the fund (including, without limitation entities identified by name in the fund's prospectus or this SAI, such as custodians, auditors, subadvisers, financial printers (Cenveo, Inc., Vestek), pricing services (including Reuters Pricing Service, FT Interactive Data Corporation, Bear Stearns Pricing Service, and Kenny S&P), proxy voting services (Investor Responsibility Research Center, Inc.), and companies that deliver or support systems that provide analytical or statistical information (including, for example, Factset Research Systems, Bloomberg, L.P.), (2) to facilitate the review and/or rating of the fund by ratings and rankings agencies (including, for example, Morningstar, Inc., Thomson Financial and Lipper Inc.), and (3) other entities that provide trading, research or other investment related services. In such situations, the information is released subject to confidentiality agreements, duties imposed under applicable policies and procedures (e.g., applicable codes of ethics) designed to prevent the misuse of confidential information, general duties under applicable laws and regulations, or other such duties of confidentiality. In addition, the fund discloses holdings information as required by federal or state securities laws, and may disclose holdings information in response to requests by governmental authorities. 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 funds' Board to perform an initial review of requests for disclosure of holdings information to evaluate whether there is a legitimate business purpose for selective disclosure, whether selective disclosure is in the best interests of a fund and its shareholders, to consider any potential conflicts of interest between the fund, the investment manager, and its affiliates, and to safeguard against improper use of holdings information. Factors considered in this analysis are whether the recipient has agreed to or has a duty to keep the holdings information confidential and whether risks have been mitigated such that the recipient has agreed or has a duty to use the holdings information only as necessary to effectuate the purpose for which selective disclosure was authorized, including a duty not to trade on such information. Before portfolio holdings may be selectively disclosed, requests approved by the PHC must also be authorized by a fund's Chief Compliance Officer or the fund's General Counsel. On at least an annual basis the PHC reviews the approved recipients of selective disclosure and, where appropriate, requires a resubmission of the request, in order to re-authorize any ongoing arrangements. These procedures are intended to be reasonably designed to protect the confidentiality of fund holdings information and to prohibit their release to Statement of Additional Information - Oct. 3, 2005 Page 66 individual investors, institutional investors, intermediaries that distribute the funds' shares, and other parties, until such holdings information is made public or unless such persons have been authorized to receive such holdings information on a selective basis, as set forth above. Although the investment manager has set up these procedures to monitor and control selective disclosure of holdings information, there can be no assurance that these procedures will protect a fund from the potential misuse of holdings information by individuals or firms in possession of that information. Proxy Voting GENERAL GUIDELINES The funds uphold a long tradition of sound and principled corporate governance. For approximately 30 years, the Board, which consists of a majority of independent directors, has voted proxies. The funds' administrator, Ameriprise Financial, provides support to the Board in connection with the proxy voting process. General guidelines are: o Corporate governance matters -- The Board supports proxy proposals that require changes or encourage decisions that have been shown to add shareholder value over time and votes against proxy proposals that entrench management. o Changes in capital structure -- The Board votes for amendments to corporate documents that strengthen the financial condition of a business. o Stock option plans and other management compensation issues-- The Board expects thoughtful consideration to be given by a company's management to developing a balanced compensation structure providing competitive current income with long-term employee incentives directly tied to the interest of shareholders and votes against proxy proposals that dilute shareholder value excessively. o Social and corporate policy issues-- The Board believes that proxy proposals should address the business interests of the corporation. Such proposals typically request that the company disclose or amend certain business practices but lack a compelling economic impact on shareholder value. In general, these matters are primarily the responsibility of management and should be reviewed by the corporation's board of directors, unless they have a substantial impact on the value of a fund's investment. Each proposal is viewed in light of the circumstances of the company submitting the proposal. POLICY AND PROCEDURES The policy of the Board is to vote all proxies of the companies in which a fund holds investments. The Board has implemented policies and procedures reasonably designed to ensure that there are no conflicts between interests of a fund's shareholders and those of the funds' investment manager, RiverSource Investments, or other affiliated entities. The recommendation of the management of a company as set out in the company's proxy statement is considered. In each instance in which a fund votes against the recommendation, the Board sends a letter to senior management of the company explaining the basis for its vote. This has permitted both the company's management and the fund's Board to gain better insight into issues presented by proxy proposals. In the case of foreign corporations, proxies of companies located in some countries may not be voted due to requirements of locking up the voting shares and when time constraints prohibit the processing of proxies. From time to time a proxy proposal is presented that has not been previously considered by the Board or that the investment manager recommends be voted different from the votes cast for similar proposals. In making recommendations to the Board about voting on a proposal, the investment manager relies on its own investment personnel (or the investment personnel of a fund's subadviser(s)) and information obtained from outside resources, including Glass Lewis & Co., the investment manager makes the recommendation in writing. The process established by the Board to vote proxies requires that either Statement of Additional Information - Oct. 3, 2005 Page 67 Board members or officers who are independent from the investment manager consider the recommendation and decide how to vote the proxy proposal. Funds-of-funds only own shares of other RiverSource funds and vote proxies of those funds whenever shareholder meetings are held. Funds-of-funds will vote for, against or abstain on each proposal that the underlying RiverSource fund sets forth in its proxy soliciting material in the same percentage as the public shareholders of the underlying RiverSource fund vote the proposal. Funds-of-funds do not invest in publicly-held operating companies. PROXY VOTING RECORD Information regarding how a fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 can be obtained without charge: o Through the investment manager's website, www.riversource.com/investments, o On a website maintained by the SEC, www.sec.gov, or o By calling the fund's administrator, Board Services Corporation, collect at (612) 330-9283. Investing in a Fund SALES CHARGE Investors should understand that the purpose and function of the initial sales charge and distribution fee for Class A shares is the same as the purpose and function of the contingent deferred sales charge (CDSC) and distribution fee for Class B and Class C shares. The sales charges and distribution fees applicable to each class pay for the distribution of shares of a fund. Shares of a fund are sold at the public offering price. The public offering price is the NAV of one share adjusted for the sales charge for Class A. For Class B, Class C, Class D, Class E, Class I and Class Y there is no initial sales charge so the public offering price is the same as the NAV. Class A -- Calculation of the Sales Charge Sales charges are determined as shown in the following table. The table is organized by investment category. You can find your fund's investment category in Table 1.
Table 10. Class A Sales Charge - ---------------------------- --------------------------------------- --------------------------------------------- Fund category Balanced, Equity, Fund of funds - Fund of funds - bond, State tax-exempt equity bond, Taxable bond, Tax-exempt bond - ---------------------------- --------------------------------------- --------------------------------------------- Sales charge* as a percentage of: - ---------------------------- ------------------------------------------------------------------------------------- Total market value Public offering Net amount Public offering Net amount invested price** invested price** - ---------------------------- ------------------- ------------------- ---------------------- ---------------------- Up to $49,000 5.75% 6.10% 4.75% 4.99% - ---------------------------- ------------------- ------------------- ---------------------- ---------------------- $50,000-$99,999 4.75% 4.99% 4.25% 4.44% - ---------------------------- ------------------- ------------------- ---------------------- ---------------------- $100,000-$249,999 3.50% 3.63% 3.50% 3.63% - ---------------------------- ------------------- ------------------- ---------------------- ---------------------- $250,000-$499,999 2.50% 2.56% 2.50% 2.56% - ---------------------------- ------------------- ------------------- ---------------------- ---------------------- $500,000-$999,999 2.00% 2.04% 2.00% 2.04% - ---------------------------- ------------------- ------------------- ---------------------- ---------------------- $1,000,000 or more*** 0.00% 0.00% 0.00% 0.00% - ---------------------------- ------------------- ------------------- ---------------------- ----------------------
* Because of rounding in the calculation of offering price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. ** Offering price includes the sales charge. *** Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a fee to a financial intermediary making such a sale. Money market funds do not have a sales charge for Class A shares. Using the sales charge schedule in the table above, for Class A, the public offering price for an investment of less than $50,000, made on the last day of the most recent fiscal period, was determined as shown in the following table. The sales charge is paid to the distributor by the person buying the shares. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Statement of Additional Information - Oct. 3, 2005 Page 68
Table 11. Public Offering Price - ------------------------------------------ ---------------------- ----------------------- ----------------------- Fund Net asset value 1.0 minus maximum Public offering price sales charge - ----------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 - ----------------------------------------------------------------------------------------------------------------- - ------------------------------------------ ---------------------- ----------------------- ----------------------- Portfolio Builder Aggressive $10.53 0.9425 $11.17 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Portfolio Builder Conservative 10.23 0.9525 10.74 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Portfolio Builder Moderate 10.47 0.9425 11.11 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Portfolio Builder Moderate Aggressive 10.50 0.9425 11.14 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Portfolio Builder Moderate Conservative 10.35 0.9525 10.87 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Portfolio Builder Total Equity 10.55 0.9425 11.19 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Small Company Index 8.21 0.9425 8.71 - ------------------------------------------ ---------------------- ----------------------- ----------------------- S&P 500 Index (for Class D) 4.55 No sales charge 4.55 - ----------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - ----------------------------------------------------------------------------------------------------------------- - ------------------------------------------ ---------------------- ----------------------- ----------------------- Equity Value 10.12 0.9425 10.74 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Precious Metals 8.98 0.9425 9.53 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Small Cap Advantage 7.07 0.9425 7.50 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Small Cap Growth 4.19 0.9425 4.45 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Strategy Aggressive 11.43 0.9425 12.13 - ----------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - ----------------------------------------------------------------------------------------------------------------- - ------------------------------------------ ---------------------- ----------------------- ----------------------- Aggressive Growth 7.29 0.9425 7.73 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Fundamental Growth 5.79 0.9425 6.14 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Fundamental Value 5.45 0.9425 5.78 - ------------------------------------------ ---------------------- ----------------------- ----------------------- High Yield Bond 2.86 0.9525 3.00 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Select Value 6.65 0.9425 7.06 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Selective 8.69 0.9525 9.12 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Short Duration U.S. Government 4.79 0.9525 5.03 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Small Cap Equity 5.81 0.9425 6.16 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Small Cap Value 6.62 0.9425 7.02 - ------------------------------------------ ---------------------- ----------------------- ----------------------- U.S. Government Mortgage 5.12 0.9525 5.38 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Value 5.36 0.9425 5.69 - ----------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - ----------------------------------------------------------------------------------------------------------------- - ------------------------------------------ ---------------------- ----------------------- ----------------------- California Tax-Exempt 5.27 0.9525 5.53 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Dividend Opportunity 7.30 0.9425 7.75 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Insured Tax-Exempt 5.50 0.9525 5.77 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Massachusetts Tax-Exempt 5.45 0.9525 5.72 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Michigan Tax-Exempt 5.35 0.9525 5.62 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Minnesota Tax-Exempt 5.35 0.9525 5.62 - ------------------------------------------ ---------------------- ----------------------- ----------------------- New York Tax-Exempt 5.18 0.9525 5.44 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Ohio Tax-Exempt 5.35 0.9525 5.62 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Real Estate 13.44 0.9425 14.26 - ----------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - ----------------------------------------------------------------------------------------------------------------- - ------------------------------------------ ---------------------- ----------------------- ----------------------- Cash Management 1.00 No sales charge 1.00 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Core Bond 9.72 0.9525 10.20 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Disciplined Equity 6.70 0.9425 7.11 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Discovery 9.33 0.9425 9.90 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Growth 28.34 0.9425 30.07 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Income Opportunities 10.53 0.9525 11.06 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Inflation Protected Securities 10.02 0.9525 10.52 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Large Cap Equity 5.26 0.9425 5.58 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Large Cap Value 5.83 0.9425 6.19 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Limited Duration Bond 9.79 0.9525 10.28 - ------------------------------------------ ---------------------- ----------------------- ----------------------- New Dimensions 23.99 0.9425 25.45 - ----------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - ----------------------------------------------------------------------------------------------------------------- - ------------------------------------------ ---------------------- ----------------------- ----------------------- Diversified Bond 4.87 0.9525 5.11 - ----------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - ----------------------------------------------------------------------------------------------------------------- - ------------------------------------------ ---------------------- ----------------------- ----------------------- Balanced 9.25 0.9425 9.81 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Diversified Equity Income 9.88 0.9425 10.48 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Mid Cap Value 6.81 0.9425 7.23 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Stock 18.02 0.9425 19.12 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Strategic Allocation 8.73 0.9425 9.26 - ------------------------------------------ ---------------------- ----------------------- -----------------------
Statement of Additional Information - Oct. 3, 2005 Page 69
- ------------------------------------------ ---------------------- ----------------------- ----------------------- Fund Net asset value 1.0 minus maximum Public offering price sales charge - ----------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - ----------------------------------------------------------------------------------------------------------------- - ------------------------------------------ ---------------------- ----------------------- ----------------------- Emerging Markets 6.27 0.9425 6.65 - ------------------------------------------ ---------------------- ----------------------- ----------------------- European Equity 3.71 0.9425 3.94 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Global Balanced 5.25 0.9425 5.57 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Global Bond 7.02 0.9525 7.37 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Global Equity 5.16 0.9425 5.47 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Global Technology 1.83 0.9425 1.94 - ------------------------------------------ ---------------------- ----------------------- ----------------------- International Aggressive Growth 6.85 0.9425 7.27 - ------------------------------------------ ---------------------- ----------------------- ----------------------- International Equity 7.03 0.9425 7.46 - ------------------------------------------ ---------------------- ----------------------- ----------------------- International Opportunity 6.58 0.9425 6.98 - ------------------------------------------ ---------------------- ----------------------- ----------------------- International Select Value 7.68 0.9425 8.15 - ------------------------------------------ ---------------------- ----------------------- ----------------------- International Small Cap 7.90 0.9425 8.38 - ----------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - ----------------------------------------------------------------------------------------------------------------- - ------------------------------------------ ---------------------- ----------------------- ----------------------- Intermediate Tax-Exempt Bond 5.39 0.9525 5.66 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Mid Cap Growth 12.64 0.9425 13.41 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Tax-Exempt Bond 3.89 0.9525 4.08 - ------------------------------------------ ---------------------- ----------------------- ----------------------- Tax-Exempt High Income 4.42 0.9525 4.64 - ----------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - ----------------------------------------------------------------------------------------------------------------- - ------------------------------------------ ---------------------- ----------------------- ----------------------- Tax-Exempt Money Market 1.00 No sales charge 1.00 - ------------------------------------------ ---------------------- ----------------------- -----------------------
The initial sales charge is waived for certain qualified plans. Participants in these qualified plans may be subject to a deferred sales charge on certain redemptions. The deferred sales charge varies depending on the number of participants in the qualified plan and total plan assets as follows: Deferred Sales Charge ----------------------------- ------------------------------- Number of participants ----------------------------- ------------- ----------------- Total plan assets 1-99 100 or more ----------------------------- ------------- ----------------- Less than $1 million 4% 0% ----------------------------- ------------- ----------------- $1 million or more 0% 0% ----------------------------- ------------- ----------------- Class A -- Reducing the Sales Charge For purposes of reducing the sales charge: o If multiple trustees are listed on a revocable trust account, the account will be included only in the household group of the grantor-trustee (the person who put the money into the trust). o If the parents or guardians of a minor child who is the beneficiary of one or more Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) accounts are not members of the same primary household group, the distributor will use its discretion in assigning such accounts to one of the primary household groups. Under most circumstances the distributor will consider the child's primary domicile to be the appropriate household group in which to include the UGMA/UTMA account(s). Your primary household group consists of you, your spouse or domestic partner, and your unmarried children under age 21 sharing a mailing address. For purposes of this policy a domestic partner is an individual who shares your primary residence and with whom you own joint property. If you or any member of your primary household group elects to separate from the primary household group (for example, by asking that account statements be sent to separate addresses), your assets will no longer be combined for purposes of reducing your sales charge. Class A-- Letter of Intent (LOI) If you intend to invest $50,000 or more over a period of time, you may be able to reduce the sales charge for investments in Class A by completing a LOI form and committing to invest a certain amount. The LOI must be filed with and accepted in good order by the distributor. The LOI can start at any time and you will have up to 13 months to fulfill your commitment. The LOI start date can be backdated by up to 90 days, but backdating the LOI will shorten the going forward window by the length of the backdating. Your holdings in RiverSource funds acquired more than 90 days before receipt of your signed LOI in the distributor's corporate office will not be counted towards the LOI commitment amount and cannot be used as the starting point for the LOI. Statement of Additional Information - Oct. 3, 2005 Page 70 While these purchases cannot be included within an LOI, you may still be able to take advantage of a reduced sales charge on future purchases because the historic purchases may count toward the combined market value for Rights of Accumulation. For example, if you made an investment more than 90 days ago, and that investment's current market value is $75,000, the sales charge you would pay on additional investment is 4.5% until the market value of your accounts is $100,000, at which point your sales charge will be reduced to 3.5%. If you plan to invest another $50,000 over the next 13 month period, you may not rely on a letter of intent to take immediate advantage of the lower 3.5% sales charge, but instead would naturally realize the lower sales charge of 3.5% (under Rights of Accumulation) after you invested $25,000. To take immediate advantage of the 3.5% sales charge level, you would need to sign a $100,000 LOI and then invest another $100,000. Your investments will be charged the sales charge that applies to the amount you have committed to invest under the LOI. Five percent of the commitment amount will be placed in escrow. The LOI will remain in effect for the entire 13 months, even if you reach your commitment amount. At the end of the 13-month period, the LOI will end and the shares will be released from escrow. Once the LOI has ended, future sales charges will be determined by Rights of Accumulation or the total value of the new investment combined with the market value of the existing RiverSource fund investments as described in the prospectus. If you do not invest the commitment amount by the end of the 13 months, the remaining unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. The commitment amount does not include purchases in any class of RiverSource funds other than Class A; does not include reinvested dividends and directed dividends earned in any RiverSource funds; purchases in RiverSource funds held within a wrap product; and purchases of RiverSource Cash Management Fund and RiverSource Tax-Exempt Money Market Fund unless they are subsequently exchanged to Class A shares of an RiverSource fund within the 13 month period. A LOI is not an option (absolute right) to buy shares. If you purchase shares through different channels, for example, in a brokerage account or through a third party, you must inform the distributor in writing about the LOI when placing any purchase orders during the period of the LOI. If you do not complete and file the LOI form, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. Class B Shares Class B shares have a CDSC for six years. For Class B shares purchased prior to May 21, 2005, those shares will convert to Class A shares in the ninth calendar year of ownership. For Class B shares purchased beginning May 21, 2005, those shares will convert to Class A shares one month after the eighth year of ownership. Class Y Shares Class Y shares are offered to certain institutional investors. Class Y shares are sold without a front-end sales charge or a CDSC and are not subject to a distribution fee, but have a separate shareholder service fee. The following investors are eligible to purchase Class Y shares: o Qualified employee benefit plans* if the plan: o uses a daily transfer recordkeeping service offering participants daily access to RiverSource funds and has o at least $10 million in plan assets or o 500 or more participants; or o does not use daily transfer recordkeeping and has o at least $3 million invested in RiverSource funds or o 500 or more participants. A plan that qualifies for investment in Class E or Y may continue to invest in Class E or Y even if it subsequently falls below the required level of assets or participants. o Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code.* These institutions must have at least $10 million in RiverSource funds. o Nonqualified deferred compensation plans* whose participants are included in a qualified employee benefit plan described above. o State sponsored college savings plans established under Section 529 of the Internal Revenue Code. * Eligibility must be determined in advance. To do so, contact your financial advisor. Statement of Additional Information - Oct. 3, 2005 Page 71 Money Market Funds The minimum purchase amount for directors, officers and employees of the fund or the investment manager and Ameriprise Financial Services financial advisors is $1,000 (except payroll deduction plans), with a minimum additional purchase amount of $100 on a monthly systematic purchase plan. The minimum amount for additional purchases in a direct-at-fund account is $25 monthly. SYSTEMATIC INVESTMENT PROGRAMS You decide how often to make payments -- monthly, quarterly, or semiannually. Provided your account meets the minimum balance requirement, you are not obligated to make any payments. You can omit payments or discontinue the investment program altogether. A fund also can change the program or end it at any time. AUTOMATIC DIRECTED DIVIDENDS Dividends, including capital gain distributions, paid by another RiverSource fund may be used to automatically purchase shares in the same class of another fund. Dividends may be directed to existing accounts only. Dividends declared by a fund are exchanged to another fund the following day. Dividends can be exchanged into the same class of another RiverSource fund but cannot be split to make purchases in two or more funds. Automatic directed dividends are available between accounts of any ownership except: o Between a non-custodial account and an IRA, or 401(k) plan account or other qualified retirement account of which Ameriprise Trust Company acts as custodian; o Between two Ameriprise Trust Company custodial accounts with different owners (for example, you may not exchange dividends from your IRA to the IRA of your spouse); and o Between different kinds of custodial accounts with the same ownership (for example, you may not exchange dividends from your IRA to your 401(k) plan account, although you may exchange dividends from one IRA to another IRA). Dividends may be directed from accounts established under UGMA or UTMA only into other UGMA or UTMA accounts with identical ownership. Each fund's investment goal is described in its prospectus along with other information, including fees and expense ratios. Before exchanging dividends into another fund, you should read that fund's prospectus. You will receive a confirmation that the automatic directed dividend service has been set up for your account. REJECTION OF BUSINESS Each fund and RiverSource Service Corporation reserves the right to reject any business, in its sole discretion. Selling Shares You have a right to sell your shares at any time. For an explanation of sales procedures, please see the applicable prospectus. During an emergency, the Board can suspend the computation of NAV, stop accepting payments for purchase of shares, or suspend the duty of a fund to redeem shares for more than seven days. Such emergency situations would occur if: o The Exchange closes for reasons other than the usual weekend and holiday closings or trading on the Exchange is restricted, or o Disposal of a fund's securities is not reasonably practicable or it is not reasonably practicable for the fund to determine the fair value of its net assets, or o The SEC, under the provisions of the 1940 Act, declares a period of emergency to exist. Should a fund stop selling shares, the Board may make a deduction from the value of the assets held by the fund to cover the cost of future liquidations of the assets so as to distribute these costs fairly among all shareholders. Statement of Additional Information - Oct. 3, 2005 Page 72 Each fund has elected to be governed by Rule 18f-1 under the 1940 Act, which obligates the fund to redeem shares in cash, with respect to any one shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the net assets of the fund at the beginning of the period. Although redemptions in excess of this limitation would normally be paid in cash, the fund reserves the right to make these payments in whole or in part in securities or other assets in case of an emergency, or if the payment of a redemption in cash would be detrimental to the existing shareholders of the fund as determined by the Board. In these circumstances, the securities distributed would be valued as set forth in this SAI. Should a fund distribute securities, a shareholder may incur brokerage fees or other transaction costs in converting the securities to cash. Pay-out Plans You can use any of several pay-out plans to redeem your investment in regular installments. If you redeem shares, you may be subject to a contingent deferred sales charge as discussed in the prospectus. While the plans differ on how the pay-out is figured, they all are based on the redemption of your investment. Net investment income dividends and any capital gain distributions will automatically be reinvested, unless you elect to receive them in cash. If you are redeeming a tax-qualified plan account for which Ameriprise Trust Company acts as custodian, you can elect to receive your dividends and other distributions in cash when permitted by law. If you redeem an IRA or a qualified retirement account, certain restrictions, federal tax penalties, and special federal income tax reporting requirements may apply. You should consult your tax advisor about this complex area of the tax law. Applications for a systematic investment in a class of a fund subject to a sales charge normally will not be accepted while a pay-out plan for any of those funds is in effect. Occasional investments, however, may be accepted. To start any of these plans, please consult your financial advisor or investment professional, or write RiverSource Service Corporation, 70100 Ameriprise Financial Center, Minneapolis, MN 55474, or call (800) 437-3133. Your authorization must be received at least five days before the date you want your payments to begin. Payments will be made on a monthly, bimonthly, quarterly, semiannual, or annual basis. Your choice is effective until you change or cancel it. The following pay-out plans are designed to take care of the needs of most shareholders in a way that can be handled efficiently and at a reasonable cost. If you need a more irregular schedule of payments, it may be necessary for you to make a series of individual redemptions, in which case you will have to send in a separate redemption request for each pay-out. Each fund reserves the right to change or stop any pay-out plan and to stop making such plans available. Plan #1: Pay-out for a fixed period of time If you choose this plan, a varying number of shares will be redeemed at regular intervals during the time period you choose. This plan is designed to end in complete redemption of all shares in your account by the end of the fixed period. Plan #2: Redemption of a fixed number of shares If you choose this plan, a fixed number of shares will be redeemed for each payment and that amount will be sent to you. The length of time these payments continue is based on the number of shares in your account. Plan #3: Redemption of a fixed dollar amount If you decide on a fixed dollar amount, whatever number of shares is necessary to make the payment will be redeemed in regular installments until the account is closed. Statement of Additional Information - Oct. 3, 2005 Page 73 Plan #4: Redemption of a percentage of net asset value Payments are made based on a fixed percentage of the net asset value of the shares in the account computed on the day of each payment. Percentages range from 0.25% to 0.75%. For example, if you are on this plan and arrange to take 0.5% each month, you will get $100 if the value of your account is $20,000 on the payment date. Capital Loss Carryover For federal income tax purposes, certain funds had total capital loss carryovers at the end of the most recent fiscal period that, if not offset by subsequent capital gains, will expire as follows. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Table 12. Capital Loss Carryover
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Total Amount Amount Amount Amount Amount Amount Amount Amount Fund capital expiring expiring expiring in expiring expiring in expiring expiring expiring loss in 2007 in 2008 2009 in 2010 2011 in 2012 in 2013 in 2014 carryovers - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending January 31 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Portfolio 0 Builder Aggressive - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Portfolio 0 Builder Conservative - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Portfolio 0 Builder Moderate - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Portfolio 0 Builder Moderate Aggressive - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Portfolio 0 Builder Moderate Conservative - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Portfolio 0 Builder Total Equity - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Small Company 0 Index - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ S&P 500 Index 49,784,007 0 0 2,387,603 5,744,216 9,288,103 16,618,673 15,745,412 0 - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending March 31 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Equity Value 225,502,046 0 0 0 0 183,326,800 42,175,246 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Precious Metals 12,026,077 0 0 6,859,490 0 0 0 1,731,355 3,435,232 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Small Cap 0 Advantage - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Small Cap Growth 18,477,538 0 0 0 0 18,477,538 0 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Strategy 1,414,474,084 0 0 207,116,650 841,156,325 315,348,051 23,741,111 27,111,947 0 Aggressive - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending May 31 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Aggressive 593,899 0 0 0 0 0 0 593,899 0 Growth - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Fundamental 645,527 0 0 0 0 0 0 320,705 324,822 Growth - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Fundamental 10,783,099 0 0 0 180,117 5,185,330 2,015,696 1,996,447 1,405,509 Value - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ High Yield Bond 1,376,361,404 0 80,574,095 226,001,198 517,121,802 552,664,309 0 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Select Value 35,108,088 0 0 0 15,995,507 16,604,151 2,508,430 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Selective 29,747,019 0 0 0 0 24,224,582 0 5,017,493 504,944 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Short Duration 205,645,039 0 35,174,077 117,356,906 0 0 0 36,267,962 16,846,094 U.S. Government - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Small Cap Equity 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Small Cap Value 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ U.S. Government 0 Mortgage - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Value 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Statement of Additional Information - Oct. 3, 2005 Page 74
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Total Amount Amount Amount Amount Amount Amount Amount Amount Fund capital expiring expiring expiring in expiring expiring in expiring expiring expiring loss in 2007 in 2008 2009 in 2010 2011 in 2012 in 2013 in 2014 carryovers - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending June 30 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ California Tax-Exempt - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Dividend 501,472,613 0 0 0 0 501,472,613 0 0 0 Opportunity - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Insured 0 Tax-Exempt - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Massachusetts 0 Tax-Exempt - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Michigan 0 Tax-Exempt - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Minnesota 0 Tax-Exempt - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ New York 0 Tax-Exempt - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Ohio 87,465 0 0 0 0 0 0 87,465 0 Tax-Exempt - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Real Estate 0 - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending July 31 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Cash Management 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Core Bond 138,430 0 0 0 0 0 0 0 138,430 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Disciplined 0 Equity - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Discovery 68,875,260 0 0 0 26,744,961 42,130,299 0 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Growth 913,031,953 0 0 0 544,257,626 368,774,327 0 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Income 0 Opportunities - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Inflation 52,096 0 0 0 0 0 0 0 52,096 Protected Securities - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Large Cap Equity 953,822,923 0 506,643,917 416,711,846 20,988,174 9,478,986 0 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Large Cap Value 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Limited 34,483 0 0 0 0 0 0 0 34,483 Duration Bond - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ New Dimensions 61,551,685 0 5,869,455 42,999,536 8,294,019 4,388,675 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending August 31 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Diversified Bond 134,156,528 0 0 100,641,177 26,118,914 0 0 7,396,437 0 - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending September 30 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Balanced 903,118,305 0 0 15,302,375 494,252,075 368,676,980 24,886,875 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Diversified 77,193,402 0 0 0 0 77,193,402 0 0 0 Equity Income - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Mid Cap Value 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Stock 256,397,902 0 0 0 0 256,397,902 0 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Strategic 235,368,884 0 0 212,572 132,591,360 102,564,952 0 0 0 Allocation - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending October 31 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Emerging Markets 75,392,313 0 0 75,392,313 0 0 0 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ European Equity 103,905,954 0 0 82,370,221 16,514,518 5,021,215 0 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Global Balanced 43,431,051 0 0 30,518,697 10,684,989 2,227,365 0 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Global Bond 11,113,313 0 0 0 11,113,313 0 0 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Global Equity 631,430,152 0 0 457,285,316 143,634,885 30,509,951 0 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Global 407,294,569 0 0 325,995,342 81,299,277 0 0 0 0 Technology - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ International 0 Aggressive Growth - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Statement of Additional Information - Oct. 3, 2005 Page 75
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Total Amount Amount Amount Amount Amount Amount Amount Amount Fund capital expiring expiring expiring in expiring expiring in expiring expiring expiring loss in 2007 in 2008 2009 in 2010 2011 in 2012 in 2013 in 2014 carryovers - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ International 0 Equity - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ International 476,235,045 0 0 378,740,075 59,231,998 38,262,972 0 0 0 Opportunity - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ International 0 Select Value - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ International 0 Small Cap - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending November 30 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Intermediate 0 Tax-Exempt Bond - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Mid Cap Growth 221,285,665 0 0 111,582,809 92,560,758 0 17,142,098 0 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Tax-Exempt Bond 0 - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Tax-Exempt High 3,778,031 3,757,482 20,549 0 0 0 0 0 0 Income - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending December 31 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------ Tax-Exempt 18,498 0 167 0 18,331 0 0 0 0 Money Market - ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
It is unlikely that the Board will authorize a distribution of any net realized capital gains until the available capital loss carryover has been offset or has expired except as required by Internal Revenue Service rules. Taxes For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. If you sell shares for less than their cost, the difference is a capital loss. If you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held more than one year). If you buy Class A shares and within 91 days exchange into another fund, you may not include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. For example You purchase 100 shares of an Equity Fund having a public offering price of $10.00 per share. With a sales load of 5.75%, you pay $57.50 in sales load. With a NAV of $9.425 per share, the value of your investment is $942.50. Within 91 days of purchasing that fund, you decide to exchange out of that fund, now at a NAV of $11.00 per share, up from the original NAV of $9.425, and purchase a second fund, at a NAV of $15.00 per share. The value of your investment is now $1,100.00 ($11.00 x 100 shares). You cannot use the $57.50 paid as a sales load when calculating your tax gain or loss in the sale of the first fund shares. So instead of having a $100.00 gain ($1,100.00 - $1,000.00), you have a $157.50 gain ($1,100.00 - $942.50). You can include the $57.50 sales load in the calculation of your tax gain or loss when you sell shares in the second fund. The following paragraphs provide information based on a fund's investment category. You can find your fund's investment category in Table 1. For State Tax-Exempt Bond and Tax-Exempt Bond Funds, all distributions of net investment income during the year will have the same percentage designated as tax-exempt. This annual percentage is expected to be substantially the same as the percentage of tax-exempt income actually earned during any particular distribution period. Statement of Additional Information - Oct. 3, 2005 Page 76 For Balanced, Equity, Funds-of-Funds, Taxable Money Market and Taxable Bond Funds, if you have a nonqualified investment in a fund and you wish to move part or all of those shares to an IRA or qualified retirement account in the fund, you can do so without paying a sales charge. However, this type of exchange is considered a redemption of shares and may result in a gain or loss for tax purposes. In addition, this type of exchange may result in an excess contribution under IRA or qualified plan regulations if the amount exchanged exceeds annual contribution limitations. You should consult your tax advisor for further details about this complex subject. Net investment income dividends received should be treated as dividend income for federal income tax purposes. Corporate shareholders are generally entitled to a deduction equal to 70% of that portion of a fund's dividend that is attributable to dividends the fund received from domestic (U.S.) securities. For the most recent fiscal period, net investment income dividends qualified for the corporate deduction as shown in the following table. Under provisions of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the Act), the maximum tax paid on dividends by individuals is reduced to 15% (5% for taxpayers in the 10% and 15% brackets) for tax years 2003 through 2008. The Act also reduces the maximum capital gain rate for securities sold on or after May 6, 2003 through 2008 from 20% to 15% (5% for taxpayers in the 10% and 15% brackets). The Act provides that only certain qualified dividend income (QDI) will be subject to the 15% and 5% tax rates. QDI is dividends earned from domestic corporations and qualified foreign corporations. Qualified foreign corporations are corporations incorporated in a U.S. possession, corporations whose stock is readily tradable on an established U.S. securities market (ADRs), and certain other corporations eligible for relief under an income tax treaty with the U.S. that includes an exchange of information agreement (except Barbados). Excluded are passive foreign investment companies (PFICs), foreign investment companies and foreign personal holding companies. Holding periods for shares must also be met to be eligible for QDI treatment (60 days for common stock and 90 days for preferreds). The QDI for individuals for the most recent fiscal period is shown in the table below. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
Table 13. Corporate Deduction and Qualified Dividend Income - ------------------------------------------ ------------------------------------- ------------------------------------- Fund Percent of dividends qualifying for Qualified dividend income for corporate deduction individuals - ---------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------- ------------------------------------- ------------------------------------- Portfolio Builder Aggressive 16.99% 29.31% - ------------------------------------------ ------------------------------------- ------------------------------------- Portfolio Builder Conservative 5.46 9.73 - ------------------------------------------ ------------------------------------- ------------------------------------- Portfolio Builder Moderate 10.03 17.52 - ------------------------------------------ ------------------------------------- ------------------------------------- Portfolio Builder Moderate Aggressive 13.43 23.64 - ------------------------------------------ ------------------------------------- ------------------------------------- Portfolio Builder Moderate Conservative 7.66 13.39 - ------------------------------------------ ------------------------------------- ------------------------------------- Portfolio Builder Total Equity 20.84 36.74 - ------------------------------------------ ------------------------------------- ------------------------------------- Small Company Index 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- S&P 500 Index 100.00 100.00 - ---------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------- ------------------------------------- ------------------------------------- Equity Value 100.00 100.00 - ------------------------------------------ ------------------------------------- ------------------------------------- Precious Metals 0.50 3.00 - ------------------------------------------ ------------------------------------- ------------------------------------- Small Cap Advantage 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Small Cap Growth 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Strategy Aggressive 0 0 - ---------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------- ------------------------------------- ------------------------------------- Aggressive Growth 3.17 3.23 - ------------------------------------------ ------------------------------------- ------------------------------------- Fundamental Growth 19.07 19.00 - ------------------------------------------ ------------------------------------- ------------------------------------- Fundamental Value 100.00 100.00 - ------------------------------------------ ------------------------------------- ------------------------------------- High Yield Bond 0.99 0.99 - ------------------------------------------ ------------------------------------- ------------------------------------- Select Value 100.00 100.00 - ------------------------------------------ ------------------------------------- ------------------------------------- Selective 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Short Duration U.S. Government 0 0 - ------------------------------------------ ------------------------------------- -------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 77
- ------------------------------------------ ------------------------------------- ------------------------------------- Fund Percent of dividends qualifying for Qualified dividend income for corporate deduction individuals - ------------------------------------------ ------------------------------------- ------------------------------------- Small Cap Equity 6.07 6.31 - ------------------------------------------ ------------------------------------- ------------------------------------- Small Cap Value 33.67 43.71 - ------------------------------------------ ------------------------------------- ------------------------------------- U.S. Government Mortgage 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Value 100.00 100.00 - ---------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------- ------------------------------------- ------------------------------------- California Tax-Exempt 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Dividend Opportunity 100.00 100.00 - ------------------------------------------ ------------------------------------- ------------------------------------- Insured Tax-Exempt 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Massachusetts Tax-Exempt 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Michigan Tax-Exempt 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Minnesota Tax-Exempt 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- New York Tax-Exempt 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Ohio Tax-Exempt 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Real Estate 0.12 1.61 - ---------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------- ------------------------------------- ------------------------------------- Cash Management 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Core Bond 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Disciplined Equity 34.99 35.08 - ------------------------------------------ ------------------------------------- ------------------------------------- Discovery 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Growth 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Income Opportunities 0.13 0.13 - ------------------------------------------ ------------------------------------- ------------------------------------- Inflation Protected Securities 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Large Cap Equity 91.46 91.96 - ------------------------------------------ ------------------------------------- ------------------------------------- Large Cap Value 50.94 55.22 - ------------------------------------------ ------------------------------------- ------------------------------------- Limited Duration Bond 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- New Dimensions 100.00 100.00 - ---------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------- ------------------------------------- ------------------------------------- Diversified Bond 0.10 0.10 - ---------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------- ------------------------------------- ------------------------------------- Balanced 66.44 71.15 - ------------------------------------------ ------------------------------------- ------------------------------------- Diversified Equity Income 100.00 100.00 - ------------------------------------------ ------------------------------------- ------------------------------------- Mid Cap Value 100.00 100.00 - ------------------------------------------ ------------------------------------- ------------------------------------- Stock 100.00 100.00 - ------------------------------------------ ------------------------------------- ------------------------------------- Strategic Allocation 92.68 93.36 - ---------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------- ------------------------------------- ------------------------------------- Emerging Markets 0 10.85 - ------------------------------------------ ------------------------------------- ------------------------------------- European Equity 0 67.45 - ------------------------------------------ ------------------------------------- ------------------------------------- Global Balanced 15.07 37.57 - ------------------------------------------ ------------------------------------- ------------------------------------- Global Bond 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Global Equity 100.00 100.00 - ------------------------------------------ ------------------------------------- ------------------------------------- Global Technology 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- International Aggressive Growth 1.48 100.00 - ------------------------------------------ ------------------------------------- ------------------------------------- International Equity 0 39.28 - ------------------------------------------ ------------------------------------- ------------------------------------- International Opportunity 0 100.00 - ------------------------------------------ ------------------------------------- ------------------------------------- International Select Value 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- International Small Cap 0 17.89 - ---------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------- ------------------------------------- ------------------------------------- Intermediate Tax-Exempt Bond 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Mid Cap Growth 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Tax-Exempt Bond 0 0 - ------------------------------------------ ------------------------------------- ------------------------------------- Tax-Exempt High Income 0 0 - ---------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------- ------------------------------------- ------------------------------------- Tax-Exempt Money Market 0 0 - ------------------------------------------ ------------------------------------- -------------------------------------
A fund may be subject to U.S. taxes resulting from holdings in a PFIC. To avoid taxation, a fund may make an election to mark to market. A foreign corporation is a PFIC when 75% or more of its gross income for the taxable year is passive income or 50% or more of the average value of its assets consists of assets that produce or could produce passive income. Statement of Additional Information - Oct. 3, 2005 Page 78 Income earned by a fund may have had foreign taxes imposed and withheld on it in foreign countries. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. If more than 50% of a fund's total assets at the close of its fiscal year consists of securities of foreign corporations, the fund will be eligible to file an election with the Internal Revenue Service under which shareholders of the fund would be required to include their pro rata portions of foreign taxes withheld by foreign countries as gross income in their federal income tax returns. These pro rata portions of foreign taxes withheld may be taken as a credit or deduction in computing the shareholders' federal income taxes. If the election is filed, the fund will report to its shareholders the per share amount of such foreign taxes withheld and the amount of foreign tax credit or deduction available for federal income tax purposes. Capital gain distributions, if any, received by shareholders should be treated as long-term capital gains regardless of how long shareholders owned their shares. Short-term capital gains earned by a fund are paid to shareholders as part of their ordinary income dividend and are taxable. Special rates on capital gains may apply to sales of precious metals, if any, owned directly by a fund and to investments in REITs. Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable to fluctuations in exchange rates that occur between the time a fund accrues interest or other receivables, or accrues expenses or other liabilities denominated in a foreign currency and the time the fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, gains or losses on disposition of debt securities denominated in a foreign currency attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security and the date of disposition also are treated as ordinary gains or losses. These gains or losses, referred to under the Code as "section 988" gains or losses, may increase or decrease the amount of a fund's investment company taxable income to be distributed to its shareholders as ordinary income. Under federal tax law, by the end of a calendar year a fund must declare and pay dividends representing 98% of ordinary income for that calendar year and 98% of net capital gains (both long-term and short-term) for the 12-month period ending Oct. 31 of that calendar year. The fund is subject to an excise tax equal to 4% of the excess, if any, of the amount required to be distributed over the amount actually distributed. Each fund intends to comply with federal tax law and avoid any excise tax. For purposes of the excise tax distributions, section 988 ordinary gains and losses are distributable based on an Oct. 31 year end. This is an exception to the general rule that ordinary income is paid based on a calendar year end. The Code imposes two asset diversification rules that apply to each fund as of the close of each quarter. First, as to 50% of its holdings, the fund may hold no more than 5% of its assets in securities of one issuer and no more than 10% of any one issuer's outstanding voting securities. Second, a fund cannot have more than 25% of its assets in any one issuer. If a mutual fund is the holder of record of any share of stock on the record date for any dividend payable with respect to the stock, the dividend will be included in gross income by the fund as of the later of (1) the date the share became ex-dividend or (2) the date the fund acquired the share. Because the dividends on some foreign equity investments may be received some time after the stock goes ex-dividend, and in certain rare cases may never be received by the fund, this rule may cause a fund to pay income to its shareholders that it has not actually received. To the extent that the dividend is never received, the fund will take a loss at the time that a determination is made that the dividend will not be received. Distributions, if any, that are in excess of a fund's current or accumulated earnings and profits will first reduce a shareholder's tax basis in the fund and, after the basis is reduced to zero, will generally result in capital gains to a shareholder. This is a brief summary that relates to federal income taxation only. Shareholders should consult their tax advisor as to the application of federal, state, and local income tax laws to fund distributions. Statement of Additional Information - Oct. 3, 2005 Page 79 Agreements INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments is the investment manager for each fund. Under the Investment Management Services Agreement, the investment manager, subject to the policies set by the Board, provides investment management services. For its services, the investment manager is paid a fee based on the following schedule. Each class of a fund pays its proportionate share of the fee.
Table 14. Investment Management Services Agreement Fee Schedule - -------------------------------------- ------------------------ ---------------------- --------------------------- Fund Assets (billions) Annual rate at each Daily rate on last day of asset level most recent fiscal period - -------------------------------------- ------------------------ ---------------------- --------------------------- Aggressive Growth First $0.50 0.890 0.890 Next 0.50 0.865 Next 1.0 0.840 Next 1.0 0.815 Next 3.0 0.790 Over 6.0 0.765 - -------------------------------------- ------------------------ ---------------------- --------------------------- Balanced First $1.0 0.530 0.523 Next 1.0 0.505 Next 1.0 0.480 Next 3.0 0.455 Over 6.0 0.430 - -------------------------------------- ------------------------ ---------------------- --------------------------- California Tax-Exempt First $0.25 0.470 California - 0.470 Massachusetts Tax-Exempt Next 0.25 0.445 Massachusetts - 0.470 Michigan Tax-Exempt Next 0.25 0.420 Michigan - 0.470 Minnesota Tax-Exempt Next 0.25 0.405 Minnesota - 0.461 New York Tax-Exempt Over 1.0 0.380 New York - 0.470 Ohio Tax-Exempt Ohio - 0.470 - -------------------------------------- ------------------------ ---------------------- --------------------------- Cash Management First $1.0 0.360 Cash - 0.327 Tax-Exempt Money Market Next 0.5 0.343 Tax-Exempt - 0.360 Next 0.5 0.325 Next 0.5 0.308 Next 1.0 0.290 Next 3.0 0.270 Over 6.5 0.250 - -------------------------------------- ------------------------ ---------------------- --------------------------- Core Bond First $1.0 0.540 Core Bond - 0.540 Limited Duration Bond Next 1.0 0.515 Limited Duration - 0.540 Next 1.0 0.490 Next 3.0 0.465 Next 3.0 0.440 Over 9.0 0.415 - -------------------------------------- ------------------------ ---------------------- --------------------------- Disciplined Equity First $1.0 0.600 Disciplined Equity - 0.600 Growth Next 1.0 0.575 Growth - 0.573 Large Cap Equity Next 1.0 0.550 Large Cap Equity - 0.591 Large Cap Value Next 3.0 0.525 Large Cap Value - 0.600 Mid Cap Growth Next 6.0 0.500 Mid Cap Growth- 0.585 New Dimensions Next 12.0 0.490 New Dimensions - 0.526 Over 24.0 0.480 - -------------------------------------- ------------------------ ---------------------- --------------------------- Discovery First $0.25 0.640 0.640 Next 0.25 0.615 Next 0.25 0.590 Next 0.25 0.565 Next 1.0 0.540 Over 2.0 0.515 - -------------------------------------- ------------------------ ---------------------- --------------------------- Diversified Bond First $1.0 0.520 Diversified Bond - 0.497 Selective Next 1.0 0.495 Selective - 0.520 Next 1.0 0.470 Next 3.0 0.445 Next 3.0 0.420 Over 9.0 0.395 - -------------------------------------- ------------------------ ---------------------- ---------------------------
Statement of Additional Information - Oct. 3, 2005 Page 80
- -------------------------------------- ------------------------ ---------------------- --------------------------- Fund Assets (billions) Annual rate at each Daily rate on last day of asset level most recent fiscal period - -------------------------------------- ------------------------ ---------------------- --------------------------- Diversified Equity Income First $0.50 0.530 Diversified Equity Income Equity Value Next 0.50 0.505 - 0.640 Stock Next 1.0 0.480 Equity Value - 0.513 Strategic Allocation Next 1.0 0.455 Stock - 0.495 Next 3.0 0.430 Strategic Allocation - Over 6.0 0.400 0.518 - -------------------------------------- ------------------------ ---------------------- --------------------------- Dividend Opportunity First $0.50 0.610 0.594 Next 0.50 0.585 Next 1.0 0.560 Next 1.0 0.535 Next 3.0 0.510 Over 6.0 0.485 - -------------------------------------- ------------------------ ---------------------- --------------------------- Emerging Markets First $0.25 1.100 1.097 Next 0.25 1.080 Next 0.25 1.060 Next 0.25 1.040 Next 1.0 1.020 Over 2.0 1.000 - -------------------------------------- ------------------------ ---------------------- --------------------------- European Equity First $0.25 0.800 European Equity - 0.800 Global Equity Next 0.25 0.775 Global Equity - 0.788 International Opportunity Next 0.25 0.750 International Opportunity Precious Metals Next 0.25 0.725 - 0.788 Next 1.0 0.700 Precious Metals - 0.800 Over 2.0 0.675 - -------------------------------------- ------------------------ ---------------------- --------------------------- Fundamental Growth First $1.0 0.780 0.780 Next 1.0 0.755 Next 1.0 0.730 Next 3.0 0.705 Over 6.0 0.680 - -------------------------------------- ------------------------ ---------------------- --------------------------- Fundamental Value First $0.50 0.730 Fundamental Value - 0.718 Value Next 0.50 0.705 Value - 0.730 Next 1.0 0.680 Next 1.0 0.655 Next 3.0 0.630 Over 6.0 0.600 - -------------------------------------- ------------------------ ---------------------- --------------------------- Global Balanced First $0.25 0.790 0.790 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 - -------------------------------------- ------------------------ ---------------------- --------------------------- Global Bond First $0.25 0.770 0.754 Next 0.25 0.745 Next 0.25 0.720 Next 0.25 0.695 Over 1.0 0.670 - -------------------------------------- ------------------------ ---------------------- --------------------------- Global Technology First $0.25 0.720 0.720 Next 0.25 0.695 Next 0.25 0.670 Next 0.25 0.645 Next 1.0 0.620 Over 2.0 0.595 - -------------------------------------- ------------------------ ---------------------- --------------------------- High Yield Bond First $1.0 0.590 0.568 Next 1.0 0.565 Next 1.0 0.540 Next 3.0 0.515 Next 3.0 0.490 Over 9.0 0.465 - -------------------------------------- ------------------------ ---------------------- --------------------------- Income Opportunities First $1.0 0.610 0.610 Next 1.0 0.585 Next 1.0 0.560 Next 3.0 0.535 Next 3.0 0.510 Over 9.0 0.485 - -------------------------------------- ------------------------ ---------------------- ---------------------------
Statement of Additional Information - Oct. 3, 2005 Page 81
- -------------------------------------- ------------------------ ---------------------- --------------------------- Fund Assets (billions) Annual rate at each Daily rate on last day of asset level most recent fiscal period - -------------------------------------- ------------------------ ---------------------- --------------------------- Inflation Protected Securities First $1.0 0.440 0.440 Next 1.0 0.415 Next 1.0 0.390 Next 3.0 0.365 Next 3.0 0.340 Over 9.0 0.315 - -------------------------------------- ------------------------ ---------------------- --------------------------- Insured Tax-Exempt First $1.0 0.450 Insured Tax-Exempt - 0.450 Intermediate Tax-Exempt Next 1.0 0.425 Intermediate Tax-Exempt - Tax-Exempt Bond Next 1.0 0.400 0.450 Next 3.0 0.375 Tax-Exempt Bond - 0.450 Over 6.0 0.350 - -------------------------------------- ------------------------ ---------------------- --------------------------- International Aggressive Growth First $0.25 1.000 1.000 Next 0.25 0.975 Next 0.25 0.950 Next 0.25 0.925 Next 1.0 0.900 Over 2.0 0.875 - -------------------------------------- ------------------------ ---------------------- --------------------------- International Equity First $0.25 0.970 0.970 Next 0.25 0.945 Next 0.25 0.920 Next 0.25 0.895 Next 1.0 0.870 Over 2.0 0.845 - -------------------------------------- ------------------------ ---------------------- --------------------------- International Select Value First $0.25 0.900 0.900 Next 0.25 0.875 Next 0.25 0.850 Next 0.25 0.825 Next 1.0 0.800 Over 2.0 0.775 - -------------------------------------- ------------------------ ---------------------- --------------------------- International Small Cap First $0.25 1.120 1.120 Next 0.25 1.095 Next 0.25 1.070 Next 0.25 1.045 Next 1.0 1.020 Over 2.0 0.995 - -------------------------------------- ------------------------ ---------------------- --------------------------- Mid Cap Value First $1.0 0.700 0.700 Next 1.0 0.675 Next 1.0 0.650 Next 3.0 0.625 Next 6.0 0.600 Next 12.0 0.590 Over 24.0 0.580 - -------------------------------------- ------------------------ ---------------------- --------------------------- Portfolio Builder Aggressive All 0.080 0.080 Portfolio Builder Conservative Portfolio Builder Moderate Portfolio Builder Moderate Aggressive Portfolio Builder Moderate Conservative Portfolio Builder Total Equity - -------------------------------------- ------------------------ ---------------------- --------------------------- Real Estate First $1.0 0.840 0.840 Next 1.0 0.815 Next 1.0 0.790 Next 3.0 0.765 Next 6.0 0.740 Next 12.0 0.739 Over 24.0 0.720 - -------------------------------------- ------------------------ ---------------------- --------------------------- S&P 500 Index First $1.0 0.240 0.240 Next 1.0 0.230 Next 3.0 0.220 Over 6.0 0.210 - -------------------------------------- ------------------------ ---------------------- ---------------------------
Statement of Additional Information - Oct. 3, 2005 Page 82
- -------------------------------------- ------------------------ ---------------------- --------------------------- Fund Assets (billions) Annual rate at each Daily rate on last day of asset level most recent fiscal period - -------------------------------------- ------------------------ ---------------------- --------------------------- Select Value First $0.50 0.780 0.772 Next 0.50 0.755 Next 1.0 0.730 Next 1.0 0.705 Next 3.0 0.680 Over 6.0 0.650 - -------------------------------------- ------------------------ ---------------------- --------------------------- Short Duration U.S. Government First $1.0 0.050 0.510 Next 1.0 0.045 Next 1.0 0.040 Next 3.0 0.035 Next 3.0 0.030 Over 9.0 0.025 - -------------------------------------- ------------------------ ---------------------- --------------------------- Small Cap Advantage First $0.25 0.740 0.708 Next 0.25 0.715 Next 0.25 0.690 Next 0.25 0.665 Next 1.0 0.640 Over 2.0 0.615 - -------------------------------------- ------------------------ ---------------------- --------------------------- Small Cap Equity First $0.25 0.970 Small Cap Equity - 0.970 Small Cap Value Next 0.25 0.945 Small Cap Value - 0.926 Next 0.25 0.920 Next 0.25 0.895 Over 1.0 0.870 - -------------------------------------- ------------------------ ---------------------- --------------------------- Small Cap Growth First $0.25 0.920 0.920 Next 0.25 0.895 Next 0.25 0.870 Next 0.25 0.845 Next 1.0 0.820 Over 2.0 0.795 - -------------------------------------- ------------------------ ---------------------- --------------------------- Small Company Index First $0.25 0.380 0.359 Next 0.25 0.370 Next 0.25 0.360 Next 0.25 0.350 Over 1.0 0.340 - -------------------------------------- ------------------------ ---------------------- --------------------------- Strategy Aggressive First $1.0 0.600 0.600 Next 1.0 0.575 Next 1.0 0.550 Next 3.0 0.525 Over 6.0 0.500 - -------------------------------------- ------------------------ ---------------------- --------------------------- Tax-Exempt High Income First $1.0 0.490 0.451 Next 1.0 0.465 Next 1.0 0.440 Next 3.0 0.415 Next 3.0 0.390 Over 9.0 0.360 - -------------------------------------- ------------------------ ---------------------- --------------------------- U.S. Government Mortgage First $1.0 0.520 0.520 Next 1.0 0.495 Next 1.0 0.470 Next 3.0 0.445 Next 3.0 0.420 Over 9.0 0.395 - -------------------------------------- ------------------------ ---------------------- ---------------------------
The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding business day. Statement of Additional Information - Oct. 3, 2005 Page 83 For Equity and Balanced Funds, before the fee based on the asset charge is paid, it is adjusted for the fund's investment performance relative to a Lipper Index (Index) as shown in the table below. If the Index ceases to be published for a period of more than 90 days, changes in any material respect, or otherwise becomes impracticable to use for purposes of the adjustment, no adjustment will be made until the Board approves a substitute index. The adjustment increased or decreased the fee for the last fiscal period as shown in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
Table 15. Lipper Indexes - --------------------------------------- ---------------------------------------- --------------------------------- Fund Lipper Index Fee Increase or (Decrease) - ------------------------------------------------------------------------------------------------------------------ Fiscal year ending March 31 - ------------------------------------------------------------------------------------------------------------------ - --------------------------------------- ---------------------------------------- --------------------------------- Equity Value Lipper Large-Cap Value Funds 817,917 - --------------------------------------- ---------------------------------------- --------------------------------- Precious Metals Lipper Gold Funds (27,758) - --------------------------------------- ---------------------------------------- --------------------------------- Small Cap Advantage Lipper Small-Cap Core Funds 89,147 - --------------------------------------- ---------------------------------------- --------------------------------- Small Cap Growth Lipper Small-Cap Growth Funds (249,698) - --------------------------------------- ---------------------------------------- --------------------------------- Strategy Aggressive Lipper Mid-Cap Growth Funds (854,620) - ------------------------------------------------------------------------------------------------------------------ Fiscal year ending May 31 - ------------------------------------------------------------------------------------------------------------------ - --------------------------------------- ---------------------------------------- --------------------------------- Aggressive Growth Lipper Mid-Cap Growth Funds 1,158 - --------------------------------------- ---------------------------------------- --------------------------------- Fundamental Growth Lipper Large-Cap Growth Funds (31,784) - --------------------------------------- ---------------------------------------- --------------------------------- Fundamental Value Lipper Large-Cap Value Funds 39,947 - --------------------------------------- ---------------------------------------- --------------------------------- Select Value Lipper Multi-Cap Value Funds (211,710) - --------------------------------------- ---------------------------------------- --------------------------------- Small Cap Equity Lipper Small-Cap Core Funds (4,445) - --------------------------------------- ---------------------------------------- --------------------------------- Small Cap Value Lipper Small-Cap Value Funds (576,478) - --------------------------------------- ---------------------------------------- --------------------------------- Value Lipper Large-Cap Value Funds (69,520) - ------------------------------------------------------------------------------------------------------------------ Fiscal year ending June 30 - ------------------------------------------------------------------------------------------------------------------ - --------------------------------------- ---------------------------------------- --------------------------------- Dividend Opportunity Lipper Equity Income Funds 29,485 - --------------------------------------- ---------------------------------------- --------------------------------- Real Estate* Lipper Real Estate Funds 8,364 - ------------------------------------------------------------------------------------------------------------------ Fiscal year ending July 31 - ------------------------------------------------------------------------------------------------------------------ - --------------------------------------- ---------------------------------------- --------------------------------- Disciplined Equity Lipper Large-Cap Core Funds 15,749 - --------------------------------------- ---------------------------------------- --------------------------------- Discovery Lipper Small-Cap Core Funds 39,153 - --------------------------------------- ---------------------------------------- --------------------------------- Growth Lipper Large-Cap Growth Funds 1,705,757 - --------------------------------------- ---------------------------------------- --------------------------------- Large Cap Equity Lipper Large-Cap Core Funds (414,150) - --------------------------------------- ---------------------------------------- --------------------------------- Large Cap Value Lipper Large-Cap Value Funds (14,485) - --------------------------------------- ---------------------------------------- --------------------------------- New Dimensions Lipper Large-Cap Growth Funds (10,062,023) - ------------------------------------------------------------------------------------------------------------------ Fiscal year ending September 30 - ------------------------------------------------------------------------------------------------------------------ - --------------------------------------- ---------------------------------------- --------------------------------- Balanced Lipper Balanced Funds (139,930) - --------------------------------------- ---------------------------------------- --------------------------------- Diversified Equity Income Lipper Equity Income Funds 2,773,419 - --------------------------------------- ---------------------------------------- --------------------------------- Mid Cap Value Lipper Mid-Cap Value Funds 227,086 - --------------------------------------- ---------------------------------------- --------------------------------- Stock Lipper Large-Cap Core Funds (642,172) - --------------------------------------- ---------------------------------------- --------------------------------- Strategic Allocation Lipper Flexible Portfolio Funds (311,872) - ------------------------------------------------------------------------------------------------------------------ Fiscal year ending October 31 - ------------------------------------------------------------------------------------------------------------------ - --------------------------------------- ---------------------------------------- --------------------------------- Emerging Markets Lipper Emerging Markets Funds (232,104) - --------------------------------------- ---------------------------------------- --------------------------------- European Equity Lipper European Funds (157,194) - --------------------------------------- ---------------------------------------- --------------------------------- Global Balanced Lipper Global Flexible Funds (66,573) - --------------------------------------- ---------------------------------------- --------------------------------- Global Equity Lipper Global Funds (570,426) - --------------------------------------- ---------------------------------------- --------------------------------- Global Technology Lipper Science and Technology Funds 234,130 - --------------------------------------- ---------------------------------------- --------------------------------- International Aggressive Growth Lipper International Multi-Cap Growth 39,785 Funds - --------------------------------------- ---------------------------------------- --------------------------------- International Equity Lipper International Funds (48,163) - --------------------------------------- ---------------------------------------- --------------------------------- International Opportunity Lipper International Large-Cap Core (452,904) Funds - --------------------------------------- ---------------------------------------- --------------------------------- International Select Value Lipper International Multi-Cap Value 218,467 Funds - --------------------------------------- ---------------------------------------- --------------------------------- International Small Cap Lipper International Small-Cap Funds (35,481) - ------------------------------------------------------------------------------------------------------------------ Fiscal year ending November 30 - ------------------------------------------------------------------------------------------------------------------ - --------------------------------------- ---------------------------------------- --------------------------------- Mid Cap Growth Lipper Mid-Cap Growth Funds (2,001,794) - --------------------------------------- ---------------------------------------- ---------------------------------
* The first adjustment will be made six months after the first public sales of the fund. The comparison period will increase by one month each month until it reaches 12 months. The adjustment, determined monthly, will be 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 the Index. The performance difference is then used to determine the adjustment rate. The adjustment rate, computed to five decimal places, is determined in accordance with the following table. The table is organized by fund category. You can find your fund's category in Table 1. Statement of Additional Information - Oct. 3, 2005 Page 84 Table 16. Performance Incentive Adjustment Calculation
- ------------------------------------------------------- -------------------------------------------------------- Equity Funds Balanced Funds - ------------------- ----------------------------------- ----------------- -------------------------------------- Performance Adjustment Rate Performance Adjustment Rate Difference Difference - ------------------- ----------------------------------- ----------------- -------------------------------------- 0.00%-0.50% 0 0.00%-0.50% 0 - ------------------- ----------------------------------- ----------------- -------------------------------------- 0.50%-1.00% 6 basis points times the 0.50%-1.00% 6 basis points times the performance performance difference over 0.50% difference over 0.50% (maximum of 3 (maximum of 3 basis points if a basis points if a 1% performance 1% performance difference) difference) - ------------------- ----------------------------------- ----------------- -------------------------------------- 1.00%-2.00% 3 basis points, plus 3 basis 1.00%-2.00% 3 basis points, plus 3 basis points points times the performance times the performance difference difference over 1.00% (maximum 6 over 1.00% (maximum 6 basis points basis points if a 2% performance if a 2% performance difference) difference) - ------------------- ----------------------------------- ----------------- -------------------------------------- 2.00%-4.00% 6 basis points, plus 2 basis 2.00%-3.00% 6 basis points, plus 2 basis points points times the performance times the performance difference difference over 2.00% (maximum 10 over 2.00% (maximum 8 basis points basis points if a 4% performance if a 3% performance difference) difference) - ------------------- ----------------------------------- ----------------- -------------------------------------- 4.00%-6.00% 10 basis points, plus 1 basis 3.00% or more 8 basis points point times the performance difference over 4.00% (maximum 12 basis points if a 6% performance difference) - ------------------- ----------------------------------- ----------------- -------------------------------------- 6.00% or more 12 basis points - ------------------- ----------------------------------- ----------------- --------------------------------------
For example, if the performance difference for an Equity Fund is 2.38%, the adjustment rate is 0.000676 (0.0006 [6 basis points] plus 0.0038 [the 0.38% performance difference over 2.00%] x 0.0002 [2 basis points] x 100 (0.000076)). Rounded to five decimal places, the adjustment rate is 0.00068. The maximum adjustment rate for the fund is 0.0012 per year. Where the fund's Class A performance exceeds that of the Index, the fee paid to the investment manager will increase. Where the performance of the Index exceeds the performance of the fund's Class A shares, the fee paid to the investment manager will decrease. The 12-month comparison period rolls over with each succeeding month, so that it always equals 12 months, ending with the month for which the performance adjustment is being computed. The management fee is paid monthly. Under the agreement, a fund also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees; audit and certain legal fees; fidelity bond premiums; registration fees for shares; office expenses; postage of confirmations except purchase confirmations; consultants' fees; compensation of Board members, officers and employees; corporate filing fees; organizational expenses; expenses incurred in connection with lending securities; and expenses properly payable by a fund, approved by the Board. The table below shows the total management fees paid by each fund for the last three fiscal periods as well as nonadvisory expenses, net of earnings credits, waivers and expenses reimbursed by the investment manager and its affiliates. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Statement of Additional Information - Oct. 3, 2005 Page 85
Table 17. Management Fees and Nonadvisory Expenses - -------------------------------------------- ----------------------------------------- ------------------------------------- Fund Management Fees Nonadvisory expenses - -------------------------------------------- ----------------------------------------- ------------------------------------- - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- 2005 2004 2003 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive $55,141(a) N/A N/A $34,746 N/A N/A - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Portfolio Builder Conservative 23,875(a) N/A N/A 43,296 N/A N/A - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Portfolio Builder Moderate 93,838(a) N/A N/A 142,907 N/A N/A - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Portfolio Builder Moderate Aggressive 112,009(a) N/A N/A 116,480 N/A N/A - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Portfolio Builder Moderate Conservative 43,118(a) N/A N/A 75,264 N/A N/A - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Portfolio Builder Total Equity 43,835(a) N/A N/A 27,696 N/A N/A - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Small Company Index 4,547,058 3,962,556 4,217,776 536,282 604,079 630,193 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- S&P 500 Index 933,587 954,894 632,281 (402,204) (24,079) (301,463) - ---------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - ---------------------------------------------------------------------------------------------------------------------------- Equity Value 6,836,800 6,126,938 5,929,794 465,953 493,392 514,413 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Precious Metals 659,595 724,228 478,457 176,012 175,964 208,238 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Small Cap Advantage 6,341,134 5,102,126 3,593,634 533,489 227,451 354,549 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Small Cap Growth 2,276,290 2,359,429 1,747,120 421,008 360,064 (136,353) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Strategy Aggressive 3,390,499 4,338,334 4,964,632 451,456 585,955 577,160 - ---------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - ---------------------------------------------------------------------------------------------------------------------------- Aggressive Growth 399,501 117,564 3,774(b) 82,999 18,117 1,282(b) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Fundamental Growth 410,475 79,513 3,368(b) 177,899 24,370 489(b) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Fundamental Value 5,556,219 3,377,169 2,055,809 488,580 210,468 (38,629) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- High Yield Bond 14,973,845 15,136,003 12,593,999 817,018 1,035,459 900,663 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Select Value 5,256,934 2,995,527 1,268,532 423,030 283,570 (42,902) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Selective 4,922,235 6,210,559 7,763,060 (230,799) 522,092 460,190 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Short Duration U.S. Government 10,141,504 14,303,395 15,837,132 (958,143) 1,172,005 1,516,688 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Small Cap Equity 1,560,155 1,108,923 375,456 6,490 (76,600) (50,972) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Small Cap Value 9,857,858 7,749,795 5,539,260 788,885 675,289 (136,624) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- U.S. Government Mortgage 1,532,464 2,063,726 1,714,820 (188,134) 18,299 101,644 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Value 3,311,867 2,926,194 1,925,005 285,856 202,871 42,263 - ---------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - ---------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 1,010,591 1,129,991 1,273,942 116,440 139,264 126,709 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Dividend Opportunity 6,201,403 5,081,258 7,090,687 453,329 596,965 562,883 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Insured Tax-Exempt 1,801,898 2,078,914 2,214,318 165,805 187,506 180,424 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Massachusetts Tax-Exempt 372,649 427,506 455,856 43,112 52,958 54,428 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Michigan Tax-Exempt 294,025 342,995 387,348 36,732 43,425 53,043 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Minnesota Tax-Exempt 1,895,714 2,045,996 2,129,734 161,536 182,884 159,041 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- New York Tax-Exempt 434,449 495,538 549,702 54,945 62,139 73,579 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Ohio Tax-Exempt 307,214 360,176 397,430 38,356 43,070 54,325 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Real Estate 725,491 37,549(c) N/A 133,564 8,198(c) N/A - ---------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - ---------------------------------------------------------------------------------------------------------------------------- Cash Management 12,052,160 14,155,568 17,632,026 1,220,672 2,243,652 2,781,187 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Core Bond 846,872 417,836 32,016(d) 99,940 69,699 7,553(d) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Disciplined Equity 408,720 83,580 11,265(e) 130,016 8,110 4,595(e) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Discovery 1,074,727 1,239,497 752,017 369,132 177,032 128,264 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Growth 18,968,320 16,372,054 20,057,173 1,217,404 1,219,778 1,262,092 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Income Opportunities 1,954,757 985,862 38,550(d) 214,865 133,277 15,960(d) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Inflation Protected Securities 552,220 66,055(f) N/A 28,432 5,260(f) N/A - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Large Cap Equity 9,680,873 2,441,621 342,000 161,534 391,817 40,890 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Large Cap Value 803,736 446,686 139,254 293,194 129,014 22,043 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Limited Duration Bond 960,788 571,688 34,385(d) 57,170 61,331 7,837(d) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- New Dimensions 60,896,353 74,353,086 90,852,746 4,912,847 3,537,012 4,234,549 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Statement of Additional Information - Oct. 3, 2005 Page 86
- -------------------------------------------- ----------------------------------------- ------------------------------------- Fund Management Fees Nonadvisory expenses - -------------------------------------------- ----------------------------------------- ------------------------------------- - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- 2004 2003 2002 2004 2003 2002 - ---------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - ---------------------------------------------------------------------------------------------------------------------------- Diversified Bond 15,409,504 18,159,757 18,809,556 575,900 1,058,347 787,862 - ---------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - ---------------------------------------------------------------------------------------------------------------------------- Balanced 7,736,525 7,434,993 9,074,291 707,529 567,687 726,098 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Diversified Equity Income 17,374,369 9,509,660 11,851,751 993,686 701,496 836,049 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Mid Cap Value 2,537,342 755,866 261,610(g) 271,072 63,479 11,282(g) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Stock 11,111,422 10,665,505 15,120,564 582,837 641,829 738,889 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Strategic Allocation 5,004,559 5,083,754 6,670,033 629,876 498,156 610,477 - ---------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - ---------------------------------------------------------------------------------------------------------------------------- Emerging Markets 2,770,886 2,181,279 2,578,135 519,598 477,412 491,764 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- European Equity 872,149 959,764 1,483,797 236,203 143,588 221,341 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Global Balanced 699,824 702,933 882,643 171,229 189,130 178,732 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Global Bond 4,143,713 4,084,088 3,677,461 427,277 450,208 359,934 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Global Equity 3,302,062 3,763,415 5,986,053 506,708 476,898 611,344 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Global Technology 1,812,789 1,185,180 1,358,065 304,625 235,797 330,225 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- International Aggressive Growth 1,878,346 1,114,731 690,573 250,484 69,337 65,305 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- International Equity 1,015,577 439,777 15,692(h) 316,320 131,195 6,693(h) - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- International Opportunity 2,926,933 2,672,683 4,334,965 442,832 451,756 563,325 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- International Select Value 6,467,621 3,341,744 1,253,447 473,274 152,203 145,369 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- International Small Cap 600,389 183,744 8,611(h) 208,586 63,029 3,583(h) - ---------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - ---------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 10,550,526 10,432,639 11,492,378 744,839 600,194 527,223 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Tax-Exempt High Income 20,079,644 21,646,724 21,993,068 976,647 892,351 737,356 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Intermediate Tax-Exempt Bond 752,882 704,089 381,710 136,017 101,093 78,153 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ ----------- Tax-Exempt Bond 3,457,986 3,967,418 4,086,654 248,267 270,404 225,129 - ---------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - ---------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 515,265 678,981 725,514 177,477 218,380 195,140 - -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
(a) For the period from March 4, 2004 (when shares became publicly available) to Jan. 31, 2005. (b) For the period from April 24, 2003 (when shares became publicly available) to May 31, 2003. (c) For the period from March 4, 2004 (when shares became publicly available) to June 30, 2004. (d) For the period from June 19, 2003 (when shares became publicly available) to July 31, 2003. (e) For the period from April 24, 2003 (when shares became publicly available) to July 31, 2003. (f) For the period from March 4, 2004 (when shares became publicly available) to July 31, 2004. (g) For the period from Feb. 14, 2002 (when shares became publicly available) to Sept. 30, 2002. (h) For the period from Oct. 3, 2002 (when shares became publicly available) to Oct. 31, 2002. Subadvisory Agreements The assets of certain funds are managed by subadvisers that have been selected by the investment manager, subject to the review and approval of the Board. The investment manager has recommended the subadvisers to the Board based upon its assessment of the skills of the subadvisers in managing other assets with goals and investment strategies substantially similar to those of the applicable fund. Short-term investment performance is not the only factor in selecting or terminating a subadviser, and the investment manager does not expect to make frequent changes of subadvisers. Certain subadviers, affiliated with the investment manager, have been directly approved by shareholders. These subadvisers are noted in Table 18. The investment manager allocates the assets of a fund with multiple subadvisers among the subadvisers. Each subadviser has discretion, subject to oversight by the Board and the investment manager, to purchase and sell portfolio assets, consistent with the fund's investment objectives, policies, and restrictions. Generally, the services that a subadviser provides to the fund are limited to asset management and related recordkeeping services. Statement of Additional Information - Oct. 3, 2005 Page 87 The investment manager has entered into an advisory agreement with each subadviser under which the subadviser provides investment advisory assistance and day-to-day management of some or all of the fund's portfolio, as well as investment research and statistical information. A subadviser may also serve as a discretionary or non-discretionary investment adviser to management or advisory accounts that are unrelated in any manner to the investment manager or its affiliates. The following table shows the advisory fee schedules for fees paid by the investment manager to subadvisers for funds that have subadvisers. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
Table 18. Subadvisers and Subadvisory Agreement Fee Schedules - ---------------------------- -------------------------------------------- -------------- -------------------------- Parent Fund Subadviser name Company, if Fee schedule any - ---------------------------- -------------------------------------------- -------------- -------------------------- For funds with fiscal period ending March 31 - ---------------------------- -------------------------------------------- -------------- -------------------------- Small Cap Advantage Kenwood Capital Management LLC (Kenwood)* A 0.35% (effective May 4, 1999) - ---------------------------- -------------------------------------------- -------------- -------------------------- Small Cap Growth Essex Investment Management Company, LLC B 0.70% on the first $20 (Essex) million, reducing to (effective Sept. 23, 2005) 0.60% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- MDT Advisers, Inc. (MDTA) N/A 0.60% on the first (effective Sept. 23, 2005) $100 million - ---------------------------- -------------------------------------------- -------------- -------------------------- Turner Investment Partners, Inc. (Turner) N/A 0.60% on the first $50 (effective Aug. 18, 2003) million, reducing to 0.50% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- UBS Global Asset Management (Americas) N/A 0.55% on the first $150 (UBS) million, reducing to (effective Aug. 18, 2003) 0.50% as assets increase - ------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - ------------------------------------------------------------------------------------------------------------------- - ---------------------------- -------------------------------------------- -------------- -------------------------- Aggressive Growth American Century Investment Management, N/A 0.50% on the first $100 Inc. (American Century) million, reducing to (effective April 24, 2003) 0.38% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Turner Investment Partners, Inc. (Turner) N/A 0.55% on the first $100 (effective April 24, 2003) million, reducing to 0.38% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Fundamental Growth Goldman Sachs Asset Management L.P. C 0.50% on the first $50 (Goldman) million, reducing to (effective April 24, 2003) 0.30% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Wellington Management Company, LLP N/A 0.50% on the first $50 (Wellington) million, reducing to (effective April 2005) 0.40% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Fundamental Value Davis Advisors (Davis)* N/A 0.45% on the first $100 (effective June 18, 2001) million, reducing to 0.35% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Select Value GAMCO Asset Management Inc. (GAMCO) N/A .040% on the first $500 (effective Mar. 8, 2002) million**, reducing to 0.30% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Small Cap Equity American Century N/A 0.65% on the first $25 (effective Dec. 2003) million**, reducing to 0.55% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Lord, Abbett & Co. (Lord, Abbett) N/A 0.65% on the first $100 (effective Dec. 2003) million**, reducing to 0.55% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Wellington N/A 0.60%, subject to (effective Mar. 8, 2002) possible adjustment under a performance incentive adjustment - ---------------------------- -------------------------------------------- -------------- --------------------------
Statement of Additional Information - Oct. 3, 2005 Page 88
- ---------------------------- -------------------------------------------- -------------- -------------------------- Parent Fund Subadviser name Company, if Fee schedule any - ---------------------------- -------------------------------------------- -------------- -------------------------- Small Cap Value Royce & Associates, LLC. (Royce) D 0.80% on the first $100 (effective June 18, 2001) million**, reducing to 0.60% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Goldman N/A 0.60% on the first $100 (effective Aug. 8, 2003) million**, reducing to 0.55% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Barrow, Hanley, Mewhinney & Strauss (BHMS) E 1.00% on the first $10 (effective Mar. 12, 2004) million**, reducing to 0.30% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Donald Smith & Co. Inc. (Donald Smith) N/A 0.60% on the first $175 (effective Mar. 12, 2004) million**, reducing to 0.55% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Franklin Portfolio Associates LLC F 0.60% on the first $100 (Franklin Portfolio Associates) million**, reducing to (effective Mar. 12, 2004) 0.55% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Value Lord, Abbett N/A 0.35% on the first $200 (effective June 18, 2001) million, reducing to 0.25% as assets increase - ------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - ------------------------------------------------------------------------------------------------------------------- - ---------------------------- -------------------------------------------- -------------- -------------------------- Discovery American Century N/A 0.65% on the first $25 (effective Dec. 22, 2003) million**, reducing to 0.55% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Lord Abbett N/A 0.65% on the first $100 (effective Dec. 22, 2003) million**, reducing to 0.55% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Wellington N/A 0.60%, subject to (effective Sept. 1, 2002) possible adjustment under a performance incentive adjustment - ------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - ------------------------------------------------------------------------------------------------------------------- - ---------------------------- -------------------------------------------- -------------- -------------------------- Emerging Markets Threadneedle International Limited * G 0.45% of the first $15 (Threadneedle) million, reducing to (effective July 10, 2004) 0.30% as assets increase, and subject to a performance incentive adjustment*** - ---------------------------- -------------------------------------------- -------------- -------------------------- European Equity Threadneedle* G 0.35% of the first $15 International Opportunity (effective July 10, 2004) million, reducing to 0.20% as assets increase, and subject to a performance incentive adjustment*** - ---------------------------- -------------------------------------------- -------------- -------------------------- Global Balanced Threadneedle* G 0.35% of the first $15 Global Equity (effective July 10, 2004) million, reducing to 0.20% as assets increase, and subject to a performance incentive adjustment*** - ---------------------------- -------------------------------------------- -------------- -------------------------- International Aggressive American Century Global Investment H 0.65% on the first $100 Growth Management, Inc. (ACGIM) million, reducing to (effective Jan. 1, 2005) 0.50% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Columbia Wanger Asset Management L.P. I 0.70% on the first $100 (Columbia WAM) million, reducing to (effective Sept. 5, 2001) 0.50% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- International Equity The Boston Company Asset Management, LLC J 0.50% on the first $150 (Boston Company) million, reducing to (effective Sept. 25, 2002) 0.35% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Marsico Capital Management, LLC (Marsico) K 0.55% on the first $100 (effective Oct. 1, 2004) million, reducing to 0.45% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- International Select Value Alliance Capital Management L.P. N/A 0.65% on the first $75 (Alliance Capital) million, reducing to (effective Sept. 17, 2001) 0.30% as assets increase - ---------------------------- -------------------------------------------- -------------- --------------------------
Statement of Additional Information - Oct. 3, 2005 Page 89
- ---------------------------- -------------------------------------------- -------------- -------------------------- Parent Fund Subadviser name Company, if Fee schedule any - ---------------------------- -------------------------------------------- -------------- -------------------------- International Small Cap Templeton Investment Counsel, LLC N/A 0.70% on the first $50 (Franklin Templeton) million, reducing to (effective Sept. 25, 2002) 0.50% as assets increase - ---------------------------- -------------------------------------------- -------------- -------------------------- Wellington Management Company, LLP N/A 0.75% on the first $100 (Wellington Management) million, reducing to (effective Sept. 25, 2002) 0.60% as assets increase - ---------------------------- -------------------------------------------- -------------- --------------------------
* Davis is a 1940 Act affiliate of the investment manager because it owns or has owned more than 5% of the public issued securities of the investment manager's parent company, Ameriprise Financial. Kenwood is an affiliate of the investment manager as an indirect partially-owned subsidiary of Ameriprise Financial. Threadneedle is an affiliate of the investment manager as a direct wholly-owned subsidiary of Ameriprise Financial. ** Based on the combined net assets subject to the subadviser's investment management. *** The adjustment for Threadneedle is based on the performance of one Class A share of the fund and the change in the Lipper Index described in Table 15. The performance of the fund and the Index will be calculated using the method described above for the performance incentive adjustment paid to the investment manager under the terms of the Investment Management Services Agreement. The amount of the adjustment to Threadneedle's fee, whether positive or negative, shall be equal to one-half of the performance incentive adjustment made to the investment management fee payable to the investment manager under the terms of the Investment Management Services Agreement. The performance incentive adjustment was effective Dec. 1, 2004. A - Kenwood is an indirect partially-owned subsidiary of Ameriprise Financial. B - Essex is majority owned by Affiliated Managers Group. C - Goldman is an affiliate of Goldman Sachs & Co. D - Royce is a direct wholly-owned subsidiary of Legg Mason, Inc. E - BHMS is an independent-operating subsidiary of Old Mutual Asset Management. F - Franklin Portfolio Associates is an indirect wholly-owned subsidiary of Mellon Financial Corporation. G - Threadneedle is a direct wholly-owned subsidiary of Ameriprise Financial. H - ACGIM is a wholly-owned subsidiary of American Century. I - Columbia WAM is an indirect wholly-owned subsidiary of Columbia Management Group, Inc., which in turn is a wholly owned subsidiary of Bank of America Corporation. J - Boston Company is a subsidiary of Mellon Financial Corporation and an affiliate of The Dreyfus Corporation. K - Marsico is an indirect wholly-owned subsidiary of Bank of America Corporation. The following table shows the subadvisory fees paid by the investment manager to subadvisers in the last three fiscal periods. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
Table. 19. Subadvisory Fees - --------------------------- --------------------------------------------- ------------------------------------------- Fund Subadviser Subadvisory fees paid - --------------------------- --------------------------------------------- ------------------------------------------- 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - --------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Kenwood $3,089,403 $2,282,191 $1,740,599 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Small Cap Growth Essex Effective N/A N/A 9/23/05 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ MDTA Effective N/A N/A 9/23/05 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Turner 371,758 241,927 N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ UBS 342,815 224,007 N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former Subadviser: Bjurman, Barry & 366,178 274,992 N/A Associates (from Aug. 18, 2003 to Sept. 23, 2005) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former Subadviser: RS Investment 581,602 565,391 400,545 Management, L.P. (from Jan. 24, 2001 to Sept. 23, 2005) - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - --------------------------------------------------------------------------------------------------------------------- Aggressive Growth American Century 114,981 32,431 1,218(a) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Turner 119,529 36,468 1,359(a) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Fundamental Growth Wellington* 21,015(b) N/A N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Goldman 143,448 28,129 1,205(a) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former subadviser: Eagle Asset Management, 139,312(c) 28,655 1,249(a) Inc., a subsidiary of Raymond James Financial, Inc. (from April 7, 2003 to April 26, 2005) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Fundamental Value Davis 2,834,365 1,946,906 1,156,584 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Select Value GAMCO 46,074 1,642,235 626,588 - --------------------------- --------------------------------------------- ---------------- ------------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 90
- --------------------------- --------------------------------------------- ------------------------------------------- Fund Subadviser Subadvisory fees paid - --------------------------- --------------------------------------------- ------------------------------------------- 2005 2004 2003 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Small Cap Equity American Century 302,079 90,891 N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Lord, Abbett 278,497 93,666 N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Wellington* 388,922 339,459 99,787 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former subadviser: Pilgrim Baxter & N/A N/A 98,829 Associates, Ltd (from inception to Dec. 2003) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Small Cap Value Goldman 1,599,715 883,316 N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Royce 2,287,184 3,103,451 2,373,829 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Franklin Portfolio Associates 957,263 134,324 N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ BHMS 823,441 126,801 N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Donald Smith 992,659 130,862 N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former subadviser: National City N/A N/A 124,993 Investment Co. (from inception to August 2003) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former subadviser: Third Avenue Management N/A 1,087,918 947,437 LLC (from inception to March 2004) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Value Lord, Abbett 1,389,323 1,251,762 878,954 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - --------------------------------------------------------------------------------------------------------------------- Discovery American Century 261,637 131,822 N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Lord, Abbett 279,061 151,513 N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Wellington* 458,629 620,176 342,165 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former subadviser: Pilgrim Baxter N/A N/A 337,687 (from April 2002 to December 2003) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - --------------------------------------------------------------------------------------------------------------------- Emerging Markets Threadneedle 361,626 N/A N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former subadviser: American Express Asset 942,983 1,033,684 1,168,791 Management International Inc. (AEAMI) (from inception until July 2004) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ European Equity Threadneedle 131,177 N/A N/A --------------------------------------------- ---------------- ------------- ------------ Former subadviser: AEAMI 316,031 448,432 668,033 (from inception until July 2004) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Global Balanced Threadneedle 96,408 N/A N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former subadviser: AEAMI 151,173 208,168 416,452 (from inception until July 2004) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Global Equity Threadneedle 449,149 N/A N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former subadviser: AEAMI 484,676 1,841,195 3,015,169 (from inception until July 2004) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ International Aggressive American Century 542,561 394,806 224,250 Growth - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Columbia WAM 709,378 422,056 251,311 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ International Equity Boston Company 288,191 118,846 5,039 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Marsico 30,840 N/A N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former subadviser: Putnam Investment 308,350 142,969 6,823 Management, LLC (from inception until Sept. 30, 2004) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ International Opportunity Threadneedle 434,968 N/A N/A - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Former subadviser: AEAMI 1,000,707 1,407,484 2,319,155 (from inception until July 2004) - --------------------------- --------------------------------------------- ---------------- ------------- ------------ International Select Value Alliance Capital 2,869,277 1,604,035 749,095 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ International Small Cap Franklin Templeton 200,710 56,399 3,435 - --------------------------- --------------------------------------------- ---------------- ------------- ------------ Wellington* 215,256 62,802 3,545 - --------------------------- --------------------------------------------- ---------------- ------------- ------------
* Beginning on July 1, 2006, under the Subadvisory Agreement, RiverSource Investments is subject to a minimum annual fee of $350,000, payable to Wellington Management. (a) For fiscal period from April 24, 2003 (when shares became publicly available) to May 31, 2003. (b) For fiscal period from April 26, 2005 to May 31, 2005. (c) For fiscal period from June 1, 2004 to April 26, 2005. Statement of Additional Information - Oct. 3, 2005 Page 91 Portfolio Managers. The following table provides information about the funds' portfolio managers as of the end of the most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Table 20. Portfolio Managers
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Fund Potential Structure of Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation Fund Shares of Interest - ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Approximate Total Net Assets Number and type of (excluding account the fund) - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending January 31 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene None(a) None (1) (1) Builder David M. Joy None None Aggressive Michelle M. Keeley None(b) None William F. Truscott None(b) None - ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ --------------- Portfolio Kent M. Bergene None(a) None Builder David M. Joy None None Conservative Michelle M. Keeley None(b) None (1) (1) William F. Truscott None(b) None - ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ --------------- Portfolio Kent M. Bergene None(a) None Builder Moderate David M. Joy None None Michelle M. Keeley None(b) None (1) (1) William F. Truscott None(b) None - ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ --------------- Portfolio Kent M. Bergene None(a) $1 - $10,000 Builder David M. Joy None None Moderate Michelle M. Keeley None(b) None (1) (1) Aggressive William F. Truscott None(b) $100,001 -$500,000 - ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ --------------- Portfolio Kent M. Bergene None(a) None Builder David M. Joy None None Moderate Michelle M. Keeley None(b) None (1) (1) Conservative William F. Truscott None(b) None - ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ --------------- Portfolio Kent M. Bergene None(a) None Builder Total David M. Joy None $100,001 - Equity $500,000 (1) (1) Michelle M. Keeley None(b) None William F. Truscott None(b) None - ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ --------------- Small Company David Factor, CFA 2 registered $0.7 billion None (2) (2) Index investment companies (RICs); $2.6 billion 2 pooled investment vehicles (PIVs) - ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ --------------- S&P 500 Index David Factor, CFA 2 RICs $1.7 billion None (2) (2) 2 PIVs $2.6 billion - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending March 31 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value Warren Spitz 5 RICs(c) $4.4 billion $50,001 - (2) (3) 2 PIVs $216.3 million $100,000 --------------------------- --------------- Steve Schroll $10,001 - $50,000 --------------------------- --------------- Laton Spahr $1 - $10,000 - ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ --------------- Precious Metals Clay Hoes 1 PIV $13.9 million $1 - $10,000 (2), (3) (4) - ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ ---------------
Statement of Additional Information - Oct. 3, 2005 Page 92
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Fund Potential Structure of Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation Fund Shares of Interest - ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Approximate Total Net Assets Number and type of (excluding account the fund) - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap RSIM: John L. Wallace(d) 4 RICs $1.5 billion None (4) (6) Growth 3 PIVs $15.9 million 6 other accounts $277.6 million -------------------------- ------------------------ ----------------- --------------- ------------ --------------- RSIM: John H. Seabern(d) 1 RIC $953.8 million 5 other accounts $252 million -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Turner: William C. McVail 15 RICs $2.4 billion None (5) (7) 45 PIVs $2.2 billion 37 other accounts; $1.4 billion (for 1 PIV and 2 other accounts(c)) -------------------------- ------------------------ ----------------- Turner: 16 RICs $2.0 billion Christopher K. McHugh 49 PIVs $2.4 billion 35 other accounts $1.3 billion (for 1 PIV and 2 other accounts(c)) -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Turner: Frank L. 4 RICs $41 million None (5) (7) Sustersic 11 PIVs $886 million 32 other accounts $881 million (for 2 RICs and 2 other accounts(c)) -------------------------- ------------------------ ----------------- Turner: 4 RICs $433 million Jason D. Schrotberger 12 PIVs $966 million 24 other accounts $682 million (for 2 other accounts(c)) -------------------------- ------------------------ ----------------- --------------- ------------ --------------- BB&A: O. Thomas Barry 7 RICs $824.2 million None (6) (8) 19 other accounts $169.2 million -------------------------- ------------------------ ----------------- BB&A: G. Andrew Bjurman 15 other accounts $1.3 billion -------------------------- ------------------------ ----------------- BB&A: 38 other accounts $41.2 million Stephen W. Shipman (for 8 accounts(c)) -------------------------- ------------------------ ----------------- BB&A: Patrick T. Bradford 1 RIC $7.3 million -------------------------- ------------------------ ----------------- BB&A: Roberto P. Wu 5 other accounts $7.9 million -------------------------- ------------------------ ----------------- --------------- ------------ --------------- UBS: Paul A. Graham 7 RICs (includes wrap $764.9 million None (7) (9) UBS: David N. Wabnik accounts as 1 model) 2 PIVs $440.2 million 7 other accounts $406.1 million (for 1 other account(c)) - ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Small Cap RiverSource Investments: 4 RICs(c) $1.5 billion None (2) (4), (10) Advantage Dimitris Bertsimas 1 PIV $12.7 million 11 other accounts(g) $84.9 million -------------------------- ------------------------ ----------------- RiverSource Investments: 2 RICs(c) $806.2 million Jonathan Calvert -------------------------- ------------------------ ----------------- Kenwood: Jake Hurwitz 1 RIC(c) $185.3 million $100,001 - (2), (8) (11) 1 PIV $44.9 million $500,000 18 other accounts $445.5 million -------------------------- --------------- Kenwood: Kent Kelley $100,001 - $500,000 - ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Strategy Paul Rokosz 1 RIC $741.1 million $10,000 - (2) (4) Aggressive 2 PIVs $141.5 million $50,000 10 other accounts $1.7 billion (for 2 RICs(c)) - ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Statement of Additional Information - Oct. 3, 2005 Page 93
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Fund Potential Structure of Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation Fund Shares of Interest - ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Approximate Total Net Assets Number and type of (excluding account the fund) - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending May 31 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Aggressive Turner: 18 RICs $2.2 billion None (5) (7) Growth Christopher K. McHugh 30 PIVs $640 million 59 other accounts $3.1 billion -------------------------- ------------------------ ----------------- Turner: Robert E. Turner 27 RICs $3.6 billion 40 PIVs $1.6 billion 88 other accounts $5.2 billion -------------------------- ------------------------ ----------------- Turner: William C. McVail 17 RICs $2.6 billion 24 PIVs $504 million 5 other accounts $3.3 billion -------------------------- ------------------------ ----------------- --------------- ------------ --------------- American Century: 5 RICs $5.584 billion None (9) (12) Glen A. Fogle 1 other account $27.823 million -------------------------- ------------------------ ----------------- American Century: David M. Holland - ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Fundamental Goldman: Herbert E. 49 RICs $10.7 billion None (11) (14), (20) Growth Ehlers 1 PIV $94.0 million 542 other accounts $18.0 billion -------------------------- Goldman: Gregory H. Ekizian -------------------------- Goldman: David G. Shell -------------------------- Goldman: Steven M. Barry -------------------------- Goldman: Kenneth T. Berents -------------------------- Goldman: Andrew F. Pyne -------------------------- Goldman: Scott Kolar -------------------------- Goldman: Prashant R. Khemka -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Wellington: John A. 9 RICs $2,709.4 million None (12) (15) Boselli 7 PIVs $846.7 million 33 other accounts $5,232.5 million (for 1 other account(c)) -------------------------- Wellington: Andrew J. Schilling - ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Fundamental Davis: Christopher C. 23 RICs $48 billion None(e) (10) (13) Value Davis 6 PIVs $853 million Davis: Kenneth C. 30,000 other accounts $9.9 billing Feinberg (primarily managed money/ wrap accounts) - ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ --------------- High Yield Bond Scott Schroepfer 1 RIC $1.2 billion $100,001 - (2) (4) $500,000 - ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Selective Tom Murphy 8 RICs $6.2 billion None (2) (4) 3 PIVs $1.2 billion 24 other accounts $20.9 billion (for 3 RICs and 1 other account(c)) -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Scott Kirby 11 RICs $8.6 billion $10,001 - 7 PIVs $2.6 billion $50,000 46 other accounts $22.9 billion (for 3 RICs and 1 other account(c)) -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Jamie Jackson 14 RICs $12.1 billion $10,001 - 6 PIVs $3.3 billion $50,000 31 other accounts $5.3 billion (for 3 RICs and 1 other account(c)) - ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Select Value GAMCO: Mario Gabelli 24 RICs $11.9 billion(f) None (13) (16) 14 PIVs(c) $707.7 1,747 other accounts million(f) (for 1 RIC and 3 other $9.9 billion accounts(c)) - ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Statement of Additional Information - Oct. 3, 2005 Page 94
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Fund Potential Structure of Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation Fund Shares of Interest - ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Approximate Total Net Assets Number and type of (excluding account the fund) - ------------------------------------------------------------------------------------------------------------------------------------ Short Duration Scott Kirby 11 RICs $7.9 billion $10,001 - (2) (4) U.S. Government 7 PIVs $2.6 billion $50,000 46 other accounts $22.9 billion (for 3 RICs and 1 other account(c)) -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Jamie Jackson 14 RICs $11.4 billion $10,001 - 6 PIVs $3.3 billion $50,000 31 other accounts $5.3 billion (for 3 RICs and 1 other account(c)) - ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Small Cap Equity American Century: 13 RICs $8.720 billion (9) (12) Thomas P. Vaiana 2 other accounts $229 million None -------------------------- ------------------------ ----------------- --------------- ------------ --------------- American Century: 14 RICs $9.276 billion William Martin 2 other accounts $229 million -------------------------- ------------------------ ----------------- --------------- ------------ --------------- American Century: 5 RICs $2.123 billion Wihelmine von Turk 2 other accounts $229 million -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Lord, Abbett: 4 RICs $825.2 million None (14) (17) Michael T. Smith 7 other accounts $534.6 million -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Wellington: 4 RICs $1,640.9 million $500,001 - (12) (15) Kenneth L. Abrams 3 PIVs $787.6 million $1,000,000 23 other accounts $1,846.3 million (for 2 RICs and 1 other account(c)) -------------------------- ------------------------ ----------------- --------------- ------------ --------------- Wellington: Daniel J. 4 RICs $1,640.9 million None Fitzpatrick 3 PIVs $787.6 million 16 other accounts $1,830.2 million (for 2 RICs and 1 other account(c)) - ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- Small Cap Value Royce: Jay S. Kaplan 6 RICs $7 billion None (15) (18) -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- Goldman: Eileen Rominger 20 RICs $11.1 billion None (11) (19), (20) 2 PIVs $31.0 million 280 other accounts $5.41 billion -------------------------- Goldman: Dolores Bamford -------------------------- Goldman: David Berdon -------------------------- Goldman: Lisa Parisi -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- Goldman: J. Kelly Flynn 20 RICs $2.83 billion None (11) (19), (20) 2 PIVs $31.0 million 6 other accounts $634.0 million -------------------------- Goldman: Chip Otness -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- Donald Smith: Donald G. 2 RICs $0.786 billion None (16) (21) Smith 1 PIV $0.171 billion 23 other accounts $1.807 billion -------------------------- Donald Smith: Richard L. Greenberg -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- Franklin Portfolio 6 RICs (with 14 total $13.5 billion None (17) (22) Associates: John S. Cone portfolios) 4 PIVs $0.7 billion 82 other accounts $14.3 billion -------------------------- Franklin Portfolio Associates: Michael F. Dunn -------------------------- Franklin Portfolio Associates: Oliver E. Buckley -------------------------- Franklin Portfolio Associates: Kristin J. Crawford -------------------------- Franklin Portfolio Associates: Langton Garvin -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- BHMS: James S. McClure 3 RICs $392.0 million None (18) (23) 16 other accounts $569.8 million -------------------------- BHMS: John P. Harloe - ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Statement of Additional Information - Oct. 3, 2005 Page 95
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Fund Potential Structure of Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation Fund Shares of Interest - ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Approximate Total Net Assets Number and type of (excluding account the fund) - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Scott Kirby 11 RICs $9.3 billion $10,001 - (2) (4) Mortgage 7 PIVs $2.6 billion $50,000 46 other accounts $22.9 billion (for 3 RICs and 1 other account(c)) - ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- Value Lord, Abbett: Eli M. 14 RICs $23,867.2 None (14) (17) Salzmann 11 PIVs million 53,962 other accounts $756.2 million (for 1 other $18,554.4 account(c)) million -------------------------- Lord, Abbett: Sholom Dinsky - ------------------------------------------------------------------------------------------------------------------------------------ For funds with fiscal period ending June 30 - ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- California Dave Kerwin 9 RICs $5.84 billion None (2) (4) Tax-Exempt 0 PIVs 18 other accounts $7.46 billion - ----------------- --------------- Insured None Tax-Exempt - ----------------- --------------- Massachusetts None Tax-Exempt - ----------------- --------------- Michigan None Tax-Exempt - ----------------- --------------- Minnesota $50,001 - Tax-Exempt $100,000 - ----------------- --------------- New-York None Tax-Exempt - ----------------- --------------- Ohio None Tax-Exempt - ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- Dividend Warren Spitz 5 RICs(c) $8.1 billion Over (2) (3) Opportunity 2 PIVs 0.22 billion $1,000,000 0 other accounts -------------------------- --------------- Steve Schroll $100,001 - $500,000 -------------------------- --------------- Laton Spahr $10,001 - $50,000 - ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- Real Estate Julene Melquist None $0 None (2), (3) (5) -------------------------- J. Blair Brumley - ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- For funds with fiscal period ending July 31 - ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- Core Bond Tom Murphy 8 RICs(h) $6.87 billion $10,001-$50,000 (2) (4) 3 PIVs $1.28 billion 25 other accounts(g) $21.02 billion -------------------------- ------------------------ ----------------- --------------- Jamie Jackson 12 RICs(h) $9.16 billion $10,001-$50,000 6 PIVs $3.14 billion 31 other accounts(g), $5.88 billion (i) -------------------------- ------------------------ ----------------- --------------- Scott Kirby 11 RICs(h) $9.14 billion $10,001-$50,000 7 PIVs $2.71 billion 48 other accounts(g), $23.49 billion (i) - ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ---------------- Disciplined Dimitris Bertsimas 4 RICs(c) $1.74 billion None (2) (3), (10) Equity 1 PIVs $11.7 million 13 other accounts(g) $84.8 million -------------------------- ------------------------ ----------------- --------------- Gina Mourtzinou 2 RICs(c) $1.63 billion $50,001-$100,000 1 PIVs $11.7 million 13 other accounts(g) $84.8 million - ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Statement of Additional Information - Oct. 3, 2005 Page 96
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Fund Potential Structure of Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation Fund Shares of Interest - ----------------- -------------------------- ------------------------------------------ --------------- ------------ --------------- Approximate Total Net Assets Number and type of (excluding account the fund) - ------------------------------------------------------------------------------------------------------------------------------------ Discovery Lord Abbett: 3 RICs $1,031 million None (14) (17) Michael Smith 0 PIVs 9 other accounts $600.03 million -------------------------- ------------------------ ----------------- --------------- ----------- --------------- American Century: 14 RICs $9.97 billion None (9) (12) William Martin 0 PIVs 2 other accounts $302.8 million -------------------------- ------------------------ ----------------- American Century: 5 RICs $2.48 billion None Wilhelmine von Turk 0 PIVs 2 other accounts $302.8 million -------------------------- ------------------------ ----------------- American Century: 13 RICs $9.39 billion Thomas Vaiana 0 PIVs None 2 other accounts $302.8 million -------------------------- ------------------------ ----------------- --------------- ----------- --------------- Wellington: 4 RICs* $1,710 million* None (12) (15) Kenneth Abrams 3 PIV $841.2 million 23 other accounts** $1,999.7 million -------------------------- ------------------------ ----------------- --------------- Wellington: 4 RICs* $1,710 million* None Daniel Fitzpatrick 3 PIV $841.2 million 16 other accounts** $1,983.4 million** - ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- --------------- Growth Nick Thakore 4 RICs(c) $3.43 billion $100,001- (20) (24) 2 PIVs $244.06 million $500,000 0 other accounts - ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- --------------- Income Brian Lavin 1 RIC $40.83 million $50,001- (2) (4) Opportunities 1 PIV $50.11 million $100,000 0 other accounts -------------------------- ------------------------ ----------------- --------------- Jennifer Ponce de Leon 5 RICs $7.93 billion $50,001- 1 PIV $50.11 million $100,000 10 other accounts $2.44 billion - ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- --------------- Inflation Jamie Jackson 12 RICs(h) $9.13 billion $10,001-$50,000 (2) (4) Protected 6 PIVs $3.14 billion Securities 31 other account(g), $5.88 billion (i) - ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- --------------- Large Cap Equity Nick Thakore 5 RICs(c) $6.56 billion $100,001- (20) (24) 2 PIVs $244.05 million $500,000 0 other accounts -------------------------- ------------------------ ----------------- --------------- Bob Ewing 6 RICs(c) $5.7. billion $100,001- 2 PIVs $244.05 million $500,000 1 other account $12.04 million - ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- --------------- Large Cap Value Bob Ewing 6 RICs(c) $7.11. billion $500,001- (20) (24) 2 PIVs $244.05 million $1,000,000 1 other account $12.04 million - ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- --------------- Limited Duration Tom Murphy 8 RICs(h) $6.85 billion $10,001-$50,000 (2) (4) Bond 3 PIVs $1.28 billion 25 other accounts $21.02 billion -------------------------- ------------------------ ----------------- --------------- Jamie Jackson 12 RICs(h) $9.15 billion $10,001-$50,000 6 PIVs $3.14 billion 48 other accounts(g), (i) $5.88 billion -------------------------- ------------------------ ----------------- --------------- Scott Kirby 11 RICs(h) $9.12 billion $10,001-$50,000 7 PIVs $2.72 billion 48 other accounts(g), $23.49 billion (i) - ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- --------------- New Dimensions Gordon Fines 1 RIC(c) $2.32 billion Over (2) (25) 2 PIVs $145.9 million $1,000,000 7 other accounts $1.72 billion -------------------------- ------------------------ ----------------- --------------- Michael Nance 1 RIC(c) $2.32 billion None 1 PIV $51.35 million 13 other accounts(g) $304.2 million -------------------------- ------------------------ ----------------- --------------- ----------- --------------- Trisha Schuster 1 RIC(c) $2.32 billion $10,001-$50,000 (2), (3) (26) 0 PIVs 0 other accounts - ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- ---------------
Statement of Additional Information - Oct. 3, 2005 Page 97 * Includes 2 accounts where advisory fee is based on account performance with approximately $1,491.2 million in total net assets as of July 31, 2005. ** Includes 1 account where advisory fee is based on account performance with approximately $300.2 million in total net assets as of July 31, 2005. (a) Mr. Bergene has overall accountability for the group that monitors the subadvisers for RiverSource funds and for making recommendations to the Boards of Directors on changes to those subadvisers. (b) Ms. Keeley, who serves as Senior Vice President, Fixed Income for RiverSource Investments, and Mr. Truscott, who serves as Chief Investment Officer for RiverSource Investments, oversee the portfolio managers who manage other accounts for RiverSource Investments, including the underlying funds in which the Funds of Funds invest, and other accounts managed by RiverSource Investments and its affiliates including institutional assets, proprietary assets and hedge funds. (c) The advisory fee paid is based in part on the performance of the fund or account. (d) Effective May 30, 2005, John Seabern is the sole portfolio manager of the portion of the fund managed by RSIM. (e) Neither Christopher Davis nor Kenneth Feinberg own any shares of Fundamental Value Fund. However, both portfolio managers have over $1 million invested in the Davis Funds, which are managed in a similar style. (f) Represents the portion of assets for which the portfolio manager has primary responsibility in the accounts indicated. The accounts may contain additional assets under the primary responsibility of other portfolio managers. (g) Reflects each wrap program strategy as a single client, rather than counting each participant in the program as a separate client. (h) The advisory fee paid to RiverSource Investments on 3 of the RICs with approximately $643.57 million as of July 31, 2005 in aggregate net assets is based in part on performance. Messrs. Murphy, Jackson and Kirby manage the fixed income portion of those 3 RICs. (i) The advisory fee paid to RiverSource Investments on 1 of the other accounts is based in part on performance. As of July 31, 2005, Mr. Jackson managed $0.21 million of that account, and Mr. Kirby managed $82.58 million of that account. Potential Conflicts of Interest (1) Management of Funds-of-Funds differs from that of the other RiverSource funds. The portfolio management process is set forth generally below and in more detail in the funds' prospectus. Management of the portfolios is based on initial asset class guidance provided by the Capital Markets Committee, a group of RiverSource Investments investment professionals, and subsequent allocation determinations by the Asset Allocation Committee and Fund Selection Committee within established guidelines set forth in the prospectus. The Asset Allocation Committee, comprised of portfolio managers Joy, Keeley and Truscott, determines each funds-of-fund's allocation among the three main asset classes (equity, fixed income and cash) and allocation among investment categories within each asset class. The Fund Selection Committee, comprised portfolio managers Bergene, Joy, Keeley and Truscott, determines each funds-of-fund's allocation among the underlying funds. These allocation determinations are reviewed by the Asset Allocation Committee and Fund Selection Committee at least quarterly. Because of the structure of the funds-of-funds, the potential conflicts of interest for the portfolio managers may be different than the potential conflicts of interest for portfolio managers who manage other funds. These potential conflicts of interest include: o The portfolio managers of the underlying funds are under the supervision of portfolio managers Keeley and Truscott. Keeley and Truscott may have influence over the management of the underlying funds through their supervision of the underlying funds' portfolio managers and/or through their ability, as part of the Asset Allocation Committee and Fund Selection Committee, to influence the allocation of funds-of-funds assets to or away from the underlying funds. o Portfolio managers Joy, Keeley and Truscott also serve as members of the Capital Markets Committee. As described above, the Capital Markets Committee provides initial guidance with respect to asset allocation, and its view may play a significant role in the asset class determinations made by the Asset Allocation Committee and, as a result, in the underlying fund determinations made by the Fund Selection Committee. Statement of Additional Information - Oct. 3, 2005 Page 98 (2) RiverSource Investments portfolio managers may manage one or more mutual fund as well as other types of accounts, including proprietary accounts, separate accounts for institutions and individuals, and other pooled investment vehicles. Portfolio managers make investment decisions for an account or portfolio based on its investment objectives and policies, and other relevant investment considerations. A portfolio manager may manage a separate account or other pooled investment vehicles whose fees may be materially greater than the management fees paid by the fund and may include a performance-based fee. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of trades. RiverSource Investments has a fiduciary responsibility to all of the clients for which it manages accounts. RiverSource Investments seeks to provide best execution for all securities transactions and to aggregate securities transactions and then allocate securities to client accounts in a fair and timely manner. RiverSource Investments has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. (3) The portfolio manager's responsibilities also include working as a securities analyst. This dual role may give rise to conflicts with respect to making investment decisions for accounts that the portfolio manager manages versus communicating his or her analyses to other portfolio managers concerning securities that he or she follows as an analyst. (4) Whenever a portfolio manager manages multiple accounts, potential conflicts of interest exist, including potential conflicts between the investment strategy of each account and the investment strategy of the other accounts and potential conflicts in the allocation of investment opportunities among the accounts. In addition, in certain instances, a portfolio manager may take conflicting positions in a particular security. For example, a portfolio manager may sell short a security for one account that another account holds long, or may take a long position in a security for one account that the portfolio manager has sold short for another account. RSIM seeks to identify potential conflicts of interest resulting from a portfolio manager's management of multiple accounts, and has adopted policies and procedures, including a Code of Ethics, designed to address such conflicts. RSIM and each of the portfolio managers attempt to resolve any conflicts in a manner that is generally fair over time to all of its clients. RSIM may give advice and take actions with respect to any of its clients that may differ from advice given or the timing or nature of action taken with respect to any particular account so long as it is RSIM's policy, to the extent practicable, to allocate investment opportunities over time on a fair and equitable basis relative to other accounts. It is RSIM's policy that when the amount of securities of a particular issuer available to RSIM's client accounts in an initial public offering is insufficient to meet the requirements of each account for which a portfolio manager has determined that the purchase of such securities is appropriate, RSIM generally will allocate those securities among those accounts based on the size of each account as of the close of business on the preceding day. It is also RSIM's policy that it may aggregate sale and purchase orders of securities for accounts with similar orders being made simultaneously for other clients if, in RSIM's reasonable judgment, such aggregation is reasonably likely to result generally in lower per-share brokerage commission costs. In many instances, the purchase or sale of securities for accounts will be effected simultaneously with the purchase or sale of like securities for other accounts. Such transactions may be made at slightly different prices, due to the volume of securities purchased or sold. In such event, each client may be charged or credited, as the case may be, the average transaction price of all securities purchased or sold in such transaction. As a result, however, the price may be less favorable to a client than it would be if similar transactions were not being executed concurrently for other accounts. Statement of Additional Information - Oct. 3, 2005 Page 99 (5) As is typical for many money managers, potential conflicts of interest may arise related to (a) Turner's management of accounts including the Fund where not all accounts are able to participate in a desired IPO, or other limited opportunity, (b) the use of soft dollars and other brokerage practices, (c) the voting of proxies, (d) employee personal securities trading, (e) the side by side management of accounts with performance based fees and (f) accounts with fixed fees, and relating to a variety of other circumstances. In all cases, Turner believes it has written policies and procedures in place reasonably designed to prevent violations of the federal securities laws and to prevent material conflicts of interest from arising. Please see Turner's Form ADV, Part II for a description of some of its policies and procedures in this regard. (6) BB&A is a subadviser and adviser to other accounts whose investment focus may be similar to those of the fund. BB&A currently has the capacity to manage the fund and these other accounts, and the performance of the fund should not be adversely affected. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of trades. BB&A endeavors at all times to manage all accounts in a fair and equitable manner by maintaining policies and procedures relating to allocation and brokerage practices. The Investment Policy Committee plans to manage mutual funds, separate accounts, wrap accounts and subadvised accounts so as not to exceed BB&A's ability to actively and proficiently manage all accounts. (7) The management of the fund and other accounts could result in potential conflicts of interest if the fund and other accounts have different objectives, benchmarks, and fees because the portfolio manager and his team must allocate time and investment expertise across multiple accounts, including the fund. The portfolio managers and their team manage the fund and other accounts utilizing a model portfolio approach that groups similar accounts within a model portfolio. UBS manages accounts according to the appropriate model portfolio, including where possible, those accounts that have specific investment restrictions. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across accounts, which may minimize the potential for conflicts of interest. If a portfolio manager identifies a limited investment opportunity that may be suitable for more than one account or model portfolio, the fund may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible model portfolios and accounts. To deal with these situations, UBS has adopted procedures for allocating portfolio trades across multiple accounts to provide fair treatment to all accounts. The management of personal accounts by a portfolio manager may also give rise to potential conflicts of interest. UBS and the fund have adopted Codes of Ethics that govern personal trading but there is no assurance that the Codes will adequately address all such conflicts. (8) Kenwood is an affiliate of Ameriprise Financial. The potential conflicts, responsibilities, policies and procedures described in paragraph (2) also apply to Kenwood. (9) Certain conflicts of interest may arise in connection with the management of multiple portfolios. Potential conflicts include, for example, conflicts among investment strategies and conflicts in the allocation of investment opportunities. American Century has adopted policies and procedures that are designed to minimize the effects of these conflicts. Responsibility for managing American Century client portfolios is organized according to investment discipline. Investment disciplines include, for example, quantitative equity, small- and mid-cap growth, large-cap growth, value, international, fixed income, asset allocation, and sector funds. Within each discipline are one or more portfolio teams responsible for managing specific client portfolios. Generally, client portfolios with similar strategies are managed by the same team using the same objective, approach, and philosophy. Accordingly, portfolio holdings, position sizes, Statement of Additional Information - Oct. 3, 2005 Page 100 and industry and sector exposures tend to be similar across similar portfolios, which minimizes the potential for conflicts of interest. For each investment strategy, one portfolio is generally designated as the "policy portfolio." Other portfolios with similar investment objectives, guidelines and restrictions are referred to as "tracking portfolios." When managing policy and tracking portfolios, a portfolio team typically purchases and sells securities across all portfolios that the team manages. American Century's trading systems include various order entry programs that assist in the management of multiple portfolios, such as the ability to purchase or sell the same relative amount of one security across several funds. In some cases a tracking portfolio may have additional restrictions or limitations that cause it to be managed separately from the policy portfolio. Portfolio managers make purchase and sale decisions for such portfolios alongside the policy portfolio to the extent the overlap is appropriate, and separately, if the overlap is not. American Century may aggregate orders to purchase or sell the same security for multiple portfolios when it believes such aggregation is consistent with its duty to seek best execution on behalf of its clients. Orders of certain client portfolios may, by investment restriction or otherwise, be determined not available for aggregation. American Century has adopted policies and procedures to minimize the risk that a client portfolio could be systematically advantaged or disadvantaged in connection with the aggregation of orders. To the extent equity trades are aggregated, shares purchased or sold are generally allocated to the participating portfolios pro rata based on order size. Because initial public offerings (IPOs) are usually available in limited supply and in amounts too small to permit across-the-board pro rata allocations, American Century has adopted special procedures designed to promote a fair and equitable allocation of IPO securities among clients over time. Fixed income securities transactions are not executed through a centralized trading desk. Instead, portfolio teams are responsible for executing trades with broker/dealers in a predominantly dealer marketplace. Trade allocation decisions are made by the portfolio manager at the time of trade execution and orders entered on the fixed income order management system. Finally, investment of American Century's corporate assets in proprietary accounts may raise additional conflicts of interest. To mitigate these potential conflicts of interest, American Century has adopted policies and procedures intended to provide that trading in proprietary accounts is performed in a manner that does not give improper advantage to American Century to the detriment of client portfolios. (10) Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one portfolio or other account. More specifically, portfolio managers who manage multiple portfolios and /or other accounts are presented with the following potential conflicts: o The management of multiple portfolios and/or other accounts may result in a portfolio manager devoting unequal time and attention to the management of each portfolio and/or other account. Davis Advisors seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment models that are used in connection with the management of the portfolios. o If a portfolio manager identifies a limited investment opportunity which may be suitable for more than one portfolio or other account, a portfolio may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible portfolios and other accounts. To deal with these situations, Davis Advisors has adopted procedures for allocating portfolio transactions across multiple accounts. Statement of Additional Information - Oct. 3, 2005 Page 101 o With respect to securities transactions for the portfolios, Davis Advisors determines which broker to use to execute each order, consistent with its duty to seek best execution of the transaction. However, with respect to certain other accounts (such as mutual funds, other pooled investment vehicles that are not registered mutual funds, and other accounts managed for organizations and individuals), Davis Advisors may be limited by the client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. In these cases, Davis Advisors may place separate, non-simultaneous, transactions for a portfolio and another account which may temporarily affect the market price of the security or the execution of the transaction, or both, to the detriment of the portfolio or the other account. o Finally, substantial investment of Davis Advisor or Davis Family assets in certain mutual funds may lead to conflicts of interest. To mitigate these potential conflicts of interest, Davis Advisors has adopted policies and procedures intended to ensure that all clients are treated fairly over time. Davis Advisors does not receive an incentive based fee on any account. (11) GSAM's portfolio managers are often responsible for managing one or more funds as well as other accounts, including proprietary accounts, separate accounts and other pooled investment vehicles, such as unregistered hedge funds. A portfolio manager may manage a separate account or other pooled investment vehicle which may have materially higher fee arrangements than the fund and may also have a performance-based fee. The side-by-side management of these funds may raise potential conflicts of interest relating to cross trading, the allocation of investment opportunities and the aggregation and allocation of trades. GSAM has a fiduciary responsibility to manage all client accounts in a fair and equitable manner. It seeks to provide best execution of all securities transactions and aggregate and then allocate securities to client accounts in a fair and timely manner. To this end, GSAM has developed policies and procedures designed to mitigate and manage the potential conflicts of interest that may arise from side-by-side management. In addition, GSAM has adopted policies limiting the circumstances under which cross-trades may be effected between a fund and another client account. GSAM conducts periodic reviews of trades for consistency with these policies. Due to GSAM's internal policies, GSAM portfolio managers are generally prohibited from purchasing shares of sub-advised funds for which they have primary responsibility. (12) Individual investment professionals at Wellington Management manage multiple portfolios for multiple clients. These accounts may include mutual funds, separate accounts (assets managed on behalf of institutions such as pension funds, insurance companies, foundations), bank common trust accounts, and hedge funds. The investment professionals generally manage portfolios in several different investment styles. These portfolios may have investment objectives, strategies, time horizons, tax considerations and risk profiles that differ from those of the relevant fund. The Investment Professionals make investment decisions for the relevant fund based on the investment objectives, policies, practices, benchmarks, cash flows, tax and other relevant investment considerations applicable to that portfolio. Consequently, the Investment Professionals may purchase or sell securities, including IPOs, for one portfolio and not another portfolio, and the performance of securities purchased for the relevant fund may vary from the performance of securities purchased for other portfolios. The Investment Professionals or other investment professionals at Wellington Management may place transactions on behalf of other accounts that are directly or indirectly contrary to investment decisions made on behalf of the relevant fund, or make investment decisions that are similar to those made for the relevant fund, both of which have the potential to adversely impact the fund depending on market conditions. For example, the Investment Professionals may purchase a security in one portfolio while appropriately selling that same security in another portfolio. In addition, some of these portfolios have fee structures, including performance fees, that are or have the potential to be higher, in some cases significantly higher, than the fees paid by the relevant fund to Wellington Management. Because incentive payments are tied to revenues Statement of Additional Information - Oct. 3, 2005 Page 102 earned by Wellington Management, and where noted, to the performance achieved by the manager in each account, the incentives associated with any given fund may be significantly higher or lower than those associated with other accounts managed by a given Investment Professional. Wellington Management's goal is to meet its fiduciary obligation to treat all clients fairly and provide high quality investment services to all of its clients. Wellington Management has adopted and implemented policies and procedures, including brokerage and trade allocation policies and procedures that it believes address the conflicts associated with managing multiple accounts for multiple clients. In addition, Wellington Management monitors a variety of areas, including compliance with primary fund guidelines, the allocation of initial public offerings, and compliance with the firm's Code of Ethics, and places additional investment restrictions on Portfolio Managers who manage hedge funds and certain other accounts. Furthermore, senior investment and business personnel at Wellington Management periodically review the performance of Wellington Management's Investment Professionals. Although Wellington Management does not track the time an Investment Professional spends on a single portfolio, Wellington Management does periodically assess whether an Investment Professional has adequate time and resources to effectively manage the Investment Professional's various client mandates. (13) Actual or apparent conflicts of interest may arise when the portfolio manager also has day-to-day management responsibilities with respect to one or more other accounts. These potential conflicts include: Allocation of Limited Time and Attention. Because the portfolio manager manages many accounts, he may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as if he were to devote substantially more attention to the management of only a few accounts. Allocation of Limited Investment Opportunities. If the portfolio manager identifies an investment opportunity that may be suitable for multiple accounts, the Fund may not be able to take full advantage of that opportunity because the opportunity may need to be allocated among all or many of these accounts or other accounts managed primarily by other portfolio managers of the GAMCO Asset Management, Inc. (GAMCO) and its affiliates. GAMCO does business under the name Gabelli Asset Management Company. Pursuit of Differing Strategies. At times, the portfolio manager may determine that an investment opportunity may be appropriate for only some of the accounts for which he exercises investment responsibility, or may decide that certain of these accounts should take differing positions with respect to a particular security. In these cases, the portfolio manager may execute differing or opposite transactions for one or more accounts, which may affect the market price of the security or the execution of the transactions, or both, to the detriment of one or more of his accounts. Selection of Broker/Dealers. Because of the portfolio manager's position with Gabelli & Company, Inc., an affiliate of GAMCO that is a registered broker-dealer, and his indirect majority ownership interest in Gabelli & Company, Inc., he may have an incentive to use Gabelli & Company, Inc. to execute portfolio transactions for the Fund even if using Gabelli & Company, Inc. is not in the best interest of the fund. Variation in Compensation. A conflict of interest may arise where the financial or other benefits available to the portfolio manager differ among the accounts that he manages. If the structure of GAMCO's management fee or the portfolio manager's compensation differs among accounts (such as where certain funds or accounts pay higher management fees or performance-based management fees), the portfolio manager may be motivated to favor certain funds or accounts over others. The portfolio manager also may be motivated to favor funds or accounts in which he has an investment interest, or in which GAMCO or its affiliates have investment interests. In Mr. Gabelli's case, GAMCO's Statement of Additional Information - Oct. 3, 2005 Page 103 compensation (and expenses) for the Fund are marginally greater as a percentage of assets than for certain other accounts and are less than for certain other accounts managed by Mr. Gabelli, while his personal compensation structure varies with near-term performance to a greater degree in certain performance fee based accounts than with nonperformance based accounts. In addition, he has investment interests in several of the funds managed by GAMCO and its affiliates. GAMCO and the Fund have adopted compliance policies and procedures that are designed to address the various conflicts of interest that may arise for GAMCO and its staff members. However, there is no guarantee that such policies and procedures will be able to detect and address every situation in which an actual or potential conflict may arise. (14) Conflicts of interest may arise in connection with the investment manager's management of the investments of the relevant fund and the investments of the other accounts. Such conflicts may arise with respect to the allocation of investment opportunities among the relevant fund and other accounts with similar investment objectives and policies. An investment manager potentially could use information concerning a fund's transactions to the advantage of other accounts and to the detriment of the relevant. To address potential conflicts of interest that may arise in connection with the investment managers' management of the investments of the relevant fund and the investments of other accounts, Lord Abbett has adopted and implemented a number of policies and procedures. Lord Abbett has adopted Policies and Procedures for Evaluating Best Execution of Equity Transactions, as well as Trading Practices/Best Execution Procedures. The objective of these policies and procedures is to ensure the fair and equitable treatment of transactions and allocation of investment opportunities on behalf of all accounts managed by Lord Abbett. In addition, Lord Abbett's Code of Ethics sets forth general principles for the conduct of employee personal securities transactions in a manner that avoids any actual or potential conflicts of interest with the interest of Lord Abbett's clients including the relevant fund. Moreover, Lord Abbett's Statement of Policy and Procedures on Receipt and Use of Inside Information sets forth procedures for personnel to follow when they have inside information. Lord Abbett is not affiliated with a full service broker-dealer and therefore does not execute any fund transactions through such an entity, a structure that could give rise to additional conflict. Lord Abbett does not conduct any investment bank functions and does not manage any hedge funds. Lord Abbett does not believe that any material conflicts of interest exist in connection with the investment managers' management of the investments of the relevant fund and the investments of other accounts. (15) The fact that Mr. Kaplan has day-to-day management responsibility for more than one client account may create actual, potential or only apparent conflicts of interest. For example, Mr. Kaplan may have an opportunity to purchase securities of limited availability. In this circumstance, Mr. Kaplan is expected to review each account's investment guidelines, restrictions, tax considerations, cash balances, liquidity needs and other factors to determine the suitability of the investment for each account and to ensure that his managed accounts are treated equitably. Mr. Kaplan may also decide to purchase or sell the same security for multiple managed accounts at approximately the same time. To address any conflicts that this situation may create, Mr. Kaplan will generally combine managed account orders (i.e., enter a "bunched" order) in an effort to obtain best execution or a more favorable commission rate. In addition, if orders to buy or sell a security for multiple accounts managed by Mr. Kaplan on the same day are executed at different prices or commission rates, the transactions will generally be allocated by Royce to each of such managed accounts at the weighted average execution price and commission. In circumstances where a bunched order is not completely filled, each account will normally receive a pro-rata portion of the securities based upon the account's level of participation in the order. Royce may under certain circumstances allocate securities in a manner other than pro-rata if it determines that the allocation is fair and equitable under the circumstances and does not discriminate against any account. Statement of Additional Information - Oct. 3, 2005 Page 104 (16) Donald Smith & Co., Inc. is very sensitive to conflicts of interest that could possibly arise in its capacity of serving as an investment adviser. It remains committed to resolving any and all conflicts in the best interest of its clients. Donald Smith & Co., Inc. is an independent investment advisor with no parent or subsidiary organizations. Additionally, it has no affiliated organizations, brokerage, nor any investment banking activities. Clients include mutual funds, public and corporate pension plans, endowments and foundations, and other separate accounts. Donald Smith & Co., Inc. has put in place systems, policies and procedures, which have been designed to maintain fairness in portfolio management across all clients. Potential conflicts between funds or with other types of accounts are managed via allocation policies and procedures, internal review processes, and direct oversight by Donald G. Smith, President. (17) Portfolio Managers at Franklin Portfolio Associates (FPA) may manage one or more mutual funds as well as other types of accounts, including proprietary accounts, separate accounts for institutions and individuals, and other pooled investment vehicles. Portfolio managers make investment decisions for an account or portfolio based on its investment objectives and policies, and other relevant investment considerations. A portfolio manager may manage a separate account or other pooled investment vehicle whose fees may be materially greater than the management fees paid by Small Cap Value Fund and may include a performance-based fee. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of trades. FPA has a fiduciary responsibility to all of the clients for which it manages accounts. FPA seeks to provide best execution of all securities transactions and to aggregate securities transactions and then allocate securities to client accounts in a fair and timely manner. FPA has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. (18) BHMS's portfolio managers manage one or more mutual funds as well as other types of accounts, such as separate accounts for institutions and individuals, and other pooled investment vehicles. Portfolio managers make investment decisions for an account or portfolio based on its investment objectives and policies, and other relevant investment considerations. (19) BHMS has a fiduciary responsibility to all of the clients for which it manages accounts. BHMS seeks to provide best execution of all securities transactions and to aggregate securities transactions and then allocate securities to client accounts in a fair and timely manner. BHMS has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. All clients are managed identically whether BHMS receives an asset based fee, a performance based fee or a combination of the two. All client accounts are treated equally as all purchases and sales of securities are aggregated. (20) RiverSource Investments portfolio managers may manage one or more mutual funds as well as other types of accounts, including hedge funds, proprietary accounts, separate accounts for institutions and individuals, and other pooled investment vehicles. Portfolio managers make investment decisions for an account or portfolio based on its investment objectives and policies, and other relevant investment considerations. A portfolio manager may manage a separate account or other pooled investment vehicle whose fees may be materially greater than the management fees paid by the Fund and may include a performance-based fee. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of trades. In addition, RiverSource Investments monitors a variety of areas (e.g., allocation of investment opportunities) and compliance with the firm's Code of Ethics, Statement of Additional Information - Oct. 3, 2005 Page 105 and places additional investment restrictions on portfolio managers who manage hedge funds and certain other accounts. RiverSource Investments has a fiduciary responsibility to all of the clients for which it manages accounts. RiverSource Investments seeks to provide best execution of all securities transactions and to aggregate securities transactions and then allocate securities to client accounts in a fair and timely manner. RiverSource Investments has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. Structure of Compensation (1) The compensation of RiverSource Investments employees consists of (i) a base salary, (ii) an annual cash bonus, and (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual cash bonus is based on management's assessment of the employee's performance relative to individual and business unit goals and objectives which, for portfolio managers Joy, Keeley and Truscott, may be based, in part, on achieving certain investment performance goals and retaining and attracting assets under management, and for portfolio manager Bergene, on developing competitive products, managing existing products, and selecting and monitoring subadvisers for RiverSource funds. In addition, subject to certain vesting requirements, the compensation of portfolio managers Joy, Keeley and Truscott, includes an annual award based on the performance of AEFC's parent company and certain of its affiliates over rolling three-year periods. RiverSource Investments' portfolio managers are provided with a benefit package including life insurance, health insurance and participation in the company's 401(k) plan comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments' portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (2) The compensation of RiverSource Investments employees consists of (i) a base salary, and (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program. The portfolio manager's annual bonus is based on (i) the fund's assets, (ii) the fund's short-term and long-term tracking error compared to the benchmark index and (iii) the tracking error of two other index funds managed by the portfolio manager compared to the relevant index. Effective Jan. 1, 2005, the portfolio manager's annual bonus will be based on the foregoing factors as well as the performance of other accounts that he manages. RiverSource Investments' portfolio managers are provided benefits packages including life insurance, health insurance and participation in the company's 401(k) plan comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments' portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (3) The portfolio manager's compensation as a RiverSource Investments employee consists of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and (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 both mutual fund and institutional portfolio performance. Funding for the bonus pool is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the Fund, and by the short term (typically one-year) and long-term (typically three year) performance of those accounts in relation to the relevant peer groups. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the bonus pool and to determine the exact amount of each portfolio manager's bonus based on his/her performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in the company's 401(k) plan, comparable to that received by other RiverSource Investments employees. Depending upon their job level, Statement of Additional Information - Oct. 3, 2005 Page 106 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. (4) The portfolio manager's compensation as a RiverSource Investments employee consists of (i) a base salary, (ii) an annual cash bonus, and (iii) an equity incentive award in the form of stock options and/or restricted stock. An annual bonus is paid from a team bonus pool that is based on both mutual fund and institutional portfolio performance. Funding for the bonus pool is determined by the aggregate market competitive bonus targets for the team of which the portfolio manager is a member and by the short-term (typically one year) and long-term (typically three year) performance of the accounts compared to applicable benchmarks. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the bonus pool and to determine the exact amount of the portfolio manager's bonus based on his/her performance as an employee. RiverSource Investments' portfolio managers are provided with a benefits package including life insurance, health insurance and participation in the company's 401(k) plan comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments' portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (5) The portfolio manager's compensation as a RiverSource Investments employee consists of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and (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 both mutual fund and institutional portfolio performance. Funding for the bonus pool is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the Fund, plus a percentage of the assets of the funds they support as research analysts, and by the short-term (typically one year) and long-term (typically three year) performance of those accounts in relation to the relevant peer groups. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the bonus pool and to determine the exact amount of each portfolio manager's bonus based on his performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in company 401(k) plan, comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (6) RSIM is an employee-owned investment firm. The firm has two separate investment advisory operating divisions, each with separate compensation and profit sharing structures. Each of the firm's portfolio managers is part of the Growth Group or the Value Group. Messrs. Wallace and Seabern are members of the Growth Group (the "Group"). In establishing salaries and bonuses, RSIM considers information regarding industry compensation levels, which is prepared by a leading consulting firm. RSIM sets salary and bonus levels by reference to other investment firms investing in similar categories. In consultation with RSIM's Co-Chief Executive Officers, the leaders of the Group, who include Mr. Wallace, determined all salaries and bonuses for the Group for the fiscal year ended Dec. 31, 2004. Salaries were based on industry standards, as described above. Bonuses within the Group were based on a number of factors, including (1) pre-tax investment performance for each account managed by a portfolio manager against a relevant peer group over one-and three-year periods, with an emphasis on the most recent one-year period, and (2) experience. Assets under management did not directly affect any individual's salary or bonus, although the amount of the Group's assets under management affected the fee revenue attributable to the Group, which in turn affected the maximum amount of money available for the Group's aggregate salaries and bonuses. In addition, the Group's portfolio managers participated in the profits of the Group based on their profit sharing percentages. The Group's leaders, in consultation with RSIM's Co-Chief Executive Officers, set these percentages at the beginning of each year based on a number of factors, including tenure, assets under management, long-term investment performance (compared to appropriate Statement of Additional Information - Oct. 3, 2005 Page 107 benchmarks), and overall contribution to the Group's investment process. Some of the Group's portfolio managers also have an equity interest in RS Investments and so participate in overall firm profits in addition to Group profits. (7) Turner's investment professionals receive a base salary commensurate with their level of experience. Turner's goal is to maintain competitive base salaries through review of industry standards, market conditions, and salary surveys. Bonus compensation, which is a multiple of base salary, is computed annually based on the one year performance of each individual's sector and portfolio assignments relative to appropriate market benchmarks. In addition, each employee is eligible for equity ownership and equity owners share the firm's profits. Most of the members of the Investment Team and all Portfolio Managers are equity owners of Turner. This compensation and ownership structure provides incentives to attract and retain highly qualified people, as each member of the firm has the opportunity to share directly in the accomplishments of the business. The objective performance criteria noted above accounts for 90% of the bonus calculation. The remaining 10% is based upon subjective, "good will" factors including teamwork, interpersonal relations, the individual's contribution to overall success of the firm, media and client relations, presentation skills, and professional development. Portfolio managers/analysts are reviewed on an annual basis. The Chief Investment Officer is responsible for setting base salaries, bonus targets, and making all subjective judgments related to an investment professional's compensation. The CIO is also responsible for identifying investment professionals who should be considered for equity ownership on an annual basis. (8) BB&A compensates its investment professionals with salaries, year-end profit sharing, bonuses, account retention commissions, and incentive bonuses based upon account performance. Salaries are competitive with industry standards. Account management commissions are a specific percentage of the account fees paid to the portfolio account manager(s) while the manager and account are still with the firm. Performance bonuses are paid as a specific percentage of the account fees to the portfolio manager(s) when that account's annual returns occur in the top quartile of the returns achieved by other managers having the same investment objective as the subject product. (9) The compensation received by portfolio managers at UBS includes a base salary and incentive compensation based on their personal performance. UBS's compensation and benefits programs are designed to provide its investment professionals with incentives to excel, and to promote an entrepreneurial, performance-oriented culture. They also align the interests of the investment professionals with the interests of UBS's clients. Overall compensation can be grouped into four categories: 1) Competitive salary, benchmarked to maintain competitive compensation opportunities; 2) Annual bonus, tied to individual contributions and investment performance; 3) UBS equity awards, promoting company-wide success and employee retention; 4) Partnership Incentive Program (PIP), a phantom-equity-like program for key senior staff. The base salary is used to recognize the experience, skills and knowledge that the investment professionals bring to their roles. Salary levels are monitored and adjusted periodically in order to remain competitive within the investment management industry. Annual bonuses are strictly and rigorously correlated with performance. As such, annual incentives can be highly variable, and are based on three components: 1) the firm's overall business success; 2) the performance of the respective asset class and/or investment mandate; and 3) an individual's specific contribution to the firm's results. UBS strongly believes that tying bonuses to both long-term (3-year) and shorter-term (1-year) portfolio performance closely aligns the investment professionals' interests with those of UBS's clients. Senior investment professionals, such as Messrs. Graham and Wabnik, may receive a portion of their annual performance-based incentive in the form of deferred or restricted UBS AG shares or employee stock options. UBS believes that this reinforces the critical importance of creating long-term business value and also serves as an effective retention tool as the equity shares typically vest over a number of years. Broader equity share ownership is encouraged for all employees through "Equity Plus". This long-term incentive program gives employees the Statement of Additional Information - Oct. 3, 2005 Page 108 opportunity to purchase UBS stock with after-tax funds from their bonus or salary. Two UBS stock options are given for each share acquired and held for two years. UBS feels this engages its employees as partners in the firm's success, and helps to maximize its integrated business strategy. (10) Funding for bonuses is also based on certain activities of the team in developing technology tools that can be used in RiverSource Investments' asset management business. (11) Messrs. Hurwitz and Kelley are both equity owners of Kenwood. Their compensation consists of a salary, plus a pro rata share of the annual net earnings of Kenwood, some of which derives from fees paid by the fund. Messrs. Hurwitz and Kelley are provided with a benefits package, including life insurance, health insurance, and participation in a company 401(k) plan, comparable to that received by other employees of Kenwood. Messrs. Hurwitz and Kelley are also eligible for certain benefits that are available to all equity owners of Kenwood. (12) The compensation of American Century's portfolio managers is structured to align the interests of portfolio managers with those of the shareholders whose assets they manage. It includes the components described below, each of which is determined with reference to a number of factors, such as overall performance, market competition, and internal equity. Compensation is not directly tied to the value of assets held in client portfolios. Base Salary Portfolio managers receive base pay in the form of a fixed annual salary. Bonus A significant portion of portfolio manager compensation takes the form of an annual incentive bonus tied to performance. Bonus payments are determined by a combination of factors. One factor is fund investment performance. For policy portfolios, investment performance is measured by a combination of one- and three-year pre-tax performance relative to a pre-established, internally-customized peer group and/or market benchmark. Custom peer groups are constructed using all the funds in appropriate Lipper or Morningstar categories as a starting point. Funds are then eliminated from the peer group based on a standardized methodology designed to result in a final peer group that more closely represents the fund's true peers based on internal investment mandates and that is more stable (i.e., has less peer turnover) over the long-term. In cases where a portfolio manager has responsibility for more than one policy portfolio, the performance of each is assigned a percentage weight commensurate with the portfolio manager's level of responsibility. With regard to tracking portfolios, investment performance may be measured in a number of ways. The performance of the tracking portfolio may be measured against a customized peer group and/or market benchmark as described above for policy portfolios. Alternatively, the tracking portfolio may be evaluated relative to the performance of its policy portfolio, with the goal of matching the policy portfolio's performance as closely as possible. This is the case for the Small Cap Equity Fund and Discovery Fund. In some cases, the performance of a tracking portfolio is not separately considered. Rather, the performance of the policy portfolio is the key metric. This is the case for the Aggressive Growth Fund. A second factor in the bonus calculation relates to the performance of all American Century funds managed according to a particular investment style, such as U.S. growth or value. Performance is measured for each product individually as described above and then combined to create an overall composite for the product group. These composites may measure one-year performance (equal weighted) or a combination of one- and three-year performance (asset weighted) depending on the portfolio manager's responsibilities and products managed. This feature is designed to encourage effective teamwork among portfolio management teams in achieving long-term investment success for similarly styled portfolios. Statement of Additional Information - Oct. 3, 2005 Page 109 A portion of some portfolio managers' bonuses may be tied to individual performance goals, such as research projects and the development of new products. Finally, portfolio manager bonuses may occasionally be affected by extraordinarily positive or negative financial performance by American Century Companies, Inc. (ACC), the advisor's privately-held parent company. This feature has been designed to maintain investment performance as the primary component of portfolio manager bonuses while also providing a link to the advisor's ability to pay. Restricted Stock Plans Portfolio managers are eligible for grants of restricted stock of ACC. These grants are discretionary, and eligibility and availability can vary from year to year. The size of an individual's grant is determined by individual and product performance as well as other product-specific considerations. Grants can appreciate/depreciate in value based on the performance of the ACC stock during the restriction period (generally three years). Deferred Compensation Plans Portfolio managers are eligible for grants of deferred compensation. These grants are used in very limited situations, primarily for retention purposes. Grants are fixed and can appreciate/depreciate in value based on the performance of the American Century mutual funds in which the portfolio manager chooses to invest them. (13) Kenneth Feinberg's compensation as a Davis Advisors employee consists of (i) a base salary, (ii) an annual bonus equal to a percentage of growth in Davis Advisors' profits, (iii) awards of equity ("Units") in Davis Advisors including Units, options on Units, and/or phantom Units, and (iv) an incentive plan whereby Davis Advisors purchases shares in selected funds managed by Davis Advisors. At the end of specified periods, generally five years following the date of purchase, some, all, or none of the fund shares will be registered in the employee's name based on fund performance after expenses on a pre-tax basis versus the S&P 500 Index and versus peer groups as defined by Morningstar or Lipper. Davis Advisors' portfolio managers are provided benefits packages including life insurance, health insurance, and participation in company 401(k) plan comparable to that received by other company employees. Christopher Davis's annual compensation as an employee and general partner of Davis Advisors consists of a base salary. Davis Advisors' portfolio managers are provided benefits packages including life insurance, health insurance, and participation in company 401(k) plan comparable to that received by other company employees. (14) GSAM and the GSAM Growth team's (the Growth Team) compensation package for its Portfolio Managers is comprised of a base salary and performance bonus. The performance bonus is first and foremost tied to the Growth Team's pre-tax performance for their clients and the Growth Team's total revenues for the past year, which in part is derived from advisory fees and for certain accounts, performance based fees. The Growth Team measures performance on a market cycle basis, which typically measures a three-to-seven year period, rather than being focusing on short-term gains in their strategies or short-term contributions from a Portfolio Manager in any given year. The performance bonus for Portfolio Managers is significantly influenced by the following criteria: (1) whether the team performed consistently with objectives and client commitments; (2) whether the team's performance exceeded performance benchmarks over a market cycle; (3) consistency of performance across accounts with similar profiles; and (4) communication with other Portfolio Managers within the research process. Benchmarks for measuring performance can be either broad-based or narrow-based indices, which will vary based on client expectations. The benchmark for the Fundamental Growth Fund is the Russell 1000 Growth Index. Statement of Additional Information - Oct. 3, 2005 Page 110 The Growth Team also considers each Portfolio Manager's individual performance, his or her contribution to the overall performance of the strategy long term, and his/her ability to work as a member of the Team. GSAM and the Growth Team's decision may also be influenced by the following: the performance of GSAM, the profitability of Goldman, Sachs & Co., and anticipated compensation levels among competitor firms. (15) Wellington Management's compensation structure is designed to attract and retain high-caliber investment professionals necessary to deliver high quality investment management services to its clients. Wellington Management's compensation of the investment professionals primarily responsible for the day-to-day management of the Fund includes a base salary and incentive components. The base salary for each investment professional who is a partner of Wellington Management is determined by the Managing Partners of the firm. A partner's base salary is generally a fixed amount that may change as a result of an annual review. The base salary for all other Investment Professionals is determined by the Investment Professional's experience and performance in their role as an Investment Professional. Base salaries for non-partners are reviewed annually and may be adjusted based on the recommendation of the Investment Professional's business manager, using guidelines established by Wellington Management's Compensation Committee, which has final oversight responsibility for base salaries for non-partners. Each Investment Professional is eligible to receive an incentive payment based on the revenues earned by Wellington Management from the fund managed by that Investment Professional and generally each other portfolio managed by such Investment Professional. Each Investment Professional's incentive payment relating to the fund is linked to the gross pre-tax performance of the fund compared to the appropriate benchmark or peer group over one and three year periods, with an emphasis on three year results. Wellington Management applies similar incentive structures (although the benchmarks or peer groups, time periods and rates may differ) to other portfolios managed by these Investment Professionals, including portfolios with performance fees. Portfolio-based incentives across all portfolios managed by an Investment Professional can, and typically do, represent a significant portion of an Investment Professional's overall compensation; incentive compensation varies significantly by individual and can vary significantly from year to year. Some Investment Professionals are also eligible for bonus payments based on their overall contribution to Wellington Management's business operations. Senior management at Wellington Management may reward individuals as it deems appropriate based on factors other than portfolio performance. Each partner of Wellington Management is also eligible to participate in a partner-funded retirement plan. Messrs. Abrams, Boselli and Shilling are partners of the firm. (16) Mr. Gabelli receives incentive-based variable compensation based on a percentage of net revenues received by GAMCO for managing Select Value Fund. Net revenues are determined by deducting from gross investment management fees paid by the Fund the firm's expenses (other than Mr. Gabelli's compensation) allocable to the Fund. Additionally, he receives similar incentive-based variable compensation for managing other accounts within the firm. This method of compensation is based on the premise that superior long-term performance in managing a portfolio should be rewarded with higher compensation as a result of growth of assets through appreciation and net investment activity. One of the other registered investment companies managed by Mr. Gabelli has a performance (fulcrum) fee arrangement for which his compensation is adjusted up or down based on the performance of the investment company relative to an index. Five closed-end registered investment companies managed by Mr. Gabelli have arrangements whereby GAMCO will receive only its investment advisory fee attributable to the liquidation value of outstanding preferred stock (and Mr. Gabelli would only receive his percentage of such advisory fee) if certain performance levels are met. Mr. Gabelli manages other accounts with performance fees. Compensation for managing these accounts has two components. One component of the fee is based on a percentage of net revenues received by GAMCO for managing the account. The second component is based on Statement of Additional Information - Oct. 3, 2005 Page 111 absolute performance of the account, with respect to which a percentage of such performance fee is paid to Mr. Gabelli. As an executive officer of the GAMCO parent company, Gabelli Asset Management Inc., Mr. Gabelli also receives ten percent of the net operating profits of the parent company. Mr. Gabelli receives no base salary, no annual bonus and no stock options. (17) Lord Abbett compensates its portfolio managers on the basis of salary, bonus and profit sharing plan contributions. Base salaries are assigned at a level that takes into account the portfolio manager's experience, reputation and competitive market rates. Fiscal year-end bonuses, which can be a substantial percentage of base level compensation, are determined after an evaluation of various factors. These factors include the portfolio manager's investment results and style consistency, the dispersion among funds with similar objectives, the risk taken to achieve the fund returns, the funds' size and cash flows, and similar factors. Investment results are evaluated based on an assessment of the portfolio manager's three- and five year investment returns on a pre-tax basis vs. both the appropriate style benchmarks and the appropriate peer group rankings. Finally, there is a component of the bonus that reflects leadership and management of the investment team. The evaluation does not follow a formulaic approach, but rather is reached following a review of these factors. No part of the bonus payment is based on the portfolio manager's assets under management, the revenues generated by those assets, or the profitability of the portfolio manager's unit. Lord Abbett does not manage hedge funds. Lord Abbett may designate a bonus payment to a manager for participation in the firm's senior incentive compensation plan, which provides for a deferred payout over a five-year period. The plan's earnings are based on the overall asset growth of the firm as a whole. Lord Abbett believes this incentive focuses portfolio managers on the impact their fund's performance has on the overall reputation of the firm as a whole and encourages exchanges of investment ideas among investment professionals managing different mandates. Lord Abbett provides a 401(k) profit-sharing plan for all eligible employees. Contributions to a portfolio manager's profit-sharing account are based on a percentage of the portfolio manager's total base and bonus paid during the fiscal year, subject to a specified maximum amount. The assets of this profit-sharing plan are entirely invested in Lord Abbett-sponsored funds. (18) Mr. Kaplan receives from Royce a base salary, a performance bonus, a "Partners Pool" participation based primarily on registered investment company and other client account revenues generated by Royce and a benefits package. Mr. Kaplan's compensation is reviewed and may be modified from time to time as appropriate to reflect changes in the market, as well as to adjust the factors used to determine bonuses. Base Salary - Mr. Kaplan is paid a base salary. In setting the base salary, Royce seeks to be competitive in light of Mr. Kaplan's experience and responsibilities. Performance Bonus - Mr. Kaplan receives a quarterly performance bonus that is revenue-based, and therefore in part is based on the value of the accounts' net assets, determined with reference to each of the registered investment company accounts he manages. For Mr. Kaplan, the revenue-based performance bonus applicable to the registered investment company accounts he manages is subject to upward or downward adjustment or elimination based on a combination of 3-year and 5-year risk-adjusted pre-tax returns of such accounts relative to all small-cap objective funds with three years of history tracked by Morningstar and the 5-year absolute returns of such accounts relative to 5-year U.S. Treasury Notes. Payment of the performance bonus may be deferred as described below, and any amounts deferred are forfeitable, if a portfolio manager is terminated by Royce with or without cause or resigns. The amount of the deferred performance bonus will appreciate or depreciate during the deferral period, based on the total return performance of one or more Royce registered investment company accounts selected by the portfolio manager at the beginning of the deferral period. The amount Statement of Additional Information - Oct. 3, 2005 Page 112 deferred will depend on the portfolio manager's total direct, indirect beneficial, and deferred unvested bonus investments in the Royce registered investment company account for which he is receiving portfolio management compensation. Partners Pool - Each portfolio manager, as well as other senior firm employees, participates in a quarterly pool relating to Royce's net operating revenues adjusted for some imputed expenses. A portion of this participation may be deferred for three years. The deferred portion is also forfeitable if the portfolio manager is terminated with or without cause or resigns, and appreciates or depreciates during the deferral period based on the total return of a basket of registered investment company accounts managed by Royce. Benefit Package - Each portfolio manager also receives benefits standard for all Royce employees, including health care and other insurance benefits, and participation in Royce's 401(k) Plan and Money Purchase Pension Plan. From time to time, on a purely discretionary basis, portfolio managers may also receive options to acquire stock in Royce's parent company, Legg Mason, Inc. Those options typically represent a small portion of a portfolio manager's overall compensation. (19) GSAM and the GSAM Value Team's (the Value Team) compensation package for its Portfolio Managers is comprised of a base salary and a performance bonus. The performance bonus is a function of each Portfolio Manager's individual performance and his or her contribution to overall team performance. Portfolio Managers are rewarded for their ability to outperform a benchmark while managing risk appropriately. Compensation is also influenced by the Value Team's total revenues for the past year, which in part is derived from advisory fees and for certain accounts, performance based fees. Anticipated compensation levels among competitor firms may also be considered, but is not a principal factor. The performance bonus is significantly influenced by a 3-year period of investment performance. The following criteria are considered: o Individual performance (relative, absolute) o Team Performance (relative, absolute) o Consistent performance that aligns with clients' objectives o Achievement of top rankings (relative and competitive) The investment performance mentioned above is considered only on a pre-tax basis. As it relates to relative performance, the benchmark for this Fund is the Russell 2000 Value Index. As mentioned above, performance is measured on a 3-year basis. (20) Other Compensation. GSAM offers a number of additional benefits/deferred compensation programs for all Portfolio Managers including (i) a 401(k) program that enables employees to direct a percentage of their pretax salary and bonus income into a tax-qualified retirement plan; (ii) a profit sharing program to which Goldman Sachs & Co. makes a pretax contribution; and (iii) investment opportunity programs in which certain professionals are eligible to participate subject to certain net worth requirements. Portfolio Managers may also receive grants of restricted stock units and/or stock options as part of their compensation. Certain GSAM Portfolio Managers may also participate in the firm's Partner Compensation Plan, which covers many of the firm's senior executives. In general, under the Partner Compensation Plan, participants receive a base salary and a bonus (which may be paid in cash or in the form of an equity-based award) that is linked to Goldman Sachs' overall financial performance. (21) The compensation for portfolio managers, analysts and traders at Donald Smith consists of a base salary, a partnership interest in the firm's profits, and possibly an additional, discretionary bonus. This discretionary bonus can exceed 100% of the base salary if performance for clients exceeds established benchmarks. The current benchmark utilized is the Russell 2000 Value Index. Additional distribution of firm ownership is a strong motivation for continued employment at Statement of Additional Information - Oct. 3, 2005 Page 113 Donald Smith & Co., Inc. Administrative personnel are also given a bonus as a function of their contribution and the profitability of the firm. (22) FPA's portfolio managers are encouraged and expected to work as a team. Compensation is commensurate with their performance and that of the firm. The percentage of compensation derived from base salary, bonus and other incentives varies widely across the firm and is dependent on the area of responsibility and seniority of the employee. FPA feels that the salary component of its compensation structure is competitive with other investment managers. All of our investment professionals participate in a deferred compensation arrangement; they receive a share of the firm's profits which are allocated to an account, payable at a future point in time, provided they remain with the firm. (23) In addition to base salary, all of BHMS's portfolio managers and analysts share in a bonus pool that is distributed semi-annually. The amount of bonus compensation is based on quantitative and qualitative factors. Analysts and portfolio managers are rated on the value that they add to the team-oriented investment process. Compensation is not tied to a published or private benchmark. It is important to understand that contributions to the overall investment process may include not recommending securities in an analyst's sector if there are no compelling opportunities in the industries covered by that analyst. In addition, many BHMS employees, including all portfolio managers and analysts, have equity ownership in the firm through "phantom stock" in BHMS, and participate in a long-term incentive plan with Old Mutual Asset Management (US), an affiliate of BHMS. Also, all partners of the firm receive, on a quarterly basis, a share of the firm's profits, which are, to a great extent, related to the performance of the entire investment team. (24) The portfolio manager's compensation as a RiverSource Investments employee consists of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and (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 mutual fund, institutional portfolio and hedge fund performance. With respect to mutual funds and institutional portfolios, funding for the bonus pool is determined by a percentage of the aggregate assets under management in these 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 groups. With respect to hedge funds, funding for the bonus pool is a percentage of performance fees earned on the hedge funds managed by the portfolio managers. The percentage of the hedge fund performance fees used to fund the bonus pool is determined annually based on the performance of the mutual funds managed by the portfolio managers. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the bonus pool and to determine the exact amount of each portfolio manager's bonus based on his performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in company 401(k) plan, comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (25) The portfolio manager's compensation as a RiverSource Investments employee consists of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and (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 both mutual fund and institutional portfolio performance. With respect to mutual funds, funding for the bonus pool is determined by a percentage of the aggregate assets under management in mutual funds managed by the portfolio managers, including the Fund, and by the short-term (typically one year) and long-term (typically Statement of Additional Information - Oct. 3, 2005 Page 114 three year) performance of those accounts in relation to the relevant peer groups and with respect to other accounts, by a percentage of management fees. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the bonus pool and to determine the exact amount of each portfolio manager's bonus based on his performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in company 401(k) plan, comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (26) The portfolio manager's compensation as a RiverSource Investments employee consists of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and (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 both mutual fund and institutional portfolio performance. With respect to mutual funds, funding for the bonus pool is determined by a percentage of the aggregate assets under management in mutual funds managed by the portfolio managers, including the Fund, plus a percentage of the assets of the funds they support as research analysts and by the short-term (typically one year) and long-term (typically three year) performance of those accounts in relation to the relevant peer groups and with respect to other accounts, by a percentage of management fees. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the bonus pool and to determine the exact amount of each portfolio manager's bonus based on his performance as an employee. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in company 401(k) plan, comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. Basis for Board approving investment advisory contract. Beginning in June 2005, the discussion regarding the basis for the Board's approval of the Investment Management Service Agreement and any subadvisory agreement is found in the fund's next annual or semiannual report following Board approval. For funds that have not yet issued an annual or semiannual report since June 2005, the following information is provided regarding contracts between the fund and the investment manager or its affiliates, including the investment advisory contract, that were renewed in April 2004, generally based on the data as of the end of calendar year 2003. In renewing the contracts, members of the contracts committee first reviewed detailed written reports prepared by the investment manager, then the reports were reviewed by all other Board members. The reports were presented in meetings at which Board members asked questions in order to further understand the data. In addition, data prepared by independent sources, including Lipper Inc. (detailed fund data) and Strategic Insight (industry trends) was considered. The Board obtained representations that it had received all the information that the investment manager believed was reasonably necessary to evaluate the terms of the contracts. The factors used by the Board the conclusions drawn are set forth below. The Board considered that: o The investment manager must provide those services necessary to effectively manage the fund's assets and to provide shareholders a range of investment options to meet long-term investment goals. These services include implementing investment decisions, managing cash flow, administering effective compliance programs, developing products, accessing distribution and operating processes to compute daily net assets and maintain financial records. The Board reviewed the services using surveys and benchmarks that are available from commercial providers, trade associations, and internal standards; compared those services with services required by other types of clients of the investment manager; and considered the allocation of costs among the Statement of Additional Information - Oct. 3, 2005 Page 115 services. Based on these comparisons the Board concluded that the services provided by the investment manager were those provided by other investment managers that offer mutual funds through personal investment advisers, the prices paid for the services were in line with those charged by these management companies, and the services are in the interest of shareholders. o The investment manager should be paid a fee that allows it to offer competitive compensation, make necessary investments and earn an appropriate profit. The Board considered the benefits derived by the investment manager from the use of commission dollars to buy services and from other business relationships with fund shareholders, compared publicly-available profitability reports of other investment managers, and concluded that the level of overall profitability in 2003 was appropriate in the short term though it may be too low on an ongoing basis. For funds with fiscal period ending September 30, 2004 Additionally for Diversified Equity Income The Board considered that: o Over time the investment manager's portfolio management team should achieve investment performance net of fees above the median of funds with the same investment goals. The fund's investment performance for the three-year period ended Dec. 31, 2003 was above the median of its Lipper competitive group. o The portfolio management team the investment manager has assigned to manage the fund should maintain a consistent investment style through a variety of market conditions. The performance record for one year, which is above median, is consistent with the expected results of that investment style in light of recent market conditions. o The investment manager must provide quality services at a fair price with shareholders benefiting from economies of scale as assets increase. To assist the Board in making an assessment, Lipper provided an analysis of a small comparison group comprised of funds substantially similar to the fund and a larger comparison group that excluded funds that differ significantly. The Board found that the graduated fee scale set a fair price that recognized the potential economies of scale. To the extent investment performance exceeded or failed to achieve the standard required by the performance incentive adjustment provision in the contract, the investment manager's fees were adjusted accordingly. The performance incentive adjustment for the period ended Dec. 31, 2003, resulted in an increase in the investment manager's investment management fee. Additionally for Strategic Allocation The Board considered that: o Over time the investment manager's portfolio management team should achieve investment performance net of fees above the median of funds with the same investment goals. The fund's investment performance for the period Dec. 19, 2002, through Dec. 31, 2003, which is the time the team has managed the fund, was below the median of its Lipper competitive group, and the investment manager's senior management is taking effective action to address the below median performance. o The portfolio management team the investment manager has assigned to manage the fund should maintain a consistent investment style through a variety of market conditions. The performance record for the one-year period, which is below median, is consistent with the expected results of that investment style in light of recent market conditions. o The investment manager must provide quality services at a fair price with shareholders benefiting from economies of scale as assets increase. To assist the Board in making an assessment, Lipper provided an analysis of a small comparison group comprised of funds substantially similar to the fund and a larger comparison group that excluded funds that differ significantly. The Board found that the graduated fee scale set a fair price that recognized the potential economies of scale. To the extent investment performance exceeded or failed to achieve the standard required by the performance incentive adjustment provision in the contract, the investment manager's fees were adjusted accordingly. The performance incentive adjustment for the period ended Dec. 31, 2003, resulted in a decrease in the investment manager's investment management fee. Statement of Additional Information - Oct. 3, 2005 Page 116 Additionally for Mid Cap Value The Board considered that: o Over time the investment manager's portfolio management team should achieve investment performance net of fees above the median of funds with the same investment goals. The fund's investment performance for the period Feb. 14, 2002 through Dec. 31, 2003, which is the time the team has managed the fund, was above the median of its Lipper competitive group. o The portfolio management team the investment manager has assigned to manage the fund should maintain a consistent investment style through a variety of market conditions. The performance record for the one-year period, which is above median, is consistent with the expected results of that investment style in light of recent market conditions. o The investment manager must provide quality services at a fair price with shareholders benefiting from economies of scale as assets increase. To assist the Board in making an assessment, Lipper provided an analysis of a small comparison group comprised of funds substantially similar to the fund and a larger comparison group that excluded funds that differ significantly. The Board found that the graduated fee scale set a fair price that recognized the potential economies of scale. To the extent investment performance exceeded or failed to achieve the standard required by the performance incentive adjustment provision in the contract, the investment manager's fees were adjusted accordingly. The performance incentive adjustment for the period ended Dec. 31, 2003, resulted in a decrease in the investment manager's investment management fee. Also, consistent with the investment manager's pricing philosophy, an expense cap has been established to limit expenses. Additionally for Balanced The Board considered that: o Over time the investment manager's portfolio management team should achieve investment performance net of fees above the median of funds with the same investment goals. The fund's investment performance for the period March 31, 2002 through Dec. 31, 2003, which is the time the team has managed the fund, was below the median of its Lipper competitive group, and the investment manager's senior management is taking effective action to address the below median performance. o The portfolio management team the investment manager has assigned to manage the fund should maintain a consistent investment style through a variety of market conditions. The performance record for the one-year period, which is above median, is consistent with the expected results of that investment style in light of recent market conditions. o The investment manager must provide quality services at a fair price with shareholders benefiting from economies of scale as assets increase. To assist the Board in making an assessment, Lipper provided an analysis of a small comparison group comprised of funds substantially similar to the fund and a larger comparison group that excluded funds that differ significantly. The Board found that the graduated fee scale set a fair price that recognized the potential economies of scale. To the extent investment performance exceeded or failed to achieve the standard required by the performance incentive adjustment provision in the contract, the investment manager's fees were adjusted accordingly. The performance incentive adjustment for the period ended Dec. 31, 2003, resulted in a decrease in the investment manager's investment management fee. Additionally for Stock The Board considered that: o Over time the investment manager's portfolio management team should achieve investment performance net of fees above the median of funds with the same investment goals. The fund's investment performance for the three-year period ended Dec. 31, 2003 was above the median of its Lipper competitive group. o The portfolio management team the investment manager has assigned to manage the fund should maintain a consistent investment style through a variety of market conditions. The performance record for the one-year period, which is above median, is consistent with the expected results of that investment style in light of recent market conditions. o The investment manager must provide quality services at a fair price with shareholders benefiting from economies of scale as assets increase. To assist the Board in making an assessment, Lipper provided an analysis of a small comparison group comprised of funds substantially similar to the fund and a larger comparison group that excluded funds that differ significantly. The Board found that the graduated fee scale set a fair price that recognized the potential economies of scale. To the extent investment performance exceeded or failed to achieve the standard required by the performance incentive adjustment provision in the contract, the investment manager's fees were adjusted accordingly. The performance incentive adjustment for the period ended Dec. 31, 2003, resulted in a decrease in the investment manager's investment management fee. For funds with fiscal period ending March 31, 2005 Additionally, for Precious Metals: The Board considered that o Over time the investment manager's portfolio management team should achieve investment performance net of fees above the median of funds with the same investment goals. The fund's investment performance for the three-year period ended Dec. 31, 2003, was below the median of its Lipper competitive group and the investment manager's senior management is taking action intended to address the below median performance. o The portfolio management team the investment manager has assigned to manage the fund should maintain a consistent investment style through a variety of market conditions. The performance record for one year, which is above median, is consistent with the expected results of that investment style in light of recent market conditions. Statement of Additional Information - Oct. 3, 2005 Page 117 o The investment manager must provide quality services at a fair price with shareholders benefiting from economies of scale as assets increase. To assist the Board in making an assessment, Lipper provided an analysis of a small comparison group comprised of funds substantially similar to the fund and a larger comparison group that excluded funds that differ significantly. The Board found that the graduated fee scale set a fair price that recognized the potential economies of scale. To the extent investment performance exceeded or failed to achieve the standard required by the performance incentive adjustment provision in the contract, the investment manager's fees were adjusted accordingly. The performance incentive adjustment for the period ended Dec. 31, 2003, resulted in an increase in the investment manager's investment management fee. Additionally for Equity Value: The Board considered that o Over time the investment manager's portfolio management team should achieve investment performance net of fees above the median of funds with the same investment goals. The fund's investment performance for the three-year period ended Dec. 31, 2003, was below the median of its Lipper competitive group and the investment manager's senior management is taking action intended to address the below median performance. o The portfolio management team the investment manager has assigned to manage the fund should maintain a consistent investment style through a variety of market conditions. The performance record for one year, which is above median, is consistent with the expected results of that investment style in light of recent market conditions. o The investment manager must provide quality services at a fair price with shareholders benefiting from economies of scale as assets increase. To assist the Board in making an assessment, Lipper provided an analysis of a small comparison group comprised of funds substantially similar to the fund and a larger comparison group that excluded funds that differ significantly. The Board found that the graduated fee scale set a fair price that recognized the potential economies of scale. To the extent investment performance exceeded or failed to achieve the standard required by the performance incentive adjustment provision in the contract, the investment manager's fees were adjusted accordingly. The performance incentive adjustment for the period ended Dec. 31, 2003, resulted in a decrease in the investment manager's investment management fee. Statement of Additional Information - Oct. 3, 2005 Page 118 Additionally for Small Cap Growth: The Board considered that o Over time the investment manager should select and manage subadviser so that the fund will achieve investment performance above the median of funds with the same investment goals. The fund's investment performance for the period Jan. 24, 2001 through Dec. 31, 2003, which is the time the team has managed the fund and since inception of the fund, was below the median of its Lipper competitive group and the investment manager's senior management is taking action intended to address the below median performance. o The portfolio management team the investment manager has assigned to manage the fund should maintain a consistent investment style through a variety of market conditions. The performance record for one year, which is slightly above median, is consistent with the expected results of that investment style in light of recent market conditions. o The investment manager must provide quality services at a fair price with shareholders benefiting from economies of scale as assets increase. To assist the Board in making an assessment, Lipper provided an analysis of a small comparison group comprised of funds substantially similar to the fund and a larger comparison group that excluded funds that differ significantly. The Board found that the graduated fee scale set a fair price that recognized the potential economies of scale. To the extent investment performance exceeded or failed to achieve the standard required by the performance incentive adjustment provision in the contract, the investment manager's fees were adjusted accordingly. The performance incentive adjustment for the period ended Dec. 31, 2003, resulted in a decrease in the investment manager's investment management fee. Also, consistent with the investment manager's pricing philosophy, an expense cap has been established to limit expenses. Additionally for Small Cap Advantage: The Board considered that o Over time the investment manager should select and manage subadviser so that the fund will achieve investment performance net of fees above the median of funds with the same investment goals. The fund's investment performance for the three-year period ended Dec. 31, 2003, was below the median of its Lipper competitive group and the investment manager's senior management is taking action intended to address the below median performance. o The portfolio management team the investment manager has assigned to manage the fund should maintain a consistent investment style through a variety of market conditions. The performance record for one year, which is above median, is consistent with the expected results of that investment style in light of recent market conditions. o The investment manager must provide quality services at a fair price with shareholders benefiting from economies of scale as assets increase. To assist the Board in making an assessment, Lipper provided an analysis of a small comparison group comprised of funds substantially similar to the fund and a larger comparison group that excluded funds that differ significantly. The Board found that the graduated fee scale set a fair price that recognized the potential economies of scale. To the extent investment performance exceeded or failed to achieve the standard required by the performance incentive adjustment provision in the contract, the investment manager's fees were adjusted accordingly. The performance incentive adjustment for the period ended Dec. 31, 2003, resulted in an increase in the investment manager's investment management fee. Additionally for Strategy Aggressive: The Board considered that o Over time the investment manager should select and manage subadviser so that the fund will achieve investment performance net of fees above the median of funds with the same investment goals. The fund's investment performance for the period June 30, 2002 through Dec. 31, 2003, which is the time the team has managed the fund, was below the median of its Lipper competitive group and the investment manager's senior management is taking action intended to address the below median performance. Statement of Additional Information - Oct. 3, 2005 Page 119 o The portfolio management team the investment manager has assigned to manage the fund should maintain a consistent investment style through a variety of market conditions. The performance record for one year, which is below median, is consistent with the expected results of that investment style in light of recent market conditions. o The investment manager must provide quality services at a fair price with shareholders benefiting from economies of scale as assets increase. To assist the Board in making an assessment, Lipper provided an analysis of a small comparison group comprised of funds substantially similar to the fund and a larger comparison group that excluded funds that differ significantly. The Board found that the graduated fee scale set a fair price that recognized the potential economies of scale. To the extent investment performance exceeded or failed to achieve the standard required by the performance incentive adjustment provision in the contract, the investment manager's fees were adjusted accordingly. The performance incentive adjustment for the period ended Dec. 31, 2003, resulted in a decrease in the investment manager's investment management fee. ADMINISTRATIVE SERVICES AGREEMENT 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 fee is calculated as follows:
Table 21. Administrative Services Agreement Fee Schedule* - --------------------------------------- --------------------------------------------------------------------------------------- Fund Asset Levels And Breakpoints In Applicable Fees - --------------------------------------- -------------- ----------------- ---------------- ------------------- ----------------- $0 - $500,000,001 - $1,000,000,001 $3,000,000,001 - $12,000,000,001 500,000,000 1,000,000,000 - 3,000,000,000 12,000,000,000 + - --------------------------------------- -------------- ----------------- ---------------- ------------------- ----------------- Discovery 0.080% 0.075% 0.070% 0.060% 0.050% Emerging Markets European Equity Global Balanced Global Bond Global Equity International Aggressive Growth International Equity International Opportunity International Select Value International Small Cap Partners Small Cap Value Small Cap Advantage Small Cap Equity Small Cap Growth Small Company Index Strategic Allocation - --------------------------------------- -------------- ----------------- ---------------- ------------------- ----------------- California Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040% Core Bond Diversified Bond High-Yield Bond Income Opportunities Inflation Protected Insured Tax-Exempt Intermediate Tax-Exempt Limited Duration Bond Massachusetts Tax-Exempt Michigan Tax-Exempt Minnesota Tax-Exempt New York Tax-Exempt Ohio Tax-Exempt Selective Short Duration U.S. Government Tax-Exempt Bond Tax-Exempt High Income U.S. Government Mortgage - --------------------------------------- -------------- ----------------- ---------------- ------------------- -----------------
Statement of Additional Information - Oct. 3, 2005 Page 120
- --------------------------------------- --------------------------------------------------------------------------------------- Fund Asset Levels And Breakpoints In Applicable Fees - --------------------------------------- -------------- ----------------- ---------------- ------------------- ----------------- $0 - $500,000,001 - $1,000,000,001 $3,000,000,001 - $12,000,000,001 500,000,000 1,000,000,000 - 3,000,000,000 12,000,000,000 + - --------------------------------------- -------------- ----------------- ---------------- ------------------- ----------------- Aggressive Growth 0.060% 0.055% 0.050% 0.040% 0.030% Balanced Cash Management Disciplined Equity Diversified Equity Dividend Opportunity Equity Value Fundamental Growth Fundamental Value Global Technology Growth Large Cap Equity Large Cap Value Mid Cap Growth Mid Cap Value New Dimensions Precious Metals Real Estate S&P 500 Index Select Value Stock Strategy Aggressive Tax-Exempt Money Market Value - --------------------------------------- -------------- ----------------- ---------------- ------------------- ----------------- Portfolio Builder Aggressive 0.020% 0.020% 0.020% 0.020% 0.020% Portfolio Builder Conservative Portfolio Builder Moderate Portfolio Builder Moderate Aggressive Portfolio Builder Moderate Conservative Portfolio Builder Total Equity - --------------------------------------- -------------- ----------------- ---------------- ------------------- -----------------
* The Administrative Services Agreement fee schedule changed, effective as of Oct. 1, 2005. The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding business day. Fees paid in each of the last three fiscal periods are shown in the table below. The table also shows the daily rate applied to each fund's net assets as of the last day of the most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Statement of Additional Information - Oct. 3, 2005 Page 121
Table 22. Administrative Fees - ------------------------------------------ ------------------------------------------------------- ------------------ Fund Daily rate Administrative services fees paid in applied to fund assets - ------------------------------------------ ------------------------------------------------------- ------------------ 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 - --------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 13,785 N/A N/A 0.020 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Portfolio Builder Conservative 5,969 N/A N/A 0.020 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Portfolio Builder Moderate 23,460 N/A N/A 0.020 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Portfolio Builder Moderate Aggressive 28,002 N/A N/A 0.020 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Portfolio Builder Moderate Conservative 10,779 N/A N/A 0.020 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Portfolio Builder Total Equity 10,959 N/A N/A 0.020 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Small Company Index 784,439 731,549 737,583 0.060 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ S&P 500 Index 319,791 324,551 213,950 0.080 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - --------------------------------------------------------------------------------------------------------------------- Equity Value 454,202 451,613 503,915 0.037 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Precious Metals 51,848 52,769 36,584 0.060 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Small Cap Advantage 491,869 371,247 295,220 0.054 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Small Cap Growth 224,042 218,131 162,755 0.080 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Strategy Aggressive 369,709 441,077 507,375 0.050 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - --------------------------------------------------------------------------------------------------------------------- Aggressive Growth 24,630 7,449 254(a) 0.060 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Fundamental Growth 31,978 6,428 259(a) 0.060 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Fundamental Value 458,121 271,928 168,023 0.058 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ High Yield Bond 1,219,476 1,227,227 1,034,060 0.046 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Select Value 427,460 240,301 94,457 0.058 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Selective 477,298 598,158 738,688 0.050 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Short Duration U.S. Government 960,018 1,317,413 1,421,675 0.048 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Small Cap Equity 129,820 88,061 32,020 0.080 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Small Cap Value 824,914 676,121 470,468 0.071 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ U.S. Government Mortgage 152,145 204,741 166,561 0.050 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Value 285,752 228,212 161,752 0.060 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - --------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 87,771 100,323 111,565 0.040 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Dividend Opportunity 406,110 415,515 457,055 0.037 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Insured Tax-Exempt 166,983 193,412 204,472 0.040 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Massachusetts Tax-Exempt 30,362 37,526 39,417 0.040 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Michigan Tax-Exempt 23,283 30,016 33,309 0.040 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Minnesota Tax-Exempt 163,503 176,718 182,304 0.038 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ New York Tax-Exempt 36,031 43,576 47,766 0.040 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Ohio Tax-Exempt 24,486 31,477 34,268 0.040 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Real Estate 41,449 2,235(b) N/A 0.050 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - --------------------------------------------------------------------------------------------------------------------- Cash Management 1,016,703 1,171,667 1,445,919 0.025 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Core Bond 78,241 38,539 2,965(c) 0.050 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Disciplined Equity 29,441 6,521 939 0.050 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Discovery 97,528 106,137 85,805 0.060 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Growth 1,370,094 1,523,915 1,469,076 0.045 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Income Opportunities 164,038 81,849 3,160(c) 0.050 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Inflation Protected Securities 61,197 6,834(d) N/A 0.050 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Large Cap Equity 860,387 212,114 27,560 0.048 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Large Cap Value 67,667 41,856 11,000 0.050 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Limited Duration Bond 88,881 53,771 3,184(c) 0.050 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ New Dimensions 4,756,123 5,561,820 5,277,428 0.035 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Statement of Additional Information - Oct. 3, 2005 Page 122
- ------------------------------------------ ------------------------------------------------------- ------------------ Fund Daily rate Administrative services fees paid in applied to fund assets - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - --------------------------------------------------------------------------------------------------------------------- Diversified Bond 1,460,195 1,674,570 1,778,050 0.045 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - --------------------------------------------------------------------------------------------------------------------- Balanced 588,644 610,513 797,157 0.039 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Diversified Equity Income 942,358 676,319 758,131 0.029 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Mid Cap Value 170,293 58,931 18,741 0.050 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Stock 789,200 768,983 958,744 0.033 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Strategic Allocation 390,084 381,033 465,436 0.038 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - --------------------------------------------------------------------------------------------------------------------- Emerging Markets 271,857 208,342 234,669 0.098 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ European Equity 78,835 82,084 116,212 0.060 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Global Balanced 59,047 56,559 71,921 0.060 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Global Bond 314,640 311,211 279,674 0.057 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Global Equity 284,795 304,662 463,678 0.058 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Global Technology 131,702 93,713 112,662 0.060 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ International Aggressive Growth 149,750 94,603 N/A 0.080 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ International Equity 88,536 38,014 N/A 0.080 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ International Opportunity 255,871 239,593 357,775 0.058 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ International Select Value 549,050 284,251 N/A 0.074 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ International Small Cap 46,103 13,092 N/A 0.080 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - --------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Bond 69,058 65,453 33,380 0.040 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Mid Cap Growth 1,056,445 868,316 805,649 0.047 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Tax-Exempt Bond 323,368 371,126 375,680 0.040 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Tax-Exempt High Income 1,447,459 1,546,469 1,631,443 0.032 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - --------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 45,528 60,388 61,883 0.030 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------
(a) For the period from April 24, 2003 (when shares became publicly available) to May 31, 2003. (b) For the period from March 4, 2004 (when shares became publicly available) to June 30, 2004. (c) For the period from June 19, 2003 (when shares became publicly available) to July 31, 2003. (d) For the period from March 4, 2004 (when shares became publicly available) to July 31, 2004. Third parties with which Ameriprise Financial contracts to provide services for the fund or its shareholders may pay a fee to Ameriprise Financial to help defray the cost of providing administrative and accounting services. The amount of any such fee is negotiated separately with each service provider and does not constitute compensation for investment advisory, distribution, or other services. Payment of any such fee neither increases nor reduces fees or expenses paid by shareholders of the fund. TRANSFER AGENCY AGREEMENT Each fund has a Transfer Agency Agreement with RiverSource Service Corporation located at 70100 Ameriprise Financial Center, Minneapolis, MN 55474. This agreement governs RiverSource Service Corporation's responsibility for administering and/or performing transfer agent functions, for acting as service agent in connection with dividend and distribution functions and for performing shareholder account administration agent functions in connection with the issuance, exchange and redemption or repurchase of the fund's shares. Under the agreement, RiverSource Service Corporation will earn a fee from the fund determined by multiplying the number of shareholder accounts at the end of the day by a rate determined for each class per year and dividing by the number of days in the year. The fee varies depending on the investment category of the fund. You can find your fund's investment category in Table 1. Statement of Additional Information - Oct. 3, 2005 Page 123 Balanced, Equity, Funds-of-Funds - Equity Funds The annual per account fee accrued daily and payable monthly, for the applicable classes is as follows:
Class A Class B Class C Class D Class E Class I Class Y ------- ------- ------- ------- ------- ------- ------- $19.50 $20.50 $20.00 $19.50 $19.50 $1.00 $17.50
Funds-of-Funds - Bond, State Tax-Exempt Bond, Taxable Bond, Tax-Exempt Bond Funds The annual per account fee accrued daily and payable monthly, for the applicable classes is as follows: Class A Class B Class C Class I Class Y ------- ------- ------- ------- ------- $20.50 $21.50 $21.00 $1.00 $18.50 Money Market Funds The annual per account fee accrued daily and payable monthly, for the applicable classes is as follows. The fee for Tax-Exempt Money Market, which does not have separate classes of shares, is the same as that applicable to Class A. Class A Class B Class C Class I Class Y ------- ------- ------- ------- ------- $22.00 $23.00 $22.50 $1.00 $20.00 In addition, an annual closed-account fee of $5.00 per inactive account may be charged on a pro rata basis from the date the account becomes inactive until the date the account is purged from the transfer agent system, generally within one year. The fees paid to RiverSource Service Corporation may be changed by the Board without shareholder approval. DISTRIBUTION AGREEMENT Ameriprise Financial Services, Inc., located at 70100 Ameriprise Financial Center, Minneapolis, MN 55474, is the funds' principal underwriter. Each fund's shares are offered on a continuous basis. Under a Distribution Agreement, sales charges deducted for distributing fund shares are paid to the Distributor daily. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Statement of Additional Information - Oct. 3, 2005 Page 124
Table 23. Sales Charges Paid to Distributor - ---------------------------------------- --------------------------------------- ------------------------------------------ Fund Sales charges paid to Distributor Amount retained after paying commissions and other expenses - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- 2005 2004 2003 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 - --------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive 2,689,735 N/A N/A 1,129,812 N/A N/A - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Portfolio Builder Conservative 722,689 N/A N/A 178,650 N/A N/A - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Portfolio Builder Moderate 3,810,185 N/A N/A 1,309,727 N/A N/A - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Portfolio Builder Moderate Aggressive 6,114,118 N/A N/A 2,610,071 N/A N/A - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Portfolio Builder Moderate Conservative 1,603,913 N/A N/A 530,042 N/A N/A - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Portfolio Builder Total Equity 1,393,255 N/A N/A 509,719 N/A N/A - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Small Company Index 1,511,932 1,717,480 2,281,660 554,278 485,006 379,830 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- S&P 500 Index N/A - No N/A N/A N/A N/A N/A sales charge - --------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - --------------------------------------------------------------------------------------------------------------------------- Equity Value 740,741 798,502 1,056,778 258,954 212,373 257,505 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Precious Metals 141,256 146,086 116,320 58,658 46,448 (25,993) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Small Cap Advantage 1,972,996 2,543,371 968,618 774,287 757,410 332,344 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Small Cap Growth 636,221 1,140,014 1,001,802 251,743 371,324 177,635 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Strategy Aggressive 595,175 873,773 1,249,906 241,030 296,244 439,236 - --------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - --------------------------------------------------------------------------------------------------------------------------- Aggressive Growth 165,878 131,508 2,319(a) 72,142 50,690 19,790(a) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Fundamental Growth 108,453 87,619 5,351(a) 42,738 18,759 (18,864)(a) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Fundamental Value 2,807,456 2,069,259 1,337,752 1,018,799 633,428 251,037 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- High Yield Bond 3,259,902 4,885,301 3,424,299 975,605 1,014,719 301,541 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Select Value 1,622,013 2,473,422 1,230,319 570,709 668,150 56,873 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Selective 588,090 1,034,975 1,444,382 284,661 429,635 232,740 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Short Duration U.S. Government 3,761,704 8,055,130 11,561,778 1,548,985 2,236,469 (2,552,775) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Small Cap Equity 521,747 687,100 317,549 185,766 199,371 9,860 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Small Cap Value 2,761,449 3,415,712 2,827,168 1,027,972 1,093,404 579,029 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- U.S. Government Mortgage 621,406 1,414,409 2,218,546 188,075 322,339 585,001 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Value 826,767 1,098,734 980,177 238,721 257,673 138,732 - --------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - --------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 217,494 246,897 369,212 109,849 96,481 147,346 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Dividend Opportunity 1,560,011 1,451,779 1,198,206 478,911 537,003 449,037 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Insured Tax-Exempt 302,210 567,873 739,237 94,572 182,980 (34,724) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Massachusetts Tax-Exempt 95,312 163,094 230,570 41,176 67,903 23,080 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Michigan Tax-Exempt 67,704 108,759 123,009 20,037 48,877 9,420 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Minnesota Tax-Exempt 459,091 645,851 658,737 137,046 225,724 43,189 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- New York Tax-Exempt 132,690 155,512 146,838 62,241 65,578 26,914 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Ohio Tax-Exempt 55,007 113,361 155,216 8,755 35,469 15,472 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Real Estate 556,057 224,344(b) N/A 223,164 95,933(b) N/A - --------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - --------------------------------------------------------------------------------------------------------------------------- Cash Management 748,512 1,556,245 2,570,091 746,839 1,554,374 2,568,224 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Core Bond 202,975 243,504 61,761(c) 86,520 169,705 (239,213) (c) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Disciplined Equity 125,953 64,957 15,207 46,636 13,620 (24,103) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Discovery 48,669 74,600 82,752 19,935 34,840 40,973 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Growth 3,363,143 5,194,048 5,319,830 1,253,105 1,979,434 1,703,248 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Income Opportunities 879,762 1,008,513 51,706(c) 190,393 268,488 (266,547) (c) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Inflation Protected Securities 421,889 218,847(d) N/A 76,043 45,591(d) N/A - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Large Cap Equity 1,699,188 2,547,239 592,326 609,407 711,343 76,721 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Large Cap Value 188,831 454,971 180,263 63,877 132,559 6,677 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Limited Duration Bond 389,542 423,604 64,991(c) 111,318 178,177 (268,630) (c) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- New Dimensions 11,509,625 18,985,816 20,406,015 4,338,161 6,850,376 454,955 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Statement of Additional Information - Oct. 3, 2005 Page 125
- ---------------------------------------- --------------------------------------- ------------------------------------------ Fund Sales charges paid to Distributor Amount retained after paying commissions and other expenses - ---------------------------------------- --------------------------------------- ------------------------------------------ 2004 2003 2002 2004 2003 2002 - --------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - --------------------------------------------------------------------------------------------------------------------------- Diversified Bond 3,926,269 5,046,003 6,081,163 1,516,544 722,797 (949,704) - --------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - --------------------------------------------------------------------------------------------------------------------------- Balanced 735,450 750,472 906,306 240,733 228,111 397,132 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Diversified Equity Income 10,301,867 3,604,654 5,283,451 2,933,886 1,012,358 744,874 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Mid Cap Value 2,377,837 655,293 498,784 837,278 149,937 (25,406) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Stock 831,538 980,709 1,308,555 329,906 337,309 445,629 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Strategic Allocation 989,579 847,194 877,280 316,545 223,952 295,874 - --------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - --------------------------------------------------------------------------------------------------------------------------- Emerging Markets 556,829 243,062 325,336 (6,660,972) (2,681,731) (4,049,970) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- European Equity 227,285 212,129 373,420 121,202 42,141 134,829 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Global Balanced 150,501 122,917 152,020 57,629 45,326 46,735 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Global Bond 956,580 1,009,917 515,760 536,364 537,388 274,717 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Global Equity 467,198 437,154 782,415 203,564 196,939 348,443 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Global Technology 591,744 543,360 717,011 208,704 150,041 262,977 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- International Aggressive Growth 796,060 528,748 N/A 360,944 194,832 N/A - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- International Equity 456,321 329,351 N/A 175,987 82,777 N/A - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- International Opportunity 997,517 274,577 428,744 371,845 104,589 89,051 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- International Select Value 3,105,887 1,896,607 N/A 1,220,539 527,546 N/A - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- International Small Cap 324,756 86,270 N/A 115,235 18,806 N/A - --------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - --------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Bond 306,545 611,983 366,668 86,091 100,008 (44,152) - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Mid Cap Growth 3,566,760 4,166,089 2,678,040 1,373,111 1,046,768 438,718 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Tax-Exempt Bond 495,541 740,644 814,931 197,028 233,789 169,809 - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- ------------- Tax-Exempt High Income 3,131,234 4,468,036 5,379,416 1,256,629 1,475,443 1,352,482 - --------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - --------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market N/A - No N/A N/A N/A N/A N/A sales charge - ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
(a) For the period from April 14, 2003 (when shares became publicly available) to May 31, 2003. (b) For the period from March 4, 2004 (when shares became publicly available to June 30, 2004. (c) For the period from June 19, 2003 (when shares became publicly available) to July 31, 2003. (d) For the period from March 4, 2004 (when shares became publicly available) to July 31, 2004. Part of the sales charge may be paid to selling dealers who have agreements with the distributor. The distributor will retain the balance of the sales charge. At times the entire sales charge may be paid to selling dealers. SHAREHOLDER SERVICE AGREEMENT For funds with Class Y shares, the fund pays the distributor a fee for service provided to shareholders by financial advisors and other servicing agents with respect to those shares. The fee is calculated at a rate of 0.10% of average daily net assets for Class Y. PLAN AND AGREEMENT OF DISTRIBUTION For funds other than money market funds To help defray the cost of distribution and servicing not covered by the sales charges received under the Distribution Agreement, each fund and the distributor entered into a Plan and Agreement of Distribution (Plan) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, of the type known as a reimbursement plan, the fund pays a fee up to actual expenses incurred at an annual rate as follows: The fee is based on the average daily net assets of the fund attributable to the applicable class: Class A Class B Class C Class D 0.25% 1.00% 1.00% 0.25% Statement of Additional Information - Oct. 3, 2005 Page 126 For Class B and Class C shares, up to 0.75% is reimbursed for distribution expenses. Up to an additional 0.25% is paid to the distributor to compensate the distributor, financial advisors and servicing agents for personal service to shareholders and maintenance of shareholder accounts. For money market funds The fee for services is equal on an annual basis to the following percentage of the average daily net assets of the fund attributable to the applicable class. The fee for Tax-Exempt Money Market, which does not have separate classes of shares, is the same as that applicable to Class A. Class A Class B 0.10% 0.85% For Class B shares, up to 0.75% is reimbursed for distribution expenses. Up to an additional 0.10% is paid to the distributor to compensate the distributor, financial advisors and servicing agents for personal service to shareholders and maintenance of shareholder accounts. Each class has exclusive voting rights on the Plan as it applies to that class. In addition, because Class B shares convert to Class A shares, Class B shareholders have the right to vote on any material increase to expenses charged under the Class A plan. Expenses covered under this Plan include sales commissions; business, employee and financial advisor expenses charged to distribution of shares; and overhead appropriately allocated to the sale of Class A, Class B, Class C and Class D shares, as applicable. These expenses also include costs of providing personal service to shareholders. A substantial portion of the costs are not specifically identified to any one of the RiverSource funds. The fee is not allocated to any one service (such as advertising, payments to underwriters, or other uses). However, a significant portion of the fee is generally used for sales and promotional expenses. The Plan must be approved annually by the Board, including a majority of the disinterested Board members, if it is to continue for more than a year. At least quarterly, the Board reviews written reports concerning the amounts expended under the Plan and the purposes for which such expenditures were made. The Plan and any agreement related to it may be terminated at any time by vote of a majority of Board members who are not interested persons of the fund and have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan, or by vote of a majority of the outstanding voting securities of the relevant class of shares or by the distributor. Any agreement related to the Plan will terminate in the event of its assignment, as that term is defined in the 1940 Act. The Plan may not be amended to increase the amount to be spent for distribution without shareholder approval, and all material amendments to the Plan must be approved by a majority of the Board members, including a majority of the Board members who are not interested persons of the fund and who do not have a financial interest in the operation of the Plan or any agreement related to it. The selection and nomination of disinterested Board members is the responsibility of the other disinterested Board members. No Board member who is not an interested person has any direct or indirect financial interest in the operation of the Plan or any related agreement. For its most recent fiscal period, each fund paid 12b-1 fees as shown in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Statement of Additional Information - Oct. 3, 2005 Page 127
Table 24. 12b-1 Fees - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Fund Class A Class B Class C Class D - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 - --------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive $131,509 $148,824 $14,167 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Portfolio Builder Conservative 47,394 90,296 18,476 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Portfolio Builder Moderate 207,226 306,025 37,943 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Portfolio Builder Moderate Aggressive 269,870 290,686 29,798 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Portfolio Builder Moderate Conservative 88,986 154,618 28,321 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Portfolio Builder Total Equity 103,536 123,254 10,069 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Small Company Index 1,997,297 4,471,167 N/A N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ S&P 500 Index N/A N/A N/A $169,434 - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - --------------------------------------------------------------------------------------------------------------------- Equity Value 2,181,335 2,942,254 34,607 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Precious Metals 162,502 190,923 17,490 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Small Cap Advantage 1,548,853 2,477,943 123,637 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Small Cap Growth 448,569 839,539 76,227 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Strategy Aggressive 1,298,856 1,840,696 21,193 N/A - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - --------------------------------------------------------------------------------------------------------------------- Aggressive Growth 53,023 48,357 3,331 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Fundamental Growth 41,230 53,576 2,998 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Fundamental Value 1,207,593 2,384,944 146,962 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ High Yield Bond 4,680,366 7,125,474 395,850 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Select Value 1,225,074 1,930,026 115,118 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Selective 1,638,968 1,516,008 49,992 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Short Duration U.S. Government 2,696,008 7,653,428 311,601 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Small Cap Equity 272,058 431,058 38,537 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Small Cap Value 1,851,124 3,558,899 222,997 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ U.S. Government Mortgage 427,918 1,109,871 125,193 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Value 678,394 1,516,583 96,685 N/A - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - --------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 483,557 182,416 33,536 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Dividend Opportunity 1,852,456 2,836,466 105,158 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Insured Tax-Exempt 859,029 502,493 65,596 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Massachusetts Tax-Exempt 147,943 186,463 14,622 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Michigan Tax-Exempt 136,742 59,822 18,779 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Minnesota Tax-Exempt 877,625 517,111 92,150 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ New York Tax-Exempt 196,842 120,762 16,217 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Ohio Tax-Exempt 136,871 84,836 21,311 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Real Estate 98,379 109,406 6,203 N/A - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - --------------------------------------------------------------------------------------------------------------------- Cash Management 3,303,424 1,141,431 20,261 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Core Bond 153,743 100,229 4,566 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Disciplined Equity 44,025 51,693 1,420 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Discovery 366,138 129,934 280 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Growth 5,058,973 5,641,889 128,612 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Income Opportunities 484,743 713,097 64,944 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Inflation Protected Securities 151,312 322,955 28,363 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Large Cap Equity 2,866,767 5,272,525 101,520 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Large Cap Value 183,291 277,867 14,213 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Limited Duration Bond 252,631 234,566 19,297 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ New Dimensions 20,565,923 24,839,333 559,396 N/A - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - --------------------------------------------------------------------------------------------------------------------- Diversified Bond 5,209,432 7,944,719 241,016 N/A - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - --------------------------------------------------------------------------------------------------------------------- Balanced 2,814,685 1,376,547 28,213 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Diversified Equity Income 5,224,755 8,381,118 317,426 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Mid Cap Value 549,492 998,282 49,648 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Stock 4,245,423 1,877,379 32,180 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Strategic Allocation 2,277,239 1,085,304 37,928 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Statement of Additional Information - Oct. 3, 2005 Page 128
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Fund Class A Class B Class C Class D - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Emerging Markets 438,042 756,560 9,336 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ European Equity 220,429 388,890 15,823 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Global Balanced 136,721 320,051 7,301 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Global Bond 952,565 1,560,487 50,444 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Global Equity 894,340 1,283,273 9,589 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Global Technology 375,071 644,615 42,622 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ International Aggressive Growth 332,586 423,534 25,270 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ International Equity 205,952 192,318 13,300 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ International Opportunity 773,809 795,312 13,470 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ International Select Value 1,251,975 1,947,966 101,585 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ International Small Cap 105,681 95,201 4,458 N/A - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - --------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Bond 326,960 258,071 107,144 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Mid Cap Growth 3,701,465 4,312,934 147,541 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Tax-Exempt Bond 1,800,449 429,863 52,734 N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------ Tax-Exempt High Income 10,363,982 2,912,090 293,295 N/A - --------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - --------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 143,129 N/A N/A N/A - ------------------------------------------ ----------------- ------------------ ------------------ ------------------
CUSTODIAN AGREEMENT Custody information varies depending on the fund's investment category. You can find your fund's investment category in Table 1. For Balanced, Equity, Funds-of-Funds, Taxable Money Market and Taxable Bond Funds other than Diversified Bond, High Yield Bond and Selective: 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. For State Tax-Exempt Bond, Tax-Exempt Bond and Tax-Exempt Money Market Funds, as well as Diversified Bond, High Yield Bond, and Selective: The fund's securities and cash are held by U.S. Bank National Association, 180 E. Fifth St., St. Paul, MN 55101-1631, 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. For all funds: The custodian may enter into a sub-custodian agreement with the Bank of New York, 90 Washington Street, New York, NY 10286. As part of this arrangement, securities purchased outside the United States are maintained in the custody of various foreign branches of Bank of New York or in other financial institutions as permitted by law and by the fund's sub-custodian agreement. Organizational Information Each fund is an open-end management investment company. The fund's headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268. SHARES The shares of a fund represent an interest in that fund's assets only (and profits or losses), and, in the event of liquidation, each share of a fund would have the same rights to dividends and assets as every other share of that fund. Statement of Additional Information - Oct. 3, 2005 Page 129 VOTING RIGHTS As a shareholder in a fund, you have voting rights over the fund's management and fundamental policies. You are entitled to vote based on your total dollar interest in the fund. Each class, if applicable, has exclusive voting rights with respect to matters for which separate class voting is appropriate under applicable law. All shares have cumulative voting rights with respect to the election of Board members. This means that you have as many votes as the dollar amount you own, including the fractional amount, multiplied by the number of members to be elected. DIVIDEND RIGHTS Dividends paid by a fund, if any, with respect to each applicable class of shares will be calculated in the same manner, at the same time, on the same day, and will be in the same amount, except for differences resulting from differences in fee structures.
Table 25. Fund History Table for All Publicly Offered RiverSource Funds - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Date of Date First Form of State of Fiscal Year Diversified Fund* Organization Offered to Organization Organization End Public - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ California Tax-Exempt Trust 4/7/86 Business MA 6/30 Trust(2) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ California Tax-Exempt Fund 8/18/86 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Dimensions Series, Inc 2/20/68, Corporation NV/MN 7/31 6/13/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ New Dimensions Fund 8/1/68 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Discovery Series, Inc. 4/29/81, Corporation NV/MN 7/31 6/13/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Core Bond Fund 6/19/03 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Discovery Fund 8/24/81 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Income Opportunities Fund 6/19/03 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Inflation Protected Securities Fund 3/4/04 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Limited Duration Bond Fund 6/19/03 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Equity Series, Inc. 3/18/57, Corporation NV/MN 11/30 6/13/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Mid Cap Growth Fund(7) 6/4/57 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Fixed Income Series, Inc. 6/27/74, Corporation NV/MN 8/31 6/31/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Diversified Bond Fund(3) 10/3/74 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Global Series, Inc. 10/28/88 Corporation MN 10/31 - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Emerging Markets Fund(6) 11/13/96 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Global Balanced Fund(6) 11/13/96 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Global Bond Fund 3/20/89 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Global Equity Fund(4),(6) 5/29/90 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Global Technology Fund 11/13/96 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Government Income Series, Inc. 3/12/85 Corporation MN 5/31 - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Short Duration U.S. Government Fund(3) 8/19/85 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ U.S. Government Mortgage Fund 2/14/02 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Growth Series, Inc. 5/21/70, Corporation NV/MN 7/31 6/13/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Disciplined Equity Fund(7) 4/24/03 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Growth Fund 3/1/72 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Large Cap Equity Fund 3/28/02 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Large Cap Value Fund 6/27/02 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ High Yield Income Series, Inc. 8/17/83 Corporation MN 5/31 - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ High Yield Bond Fund(3) 12/8/83 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ High Yield Tax-Exempt Series, Inc. 12/21/78; Corporation NV/MN 11/30 6/13/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Tax-Exempt High Income Fund(7) 5/7/79 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Income Series, Inc. 2/10/45; Corporation NV/MN 5/31 6/13/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Selective Fund 4/6/45 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 130
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Date of Date First Form of State of Fiscal Year Diversified Fund* Organization Offered to Organization Organization End Public - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ International Series, Inc. 7/18/84 Corporation MN 10/31 - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ European Equity Fund(6) 6/26/00 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ International Opportunity Fund(6), (7) 11/15/84 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Investment Series, Inc. 1/18/40; Corporation NV/MN 9/30 6/13/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Balanced Fund(7) 4/16/40 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Diversified Equity Income Fund 10/15/90 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Mid Cap Value Fund 2/14/02 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Managed Series, Inc. 10/9/84 Corporation MN 9/30 - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Strategic Allocation Fund(7) 1/23/85 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Market Advantage Series, Inc. 8/25/89 Corporation MN 1/31 - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Portfolio Builder Conservative Fund 3/4/04 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Portfolio Builder Moderate Conservative 3/4/04 No Fund - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Portfolio Builder Moderate Fund 3/4/04 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Portfolio Builder Moderate Aggressive 3/4/04 No Fund - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Portfolio Builder Aggressive Fund 3/4/04 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Portfolio Builder Total Equity Fund 3/4/04 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ S&P 500 Index Fund 10/25/99 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Small Company Index Fund 8/19/96 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Money Market Series, Inc. 8/22/75; Corporation NV/MN 7/31 6/13/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Cash Management Fund 10/6/75 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Partners Series, Inc. 3/20/01 Corporation MN 5/31 - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Aggressive Growth Fund 4/24/03 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Fundamental Growth Fund(7) 4/24/03 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Fundamental Value Fund 6/18/01 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Select Value Fund 3/8/02 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Small Cap Equity Fund(7) 3/8/02 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Small Cap Value Fund 6/18/01 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Value Fund 6/18/01 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Partners International Series, Inc. 5/9/01 Corporation MN 10/31 - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ International Aggressive Growth Fund 9/28/01 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ International Equity Fund(7) 10/3/02 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ International Select Value Fund 9/28/01 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ International Small Cap Fund 10/3/02 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Sector Series, Inc. 3/25/88 Corporation MN 6/30 - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Dividend Opportunity Fund(5) 8/1/88 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Real Estate Fund 3/4/04 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Selected Series, Inc. 10/5/84 Corporation MN 3/31 - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Precious Metals Fund 4/22/86 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Special Tax-Exempt Series Trust 4/7/86 Business MA 6/30 Trust(2) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Insured Tax-Exempt Fund 8/18/86 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Massachusetts Tax-Exempt Fund 7/2/87 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Michigan Tax-Exempt Fund 7/2/87 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Minnesota Tax-Exempt Fund 8/18/86 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ New York Tax-Exempt Fund 8/18/86 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Ohio Tax-Exempt Fund 7/2/87 No - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Stock Series, Inc. 2/10/45, Corporation NV/MN 9/30 6/13/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Stock Fund 4/6/45 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Strategy Series, Inc. 1/24/84 Corporation MN 3/31 - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Equity Value Fund 5/14/84 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Small Cap Growth Fund 1/24/01 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Small Cap Advantage Fund 5/4/99 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Strategy Aggressive Fund 5/14/84 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 131
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Date of Date First Form of State of Fiscal Year Diversified Fund* Organization Offered to Organization Organization End Public - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Tax-Exempt Series, Inc. 9/30/76, Corporation NV/MN 11/30 6/13/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Intermediate Tax-Exempt Fund 11/13/96 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Tax-Exempt Bond Fund 11/24/76 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Tax-Free Money Series, Inc. 2/29/80, Corporation NV/MN 12/31 6/13/86(1) - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------ Tax-Exempt Money Market Fund(7) 8/5/80 Yes - --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
* Effective Oct. 1, 2005 American Express Funds changed its name to RiverSource funds and the names Threadneedle and Partners were removed from fund names. (1) Date merged into a Minnesota corporation incorporated on April 7, 1986. (2) Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the trust itself is unable to meet its obligations. (3) Effective 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. (4) Effective Oct. 20, 2003, Global Growth Fund changed its name to Global Equity Fund. (5) Effective Feb. 18, 2004, Utilities Fund changed its name to Dividend Opportunity Fund. (6) Effective July 9, 2004, Emerging Markets Fund changed its name to Threadneedle Emerging Markets Fund, European Equity Fund changed its name to Threadneedle European Equity Fund, Global Balanced Fund changed its name to Threadneedle Global Balanced Fund, Global Equity Fund changed its name to Threadneedle Global Equity Fund, and International Fund changed its name to Threadneedle International Fund. (7) Effective Oct. 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. Statement of Additional Information - Oct. 3, 2005 Page 132 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 14 Master Trust portfolios and 90 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.
Table 26. Board Members Independent Board Members - ---------------------------- --------------------- -------------------------- ------------------------ -------------------- Name, address, age Position held with Principal occupation Other Committee Fund and length during past five years directorships memberships of service - ---------------------------- --------------------- -------------------------- ------------------------ -------------------- Arne H. Carlson Board member Chair, Board Services Joint Audit, 901 S. Marquette Ave. since 1999 Corporation (provides Contracts, Minneapolis, MN 55402 administrative services Executive, Age 71 to boards). Former Investment Review, Governor Board Effectiveness of Minnesota - ---------------------------- --------------------- -------------------------- ------------------------ -------------------- Philip J. Carroll, Jr. Board member Retired Chairman and Scottish Power PLC, Joint Audit, 901 S. Marquette Ave. since 2002 CEO, Fluor Corporation Vulcan Materials Executive, Minneapolis, MN 55402 (engineering and Company, Inc. Investment Review Age 67 construction) since 1998 (construction materials/chemicals) - ---------------------------- --------------------- -------------------------- ------------------------ -------------------- Patricia M. Flynn Board member Trustee Professor of Investment Review, 901 S. Marquette Ave. since 2004 Economics and Joint Audit Minneapolis, MN 55402 Management, Bentley Age 54 College; former Dean, McCallum Graduate School of Business, Bentley College - ---------------------------- --------------------- -------------------------- ------------------------ -------------------- Anne P. Jones Board member Attorney and Consultant Joint Audit, 901 S. Marquette Ave. since 1985 Board Minneapolis, MN 55402 Effectiveness, Age 70 Executive, Investment Review - ---------------------------- --------------------- -------------------------- ------------------------ -------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Valmont Industries, Contracts, 901 S. Marquette Ave. since 2002 Professor of Economics, Inc. (manufactures Investment Review, Minneapolis, MN 55402 Carleton College irrigation systems) Executive, Age 66 Board Effectiveness - ---------------------------- --------------------- -------------------------- ------------------------ -------------------- Catherine James Paglia Board member Director, Enterprise Strategic Contracts, 901 S. Marquette Ave. since 2004 Asset Management, Inc. Distribution, Inc. Investment Review Minneapolis, MN 55402 (private real estate and (transportation, Age 53 asset management distribution and company) since 1999 logistics consultants) - ---------------------------- --------------------- -------------------------- ------------------------ -------------------- Alan K. Simpson Board member Former three-term Investment Review, 1201 Sunshine Ave. since 1997 United States Senator Board Effectiveness Cody, WY 82414 for Wyoming Age 74 - ---------------------------- --------------------- -------------------------- ------------------------ -------------------- Alison Taunton-Rigby Board member Chief Executive Officer, Hybridon, Inc. Investment Review, 901 S. Marquette Ave. since 2002 RiboNovix, Inc. since (biotechnology) Contracts Minneapolis, MN 55402 2003 (biotechnology); Age 61 Former President, Forester Biotech - ---------------------------- --------------------- -------------------------- ------------------------ --------------------
Statement of Additional Information - Oct. 3, 2005 Page 133 Board Members Affiliated with Ameriprise Financial, Inc. (formerly AEFC)*
- ---------------------------------- ----------------- ------------------------------------- ----------------- ---------------- Name, address, age Position held Principal occupation Other Committee with Fund and during past five years directorships Memberships length of service - ---------------------------------- ----------------- ------------------------------------- ----------------- ---------------- William F. Truscott Board member Senior Vice President - Chief Investments 53600 Ameriprise Financial Center since 2001, Investment Officer of Ameriprise Minneapolis, MN 55474 Vice President Financial, Inc. and RiverSource Age 45 since 2002 Investments, LLC since 2001. Former Chief Investment Officer and Managing Director, Zurich Scudder - ---------------------------------- ----------------- ------------------------------------- ----------------- ----------------
* Interested person by reason of being an officer, director and/or employee of Ameriprise Financial, Inc. (formerly American Express Financial Corporation) or of RiverSource Investments, LLC, its wholly-owned subsidiary. The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is vice president, the fund's other officers are:
Table 27. Fund Officers - ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------ Name, address, age Position held Principal occupation Other Committee with Fund and during past five years directorships Memberships length of service - ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------ Jeffrey P. Fox Treasurer Vice President - Investment 105 Ameriprise Financial Center since 2002 Accounting, Ameriprise Financial, Minneapolis, MN 55474 Inc., since 2002; Vice President - Age 50 Finance, American Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 - ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------ Paula R. Meyer President Senior Vice President and General 596 Ameriprise Financial Center since 2002 Manager - Mutual Funds, Ameriprise Minneapolis, MN 55474 Financial, since 2002 and Senior Age 51 Vice President, RiverSource Investments, LLC since 2004; Vice President and Managing Director - American Express Funds, Ameriprise Financial, 2000-2002; Vice President, Ameriprise Financial, 1998-2000 - ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------ Leslie L. Ogg Vice President, President of Board Services 901 S. Marquette Ave. General Corporation Minneapolis, MN 55402 Counsel, and Age 67 Secretary since 1978 - ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------ Beth E. Weimer Chief Vice President and Chief Compliance 172 Ameriprise Financial Center Compliance Officer, Ameriprise Financial, Minneapolis, MN 55402 Officer since since 2001 and Chief Compliance Age 52 2004 Officer, RiverSource Investments, LLC since 2005; Vice President and Chief Compliance Officer, Ameriprise Financial Services (formerly American Express Financial Advisors), 2001-2005; Partner, Arthur Andersen Regulatory Risk Services, 1998-2001 - ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------
Responsibilities of Board with respect to fund management The Board initially approves an Investment Management Services Agreement and other contracts with RiverSource Investments and its affiliates, its subsidiaries, 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 Statement of Additional Information - Oct. 3, 2005 Page 134 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 RiverSource Investments' profitability in order to determine whether to continue existing contracts or negotiate new contracts. Several committees facilitate its work Executive Committee -- Acts for the Board between meetings of the Board. Joint Audit Committee -- Meets with the independent public accountant, internal auditors and corporate officers to review financial statements, reports, and compliance matters. Reports significant issues to the Board and makes recommendations to the independent directors regarding the selection of the independent public accountant. Investment Review Committee -- Considers investment management policies and strategies; investment performance; risk management techniques; and securities trading practices and reports areas of concern to the Board. Board Effectiveness Committee -- Recommends to the Board the size, structure and composition for the Board; the compensation to be paid to members of the Board; and a process for evaluating the Board's performance. The committee also reviews candidates for Board membership including candidates recommended by shareholders. To be considered, recommendations must include a curriculum vita and be mailed to the Chairman of the Board, RiverSource Funds, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268. Contracts Committee -- Receives and analyzes reports covering the level and quality of services provided under contracts with the fund and advises the Board regarding actions taken on these contracts during the annual review process. This table shows the number of times the committees met during each fund's most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
Table 28. Committee Meetings - -------------------------------------- -------------- -------------- --------------- ---------------- -------------- Fiscal Period Executive Joint Audit Investment Board Contracts Committee Committee Review Effectiveness Committee Committee Committee - -------------------------------------- -------------- -------------- --------------- ---------------- -------------- For funds with fiscal period ending 1 4 4 5 5 January 31 - -------------------------------------- -------------- -------------- --------------- ---------------- -------------- For funds with fiscal period ending 1 4 3 5 5 March 31 - -------------------------------------- -------------- -------------- --------------- ---------------- -------------- For funds with fiscal period ending 1 4 4 5 5 May 31 - -------------------------------------- -------------- -------------- --------------- ---------------- -------------- For funds with fiscal period ending 1 4 3 5 6 June 30 - -------------------------------------- -------------- -------------- --------------- ---------------- -------------- For funds with fiscal period ending 1 4 4 5 6 July 31 - -------------------------------------- -------------- -------------- --------------- ---------------- -------------- For funds with fiscal period ending 1 4 4 3 7 August 31 - -------------------------------------- -------------- -------------- --------------- ---------------- -------------- For funds with fiscal period ending 1 4 4 3 7 September 30 - -------------------------------------- -------------- -------------- --------------- ---------------- -------------- For funds with fiscal period ending 1 5 4 4 7 October 31 - -------------------------------------- -------------- -------------- --------------- ---------------- -------------- For funds with fiscal period ending 1 4 4 3 6 November 30 - -------------------------------------- -------------- -------------- --------------- ---------------- -------------- For funds with fiscal period ending 1 4 4 3 7 December 31 - -------------------------------------- -------------- -------------- --------------- ---------------- --------------
Statement of Additional Information - Oct. 3, 2005 Page 135 BOARD MEMBER HOLDINGS The following tables show the Board members' ownership of the funds. All funds. This table shows the dollar range of equity securities beneficially owned on Dec. 31, 2004 of all funds overseen by the Board member. Table 29. Board Member Holdings - All Funds Based on net asset values as of Dec. 31, 2004 - --------------------------- ---------------------------------------------------- Board member Aggregate dollar range of equity securities of all funds overseen by Board member - --------------------------- ---------------------------------------------------- Arne H. Carlson Over $100,000 - --------------------------- ---------------------------------------------------- Philip J. Carroll, Jr.* None - --------------------------- ---------------------------------------------------- Patricia M. Flynn $10,001 - $50,000 - --------------------------- ---------------------------------------------------- Anne P. Jones Over $100,000 - --------------------------- ---------------------------------------------------- Stephen R. Lewis, Jr.* $10,001 - $50,000 - --------------------------- ---------------------------------------------------- Catherine James Paglia None - --------------------------- ---------------------------------------------------- Alan K. Simpson $50,000 - $100,000 - --------------------------- ---------------------------------------------------- Alison Taunton-Rigby Over $100,000 - --------------------------- ---------------------------------------------------- William F. Truscott Over $100,000 - --------------------------- ---------------------------------------------------- * Three independent directors have deferred compensation invested in share equivalents. As of Dec. 31, 2004, each owned: Philip J. Carroll, Jr.......................$10,001-$50,000 Stephen R. Lewis, Jr. ......................$50,001-$100,000 Holdings in each individual fund. This table shows the dollar range of equity securities beneficially owned on Dec. 31, 2004 of each fund. Table 30. Board Member Holdings - Individual Funds Based on net asset values as of Dec. 31, 2004
- ------------------------- ---------------------------------------------------------------------------------------------------------- Fund Dollar range of equity securities in the fund - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Carlson Carroll Flynn Jones Lewis Paglia Simpson Taunton Truscott Rigby - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Aggressive Growth None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Balanced None None None None None None None None $50,001- $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- California Tax-Exempt None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Cash Management $10,001- None None None None None $1- None None $50,000 10,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Core Bond None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Disciplined Equity $10,001- None None None None None None None $10,001- $50,000 $50,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Discovery None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Diversified Bond None None None $10,001- None None None None $10,001- $50,000 $50,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Diversified Equity None None None None $10,001- None None $10,001- None Income $50,000 $50,000 C - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Dividend Opportunity $10,001- None None None None None None None Over $50,000 $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Emerging Markets None None None None None None None None $10,001- $50,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Equity Value None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- European Equity None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Fundamental Growth None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Fundamental Value $10,001- None None None None None None None None $50,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Global Balanced None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Global Bond None None None $50,001- None None None None None $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Global Equity None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Statement of Additional Information - Oct. 3, 2005 Page 136
- ------------------------- ---------------------------------------------------------------------------------------------------------- Fund Dollar range of equity securities in the fund - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Carlson Carroll Flynn Jones Lewis Paglia Simpson Taunton Truscott Rigby - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Global Technology None A None None None None None $10,001- $10,001- $50,000 $50,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Growth None None None $10,001- None None None $10,001- $50,001- $50,000 $50,000 $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- High Yield Bond None None None Over None None None None Over $100,000 $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Income Opportunities None None None None None None None None $10,001- $50,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Inflation Protected None None None None None None None None None Securities - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Insured Tax-Exempt None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Intermediate None None None None None None None None $50,001- Tax-Exempt Bond $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- International None None None None None None None None None Aggressive Growth - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- International Equity None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- International None None None None None None $10,001- None Over Opportunity $50,000 $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- International Select None None None None None None None None None Value - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- International Small Cap None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Large Cap Equity None None None None None None None $10,001- Over $50,000 $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Large Cap Value None None None None None None None $10,001- $50,001- $50,000 $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Limited Duration Bond None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Massachusetts Tax-Exempt None None None None None None None None Over $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Michigan Tax-Exempt None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Mid Cap Growth None None None None $10,001- None None None $50,001- $50,000 $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Mid Cap Value None None None None None None None None $10,001- $50,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Minnesota Tax-Exempt None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- New Dimensions None None None Over None None None None None $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- New York Tax-Exempt None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Ohio Tax-Exempt None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Portfolio Builder None None None None None None None None None Aggressive - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Portfolio Builder None None None None None None None None None Conservative - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Portfolio Builder None None None None None None None None None Moderate - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Portfolio Builder None None None None None None None None None Moderate Aggressive - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Portfolio Builder None None None None None None None None None Moderate Conservative - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Portfolio Builder Total None None None None None None None None None Equity - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Precious Metals None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Real Estate None None None None None None None None $50,001- $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- S&P 500 Index None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Select Value $10,001- None None None None None None None None $50,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Selective None None None $10,001- None None None None None $50,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Short Duration U.S. None None None Over None None None None None Government $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Small Cap Advantage None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Small Cap Equity None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Small Cap Growth None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Statement of Additional Information - Oct. 3, 2005 Page 137
- ------------------------- ---------------------------------------------------------------------------------------------------------- Fund Dollar range of equity securities in the fund - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Carlson Carroll Flynn Jones Lewis Paglia Simpson Taunton Truscott Rigby - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Small Cap Value None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Small Company Index None None None Over None None None None None $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Stock None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Strategic Allocation $50,001- None $10,001- None None None None None $10,001- $100,000 $50,000 $50,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Strategy Aggressive None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Tax-Exempt Bond None None None $10,001- None None None None None $50,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Tax-Exempt High Income None None None None None None None None $50,001- $100,000 - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Tax-Exempt Money Market None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- U.S. Government Mortgage None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Value None None None None None None None None None - ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Deferred compensation invested in share equivalents: A. Carroll.......Global Technology...............$10,001-$50,000 B. Lewis ........International Opportunity.......$10,001-$50,000 Diversified Equity Income.......$50,001-$100,000 Emerging Markets................$10,001-$50,000 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 funds in the last fiscal year. Table 31. Board Member Compensation - All Funds - ------------------------ ------------------------------------------------------- Board members*+ Total Cash Compensation from RiverSource Funds and Preferred Master Trust Group Paid to Board Member - ------------------------ ------------------------------------------------------- Philip J. Carroll, Jr. $ 0 - ------------------------ ------------------------------------------------------- Patricia M. Flynn 71,621 - ------------------------ ------------------------------------------------------- Anne P. Jones 176,025 - ------------------------ ------------------------------------------------------- Stephen R. Lewis, Jr. 137,438 - ------------------------ ------------------------------------------------------- Catherine James Paglia 129,592 - ------------------------ ------------------------------------------------------- Alan K. Simpson 128,975 - ------------------------ ------------------------------------------------------- Alison Taunton-Rigby 156,975 - ------------------------ ------------------------------------------------------- * Arne H. Carlson, Chair of the Board, is compensated by Board Services Corporation, a company providing administrative services to the funds. Mr. Carlson's total compensation was $373,750. Board member compensation is a combination of a base fee and meeting fees. + Livio D. DeSimone retired as a member of the Board, effective Sept. 8, 2005. Statement of Additional Information - Oct. 3, 2005 Page 138 Compensation from each fund. The following table shows the compensation to the Board members from each fund during its last fiscal period.
Table 32. Board Member*+ Compensation - Individual Funds - -------------------------------------- ----------------------------------------------------------------------------------- Fund Aggregate Compensation from Fund - -------------------------------------- ----------------------------------------------------------------------------------- Carroll Flynn Jones Lewis Paglia Simpson Taunton- Rigby - -------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 - -------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive ** ** ** ** ** ** ** - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Portfolio Builder Conservative ** ** ** ** ** ** ** - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Portfolio Builder Moderate ** ** ** ** ** ** ** - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Portfolio Builder Moderate Aggressive ** ** ** ** ** ** ** - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Portfolio Builder Moderate ** ** ** ** ** ** ** Conservative - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Portfolio Builder Total Equity ** ** ** ** ** ** ** - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Small Company Index - total 1,677 533 1,954 2,104 550 1,550 1,750 Amount deferred 1,677 133 0 827 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- S&P 500 Index - total 1,169 442 1,445 1,595 417 1,042 1,242 Amount deferred 1,169 108 0 638 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 - -------------------------------------------------------------------------------------------------------------------------- Equity Value - total 1,628 692 1,905 2,005 758 1,450 1,700 Amount deferred 1,628 213 0 803 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Precious Metals - total 979 483 1,255 1,355 492 800 1,050 Amount deferred 979 138 0 550 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Small Cap Advantage - total 1,403 642 1,680 1,780 683 1,225 1,475 Amount deferred 1,403 200 0 722 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Small Cap Growth - total 1,079 517 1,355 1,455 533 900 1,150 Amount deferred 1,079 150 0 590 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Strategy Aggressive - total 1,353 592 1,630 1,730 633 1,175 1,425 Amount deferred 1,353 175 0 693 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 - -------------------------------------------------------------------------------------------------------------------------- Aggressive Growth - total 1,020 750 1,347 1,448 758 842 1,092 Amount deferred 1,020 271 0 556 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Fundamental Growth - total 1,428 992 1,755 1,857 1,033 1,250 1,500 Amount deferred 1,428 375 0 715 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Fundamental Value - total 1,270 892 1,597 1,748 917 1,142 1,392 Amount deferred 1,270 333 0 670 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- High Yield Bond - total 1,529 1,000 1,855 2,007 1,050 1,400 1,650 Amount deferred 1,529 375 0 765 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Select Value - total 1,320 900 1,647 1,798 933 1,192 1,442 Amount deferred 1,320 333 0 686 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Selective - total 1,129 800 1,455 1,607 817 1,000 1,250 Amount deferred 1,129 292 0 613 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Short Duration U.S. Government - 1,395 908 1,722 1,873 950 1,267 1,517 total Amount deferred 1,395 333 0 711 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Small Cap Equity - total 1,029 750 1,355 1,507 758 900 1,150 Amount deferred 1,029 271 0 575 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Small Cap Value - total 1,595 1,050 1,922 2,073 1,108 1,467 1,717 Amount deferred 1,595 396 0 792 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- U.S. Government Mortgage - total 1,129 800 1,455 1,607 817 1,000 1,250 Amount deferred 1,129 292 0 613 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Value - total 1,220 850 1,547 1,698 875 1,092 1,342 Amount deferred 1,220 313 0 648 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 - -------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt - total 1,079 808 1,405 1,557 867 900 1,200 Amount deferred 1,079 300 0 583 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Dividend Opportunity - total 1,579 1,100 1,905 2,057 1,200 1,400 1,700 Amount deferred 1,579 425 0 769 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Insured Tax-Exempt - total 1,204 875 1,530 1,682 950 1,025 1,325 Amount deferred 1,204 325 0 628 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Massachusetts Tax-Exempt - total 1,079 808 1,405 1,557 867 900 1,200 Amount deferred 1,079 300 0 583 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Michigan Tax-Exempt - total 1,079 808 1,405 1,557 867 900 1,200 Amount deferred 1,079 300 0 583 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Statement of Additional Information - Oct. 3, 2005 Page 139
- -------------------------------------- ----------------------------------------------------------------------------------- Fund Aggregate Compensation from Fund - -------------------------------------- ----------------------------------------------------------------------------------- Carroll Flynn Jones Lewis Paglia Simpson Taunton- Rigby - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Minnesota Tax-Exempt - total 1,279 925 1,605 1,757 1,000 1,100 1,400 Amount deferred 1,279 300 0 583 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- New York Tax-Exempt - total 1,079 808 1,405 1,557 867 900 1,200 Amount deferred 1,079 300 0 583 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Ohio Tax-Exempt - total 1,079 808 1,405 1,557 867 900 1,200 Amount deferred 1,079 300 0 583 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Real Estate 727 808 1,027 1,172 867 625 925 Amount deferred 727 300 0 489 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 - -------------------------------------------------------------------------------------------------------------------------- Cash Management - total 3,681 2,700 4,004 4,155 2,975 3,500 3,800 Amount deferred 3,681 1,138 0 1,515 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Core Bond - total 1,081 967 1,404 1,555 1,025 900 1,200 Amount deferred 1,081 379 0 562 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Disciplined Equity - total 938 967 1,288 1,433 1,025 783 1,083 Amount deferred 938 379 0 554 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Discovery - total 1,081 967 1,404 1,555 1,025 900 1,200 Amount deferred 1,081 379 0 562 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Growth - total 1,681 1,367 2,004 2,155 1,475 1,500 1,800 Amount deferred 1,681 554 0 782 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income Opportunities - total 1,140 1,025 1,463 1,614 1,083 958 1,258 Amount deferred 1,140 408 0 584 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Inflation Protected Securities - total 1,081 967 1,404 1,555 1,025 900 1,200 Amount deferred 1,081 379 0 562 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Large Cap Equity - total 2,198 1,700 2,521 2,672 1,850 2,017 2,317 Amount deferred 2,198 700 0 970 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Large Cap Value - total 1,081 967 1,404 1,555 1,025 900 1,200 Amount deferred 1,081 379 0 562 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Limited Duration Bond - total 1,081 967 1,404 1,555 1,025 900 1,200 Amount deferred 1,081 379 0 562 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- New Dimensions - total 4,256 2,958 4,579 4,730 3,317 4,075 4,375 Amount deferred 4,256 1,225 0 1,716 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 - -------------------------------------------------------------------------------------------------------------------------- Diversified Bond - total 2,394 0 3,237 3,437 0 3,033 3,283 Amount deferred 2,394 0 1,490 0 0 - -------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 - -------------------------------------------------------------------------------------------------------------------------- Balanced - total 1,177 0 1,354 1,504 0 1,150 1,350 Amount deferred 1,177 0 611 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Diversified Equity Income - total 1,460 0 1,654 1,804 0 1,450 1,650 Amount deferred 1,460 0 717 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Mid Cap Value - total 1,060 0 1,204 1,354 0 1,000 1,200 Amount deferred 1,060 0 548 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Stock - total 1,427 0 1,654 1,804 0 1,450 1,650 Amount deferred 1,427 0 730 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Strategic Allocation - total 1,094 0 1,254 1,404 0 1,050 1,250 Amount deferred 1,094 0 571 0 0 - -------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 - -------------------------------------------------------------------------------------------------------------------------- Emerging Markets - total 1,035 0 1,162 1,312 0 1,008 1,108 Amount deferred 1,035 0 514 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- European Equity - total 1,069 0 1,204 1,354 0 1,050 1,150 Amount deferred 1,069 0 532 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Global Balanced - total 1,069 0 1,204 1,354 0 1,050 1,150 Amount deferred 1,069 0 532 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Global Bond - total 1,069 0 1,204 1,354 0 1,050 1,150 Amount deferred 1,069 0 532 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Global Equity - total 1,069 0 1,204 1,354 0 1,050 1,150 Amount deferred 1,069 0 532 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Global Technology - total 977 0 1,104 1,254 0 950 1,050 Amount deferred 977 0 495 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- International Aggressive Growth - 1,185 0 1,320 1,470 0 1,167 1,267 total Amount deferred 1,185 0 571 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- International Equity - total 1,069 0 1,204 1,354 0 1,050 1,150 Amount deferred 1,069 0 532 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Statement of Additional Information - Oct. 3, 2005 Page 140
- -------------------------------------- ----------------------------------------------------------------------------------- Fund Aggregate Compensation from Fund - -------------------------------------- ----------------------------------------------------------------------------------- Carroll Flynn Jones Lewis Paglia Simpson Taunton- Rigby - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- International Opportunity - total 1,194 0 1,337 1,487 0 1,183 1,283 Amount deferred 1,194 0 581 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- International Select Value - total 1,085 0 1,237 1,387 0 1,083 1,183 Amount deferred 1,085 0 552 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- International Small Cap - total 910 0 887 1,037 0 783 833 Amount deferred 910 0 342 0 0 - -------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 - -------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Bond - total 1,077 208 1,204 1,404 158 1,050 1,150 Amount deferred 1,077 0 0 506 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Mid Cap Growth - total 2,335 317 2,462 2,662 267 2,308 2,408 Amount deferred 2,335 0 0 945 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Tax-Exempt Bond - total 1,485 242 1,612 1,812 192 1,458 1,558 Amount deferred 1,485 0 0 652 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Tax-Exempt High Income - total 1,977 283 2,104 2,304 233 1,950 2,050 Amount deferred 1,977 0 0 823 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 - -------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market - total 977 208 1,154 1,304 167 950 1,000 Amount deferred 977 0 0 430 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
* Arne H. Carlson, Chair of the Board, is compensated by Board Services Corporation. + Livio D. DeSimone retired as a Board member, effective Sept. 8, 2005. ** Funds-of-Funds do not pay additional compensation to the Board members for attending meetings. Compensation is paid directly from the underlying funds in which each Funds-of-Funds invests. Master portfolios. For funds that are part of a master/feeder structure, Board members also received compensation from the master portfolios during the last fiscal period as shown in the following table:
Table 32A. Board Member*+ Compensation - Master Portfolios - -------------------------------------- ---------------------------------------------------------------------------------- Portfolio Aggregate Compensation from Portfolio - -------------------------------------- ---------------------------------------------------------------------------------- Carroll Flynn Jones Lewis Paglia Simpson Taunton- Rigby - ------------------------------------------------------------------------------------------------------------------------- For portfolios with fiscal period ending May 31 - ------------------------------------------------------------------------------------------------------------------------- Government Income - total 1,937 1,200 2,264 2,415 1,283 1,808 2,058 Amount deferred 1,937 458 0 920 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- High Yield - total 2,129 1,300 2,455 2,607 1,400 2,000 2,250 Amount deferred 2,129 500 0 993 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- Quality Income - total 1,429 950 1,755 1,907 992 1,300 1,550 Amount deferred 1,429 354 0 727 0 0 0 - ------------------------------------------------------------------------------------------------------------------------- For portfolios with fiscal period ending July 31 - ------------------------------------------------------------------------------------------------------------------------- Growth - total 2,423 1,842 2,746 2,897 2,017 2,242 2,542 Amount deferred 2,423 758 0 1,052 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- Growth Trends - total 8,173 5,608 8,496 8,647 6,283 7,992 8,292 Amount deferred 8,173 2,392 0 3,155 0 0 0 - ------------------------------------------------------------------------------------------------------------------------- For portfolios with fiscal period ending September 30 - ------------------------------------------------------------------------------------------------------------------------- Equity Income - total 1,910 0 2,204 2,354 0 2,000 2,200 Amount deferred 1,910 0 939 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- Balanced - total 1,510 0 1,754 1,904 0 1,550 1,750 Amount deferred 1,510 0 770 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- Equity - total 1,760 0 2,054 2,204 0 1,850 2,050 Amount deferred 1,760 0 889 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- Total Return - total 1,335 0 1,529 1,679 0 1,325 1,525 Amount deferred 1,335 0 675 0 0 - ------------------------------------------------------------------------------------------------------------------------- For portfolios with fiscal period ending October 31 - ------------------------------------------------------------------------------------------------------------------------- Emerging Markets - total 1,077 0 1,212 1,362 0 1,058 1,158 Amount deferred 1,077 0 535 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- World Growth - total 1,160 0 1,304 1,454 0 1,150 1,250 Amount deferred 1,160 0 570 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- World Income - total 1,169 0 1,320 1,470 0 1,167 1,267 Amount deferred 1,169 0 580 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- World Technologies - total 1,069 0 1,204 1,354 0 1,050 1,150 Amount deferred 1,069 0 532 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
Statement of Additional Information - Oct. 3, 2005 Page 141
- -------------------------------------- ---------------------------------------------------------------------------------- Portfolio Aggregate Compensation from Portfolio - -------------------------------------- ---------------------------------------------------------------------------------- Carroll Flynn Jones Lewis Paglia Simpson Taunton- Rigby - ------------------------------------------------------------------------------------------------------------------------- For portfolios with fiscal period ending November 30 - ------------------------------------------------------------------------------------------------------------------------- Tax-Free High Yield - total 3,019 367 3,145 3,345 317 2,992 3,092 Amount deferred 3,019 0 0 1,194 0 0 0 - -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
* Arne H. Carlson, Chair of the Board, is compensated by Board Services Corporation. + Livio D. DeSimone retired as a Board member, effective Sept. 8, 2005. Control Persons and Principal Holders of Securities The following table identifies those investors who, as of 30 days after the end of the fund's fiscal period, owned 5% or more of any class of a fund's shares and those investors who owned 25% or more of a fund's shares (all share classes taken together). Investors who own more than 25% of a fund's shares are presumed to control the fund and would be able to determine the outcome of most issues that are submitted to shareholders for vote. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Table 33. Control Persons and Principal Holders of Securities as of 30 days after the end of the fund's fiscal period
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Fund Shareholder name, Class A Class B Class C Class I Class Y Percent of city and state Fund (if greater than 25%) - ----------------------------------------------------------------------------------------------------------------------------------- Funds with fiscal period ending January 31 - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Ameriprise Financial, Inc. 11.44% Aggressive Minneapolis, MN --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Charles Schwab & Co., Inc. 88.56% (Charles Schwab) a brokerage firm in San Francisco, CA - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Ameriprise Financial 100.00% Conservative - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Ameriprise Financial 46.90% Moderate --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Charles Schwab 53.10% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Ameriprise Financial 21.82% Moderate Aggressive --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Charles Schwab 78.18% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Ameriprise Financial 100.00% Moderate Conservative - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Ameriprise Financial 12.34% Equity --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Charles Schwab 87.66% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Small Company Index Charles Schwab 9.96% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 65.78% Minneapolis, MN --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Asbestos Workers Local 34 25.78% Minneapolis, MN - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ S&P 500 Index*** Clients of American Enterprise Investment Services, Inc. (AEIS), a brokerage firm, Minneapolis, MN - ----------------------------------------------------------------------------------------------------------------------------------- Funds with fiscal period ending March 31 - ----------------------------------------------------------------------------------------------------------------------------------- Equity Value Ameriprise Financial 100.00% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 98.74% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ John C. Mullarkey 6.37% Willowbrook, IL - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Precious Metals Charles Schwab 17.51% 95.29% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ John E. Bridgman 6.10% Minneapolis, MN --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Richard L. and 5.71% Susan Angela Venerable Argyle, TX - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 142
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Shareholder name, Class A Class B Class C Class I Class Y Percent of Fund city and state Fund (if greater than 25%) - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Small Cap Advantage Charles Schwab 17.79% 99.46% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.40% Aggressive Fund - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Small Cap Growth Charles Schwab 15.25% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.39% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 69.43% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Strategy Aggressive Ameriprise Financial 100.00% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Met Life 93.94% Jersey City, NJ - ----------------------------------------------------------------------------------------------------------------------------------- Funds with fiscal period ending May 31 - ----------------------------------------------------------------------------------------------------------------------------------- Aggressive Growth Charles Schwab 5.02% 58.52% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ AEIS 5.10% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Roger J., Sylvia Ann and 11.31% Matthew Thompson Eagle, ID --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.70% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.87% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.66% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 19.10% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.89% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 41.49% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Fundamental Growth Charles Schwab 7.00% 44.41% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ AEIS 5.91% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.72% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.87% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.62% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 19.09% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.92% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Terry H. Henson 8.46% Fairmount, GA --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Nancy P. Kofranek 5.50% Oxnard, CA --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 55.60% 73.50%* - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Fundamental Value Charles Schwab 14.97% 98.09% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.73% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.89% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.61% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 19.09% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.91% Conservative Fund - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ High Yield Bond Charles Schwab 11.00% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 100.00% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Met Life 50.50% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Select Value Charles Schwab 11.34% 76.29% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.78% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.82% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.62% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 18.99% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.99% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 23.71% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 143
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Fund Shareholder name, Class A Class B Class C Class I Class Y Percent of city and state Fund (if greater than 25%) - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Selective Portfolio Builder Conservative 15.80% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 35.47% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.15% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 13.84% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 97.47% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Short Duration Charles Schwab 10.00% U.S. Gov't --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Conservative 29.71% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 24.34% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 45.92% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 22.34% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Small Cap Equity Charles Schwab 21.21% 91.36% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.87% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.65% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.66% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 19.08% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.89% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 8.64% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Small Cap Value Charles Schwab 21.84% 94.45% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.92% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.79% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.46% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 19.06% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.88% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 5.55% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ U.S. Gov't Mortgage Charles Schwab 15.46% 70.83% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 100.00% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Value Charles Schwab 12.97% 93.22% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.70% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.86% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.65% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 19.11% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.92% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 6.78% - ----------------------------------------------------------------------------------------------------------------------------------- Funds with fiscal period ending June 30 - ----------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity Charles Schwab 10.51% 100.00% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 100.00% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Insured Tax-Exempt J. Haley Stephens and Lynne S. 7.19% Kelly as the Trustees of the Mary M. Stephens Irrevocable Trust, Calhoun, GA --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 100.00% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ California Tax-Exempt Arthur Mendel and Dorothy 6.50% Mendel as the Trustees of the Dorothy M. Mendel Irrevocable Trust, Richmond, CA - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 144
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Shareholder name, Class A Class B Class C Class I Class Y Percent of Fund city and state Fund (if greater than 25%) - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Massachusetts Charles Schwab 6.56% Tax-Exempt --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ June P. Venette and Norman E. 9.24% Venette as the Trustees of the Norman E. Venette Revocable Trust, Orange, MN --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Donal A. Simard and Claire G. 7.14% Simard, Ipswich, MA --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Alphonse A. Di Nardo and Linda 6.30% Di Nardo, Leominster, MA --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Harvey W. Levin and Phyllis 6.10% Levin, Swampscott, MA --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Rita Hashem, Tewksbury, MA 5.18% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Michigan Tax-Exempt Charles Schwab 5.39% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Chester V. Mysliwiec and Rose 7.02% M. Mysliwiec as the Trustees of the Rose M. Mysliwiec Living Trust, Grand Rapids, MI --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Barry J. Fishman and Teresa A. 10.96% McMahon, as Trustees for the Barry J. Fishman Living Trust, AnnArbor, MI --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ray W. Butler and Gertrude E. 7.04% Butler, Clarkston, MI --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ R. Paul Minger and Diane E. 5.55% Minger, Huntley, IL - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ New York Tax-Exempt Charles Schwab 5.11% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Dana Brandwein and Daniel 7.80% Oates, Sharon, CT --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Arthur Ezersky and Sandra 7.28% Ezersky, Woodbury, NY --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Charles D. Adler and Judith E. 5.91% Adler, New York, NY - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ohio Tax-Exempt Charles Schwab 5.54% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Sandra K. Ogle, Strongsville, OH 5.14% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Richard L. Sears, Parma, OH 6.32% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Joseph A. Sears, Berea, OH 6.32% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ James N. Sears, Columbus, OH 6.32% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ David A. Sears, Brunswick, OH 6.10% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Real Estate Charles Schwab 10.23% 62.53% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 37.47% 37.38%* --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 15.20% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Conservative 5.32% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 25.63% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 31.33% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 10.35% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 12.14% Fund - ----------------------------------------------------------------------------------------------------------------------------------- Funds with fiscal period ending July 31 - ----------------------------------------------------------------------------------------------------------------------------------- Cash Management Ameriprise Trust Company 96.61% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Jerry J. and Roma J. Meyer, 10.41% Williamsburg, IN - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 145
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Shareholder name, Class A Class B Class C Class I Class Y Percent of Fund city and state Fund (if greater than 25%) - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Core Bond IDS Life Insurance Company, 17.56% 9.64% Minneapolis, MN --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Charles Schwab 13.23% 90.36% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Frank S. Gregory, Derry, NH 6.27% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Conservative 12.18% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 41.33% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.45% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 10.22% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 73.57%* - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Disciplined Equity Charles Schwab 10.87% 60.92% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Emanuel A. and Kelly D. 9.56% Madeira, S. Dartmouth, MA --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Brian L. and Mary Jane Hopp, 8.25% Beldenville, WI --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Linda L. Lane, Bay Pines, FL 6.29% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Paul M. and Nikki S. Farmer, 5.48% Franklin, TN --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Evelyn F. and Steven Couture, 5.10% Plymouth, MN --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.61% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.63% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 33.09% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.85% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 19.09% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 7.02% 39.08% 68.54%* - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Discovery Ameriprise Trust Company 100.00% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Hal C. Beckley and William A. 67.22% Beckley, Branford, CT --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Teresa M. and Carl Greenfield, 12.28% Seattle, WA --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Terence J. Benka, Milwaukee, WI 8.37% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 7.91% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Growth Charles Schwab 6.58% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 98.98% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.66% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.71% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 33.04% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.79% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 19.08% Fund - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Income Opportunities Charles Schwab 19.59% 97.45% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 12.71% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 53.17% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 24.77% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 9.33% Conservative Fund - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 146
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Shareholder name, Class A Class B Class C Class I Class Y Percent of Fund city and state Fund (if greater than 25%) - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Inflation Protected Charles Schwab 18.04% Securities --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ IDS Life Insurance Company, 100.00% Minneapolis, MN --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Conservative 10.20% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 37.97% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 31.86% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 19.95% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 28.37%* - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Large Cap Equity Charles Schwab 5.48% 76.80% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 5.53% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Wells Fargo Bank as Tr of the 17.67% Holland American Line, Minneapolis, MN --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.57% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.74% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 33.37% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.61% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 19.05% Fund - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Large Cap Value Charles Schwab 15.35% 90.06% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.72% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.66% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 33.08% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.74% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 19.05% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 9.94% 27.93%* - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Limited Duration Bond Charles Schwab 18.26% 83.70% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Donald and Elizabeth L. Snow, 7.22% Derry, NH --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Sylvia Cohen, Stockton, CA 5.33% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 17.24% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Conservative 14.41% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 14.27% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 23.98% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 30.10% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ IDS Life Insurance Company, 16.30% Minneapolis, MN --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 42.41%* - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ New Dimensions Charles Schwab 5.32% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 82.79% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Aggressive 19.67% Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate Fund 20.73% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 33.04% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 5.83% Conservative Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Total Equity 19.00% Fund - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 147
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Fund Shareholder name, Class A Class B Class C Class I Class Y Percent of city and state Fund (if greater than 25%) - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Funds with fiscal period ending August 31 - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Bond Charles Schwab 5.86% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 100.00% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 72.40% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Tomorrow's Scholar 6.62% Menomonee Falls, WI - ----------------------------------------------------------------------------------------------------------------------------------- Funds with fiscal period ending September 30 - ----------------------------------------------------------------------------------------------------------------------------------- Balanced Ameriprise Trust Company 99.78% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Diversified Equity Charles Schwab 10.20% Income --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.32% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 53.55% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Mid Cap Value Charles Schwab 15.40% 96.46% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.23% Aggressive Fund - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Strategic Allocation Ameriprise Trust Company 61.99% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Marshall & Ilsley Trust Co 38.00% Milwaukee, WI - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Stock Portfolio Builder Moderate 32.27% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 95.66% - ----------------------------------------------------------------------------------------------------------------------------------- Funds with fiscal period ending October 31 - ----------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Charles Schwab 9.72% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ AEIS 6.40% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 33.15% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 95.28% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Raymond T. Snapp 5.59% Bedford, IN - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ European Equity Charles Schwab 13.66% 86.15% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 100.00% 13.86% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Global Balanced Charles Schwab 9.68% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 99.96% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Sherman D and Carol A Deponte, 6.35% Trustees - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Global Bond Portfolio Builder Moderate 42.46% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Charles Schwab 100.00% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Global Equity Ameriprise Trust Company 90.29% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Global Technology Charles Schwab 11.74% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 92.26% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ International Charles Schwab 33.80% 92.74% Aggressive Growth --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.22% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 7.26% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ International Equity Ameriprise Financial 28.46% 35.45%* --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Charles Schwab 9.13% 82.96% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.28% Aggressive Fund - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ International Charles Schwab 9.92% Opportunity --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.34% Aggressive Fund --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Tomorrow's Scholar 66.88% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Roger J. Thompson 5.71% Eagle, ID - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ International Select Charles Schwab 17.28% 96.92% Value --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.47% Aggressive Fund - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 148
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Fund Shareholder name, Class A Class B Class C Class I Class Y Percent of city and state Fund (if greater than 25%) - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ International Small Cap Ameriprise Financial 27.47% 18.17% 33.69%* --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Charles Schwab 14.79% 81.83% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Portfolio Builder Moderate 32.40% Aggressive Fund - ----------------------------------------------------------------------------------------------------------------------------------- Funds with fiscal period ending November 30 - ----------------------------------------------------------------------------------------------------------------------------------- Intermediate Charles Schwab 12.26% Tax-Exempt --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 100.00% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Mid Cap Growth Charles Schwab 7.07% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Trust Company 68.09% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Tax-Exempt Bond AEIS 6.57% --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Ameriprise Financial 100.00% - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------ Tax-Exempt Ameriprise Financial 100.00% High Income - ----------------------------------------------------------------------------------------------------------------------------------- Funds with fiscal period ending December 31 - ----------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt None Money Market - ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
* Combination of Ameriprise Financial initial capital for Class A shares and Portfolio Builder Fund investments in Class I shares. ** Ameriprise Trust Company is not the beneficial owner of these shares. The shares are held of record by Ameriprise Trust Company and are normally voted by various retirement plans and retirement participants. *** American Enterprise Investment Services, Inc. (AEIS), Minneapolis, MN holds of record 100% of Class D shares and 85.59% of Class E shares. A fund may serve as an underlying investment of the RiverSource Portfolio Builder Series, a group of six funds-of-funds (the Portfolio Builder Funds) that principally invest in shares of other RiverSource funds (the underlying funds). The underlying funds and the Portfolio Builder Funds share the same officers, directors, and investment manager, RiverSource Investments. The Portfolio Builder Funds do not invest in an underlying fund for the purpose of exercising management or control; however, from time to time, investments by the Portfolio Builder Funds in a fund may represent a significant portion of a fund. Because the Portfolio Builder Funds may own a substantial portion of the shares of a fund, procedures have been put into place to assure that public shareholders will determine the outcome of all actions taken at underlying fund shareholder meetings. In proxy voting, the Portfolio Builder Funds will vote on each proposal in the same proportion that other shareholders vote on the proposal. In addition, Ameriprise Financial or an affiliate may own shares of a fund as a result of an initial capital investment at the inception of the fund or class. To the extent RiverSource Investments, as manager of the Portfolio Builder Funds, may be deemed a beneficial owner of the shares of an underlying fund held by the Portfolio Builder Funds, and such shares, together with any initial capital investment by Ameriprise Financial or an affiliate represent more than 25% of a fund, RiverSource Investments and its affiliated companies may be deemed to control the fund. Independent Registered Public Accounting Firm The financial statements contained in a fund's Annual Report were audited by the independent registered public accounting firm, KPMG LLP, 4200 Wells Fargo Center, 90 S. Seventh St., Minneapolis, MN 55402-3900. The independent registered public accounting firm also provides other accounting and tax-related services as requested by the fund. Statement of Additional Information - Oct. 3, 2005 Page 149 Appendix A DESCRIPTION OF RATINGS Standard & Poor's Long-Term Debt Ratings A Standard & Poor's corporate or municipal debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees. The debt rating is not a recommendation to purchase, sell, or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of such information or based on other circumstances. The ratings are based, in varying degrees, on the following considerations: o Likelihood of default capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation. o Nature of and provisions of the obligation. o Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. Investment Grade Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. Speculative Grade Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity 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. Statement of Additional Information - Oct. 3, 2005 Page 150 Debt rated CCC has a currently identifiable vulnerability to default and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category also is used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. Debt rated CC typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. Debt rated C typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Moody's Long-Term Debt Ratings Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risk appear somewhat larger than in Aaa securities. A -- Bonds that are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment some time in the future. Baa -- Bonds that are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds that are rated Ba are judged to have speculative elements -- their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds that are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. 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. Statement of Additional Information - Oct. 3, 2005 Page 151 C -- Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Fitch's Long-Term Debt Ratings Fitch's bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings represent Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue in a timely manner. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality. Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated. Fitch ratings are not recommendations to buy, sell or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature of taxability of payments made in respect of any security. Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons. Investment Grade AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+. A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB: Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. Speculative Grade BB: Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements. B: Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. Statement of Additional Information - Oct. 3, 2005 Page 152 CCC: Bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC: Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C: Bonds are in imminent default in payment of interest or principal. DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. DDD represents the highest potential for recovery on these bonds, and D represents the lowest potential for recovery. SHORT-TERM RATINGS Standard & Poor's Commercial Paper Ratings A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. These categories are as follows: A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. A-3 Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with doubtful capacity for payment. D Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. Standard & Poor's Muni Bond and Note Ratings An S&P municipal bond or note rating reflects the liquidity factors and market-access risks unique to these instruments. Notes maturing in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. Note rating symbols and definitions are as follows: SP-1 Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 Speculative capacity to pay principal and interest. Municipal bond rating symbols and definitions are as follows: Statement of Additional Information - Oct. 3, 2005 Page 153 Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal and interest. Standard & Poor's rating SP-3 indicates speculative capacity to pay principal and interest. Moody's Short-Term Ratings Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-l (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-l repayment ability will often be evidenced by many of the following characteristics: (i) leading market positions in well-established industries, (ii) high rates of return on funds employed, (iii) conservative capitalization structure with moderate reliance on debt and ample asset protection, (iv) broad margins in earnings coverage of fixed financial charges and high internal cash generation, and (v) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. Moody's Short-Term Muni Bonds and Notes Short-term municipal bonds and notes are rated by Moody's. The ratings reflect the liquidity concerns and market access risks unique to notes. Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample although not so large as in the preceding group. Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. Moody's MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk. Statement of Additional Information - Oct. 3, 2005 Page 154 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. Statement of Additional Information - Oct. 3, 2005 Page 155 Appendix B STATE TAX-EXEMPT FUNDS STATE RISK FACTORS The yields on the securities in which the Funds will invest generally are dependent on a variety of factors, including the financial condition of the issuer or other obligor, the revenue source from which the debt service is payable, general economic and monetary conditions, conditions in the relevant market, the size of a particular issue, the maturity of the obligation, and the rating of the issue. In addition to such factors, such securities will experience particular sensitivity to local conditions -- including political and economic changes, adverse conditions to an industry significant to the area, and other developments within a particular locality including: ecological or environmental concerns; litigation; natural disasters; and statutory limitations on an issuer's ability to increase taxes. Because many tax-exempt bonds may be revenue or general obligations of local governments or authorities, ratings on tax-exempt bonds may be different from the ratings given to the general obligation (GO) bonds of a particular state. A summary description of certain factors and statistics describing the economies in each state is set forth below. Such information is not specific to the issuer of a particular security that a Fund may own and is only intended to provide a general overview. Such information has been excerpted from publicly available offering documents and from other research reports prepared by rating agencies such as Standards & Poor's, Moody's Investors Services and Fitch Investors Services, Inc. No Fund has independently verified this information and no Fund makes any representations regarding this information. In recessionary periods, an issuer's ability to pay interest on or repay principal of securities in which the Funds will invest may be significantly impaired. Many uncertainties continue to exist as of mid-year 2005 in the current forecasts for the national and state economies. Given the ongoing volatility in the financial markets, such uncertainties are particularly pronounced at this time. The timing and impact of changes in economic conditions are difficult to estimate with a high degree of accuracy. Unforeseeable events may occur. Please monitor your investment accordingly. Factors Affecting California California's large and diverse economy remains healthy overall and has regained substantially all of its lost jobs from the 2001 recession. The state's economy is showing solid to moderate growth in most regions, including Northern California, which bore the brunt of the recent recession. Between May 2004 and May 2005, employment grew by 1.8%, slightly faster than the U.S., as unemployment declined to 5.3%- only slightly above the national employment rate of 5.1%. California's economy continues to benefit from higher than average wealth and income metrics. Despite the improvement in the state's economy and significant upward revisions in tax revenue estimates for 2005 and 2006, California continues to grapple with a structural budget imbalance. Fiscal 2005 ended with a general fund reserve of $6.1 billion, but $2 billion of the reserve was a result of a deficit financing bond. The state has relied heavily on borrowing to fund accumulated operating deficits over the past few years, but debt levels per capita remain moderate in comparison to other states. California is currently projecting operating budget deficits of 5-10% for fiscal 2006 and 2007. The Governor's revised fiscal 2006 budget proposal provides for no new deficit borrowing, but uses one-time capital gains and tax amnesty revenues, along with general fund reserves, to cover the $4.9 billion operating shortfall. Looking forward, a sizable gap of $5 billion is currently projected in the governor's budget for fiscal 2007. Meanwhile, the Governor has called a special election for this November to impose a cap on annual state expenditure growth and budget revisions allowing for new gubernatorial powers to reduce spending. California historically fails to pass a budget by its required June15th deadline and began the current fiscal year on July 1st without a budget in place- its fifth straight year without an on time budget. A late budget does not have negative ramifications for the state's general obligation debt service payments. Statement of Additional Information - Oct. 3, 2005 Page 156 Factors Affecting Massachusetts The Commonwealth of Massachusetts diverse economy, driven by high technology, financial services, education and health care, has started to stabilize following a three year period of decline. At the end of 2004, the Commonwealth `s total non farm employment was down by approximately 158,000 jobs from the high three years ago, a decline of 4.8% and among the highest in the nation. Since then the economy shows some signs of stabilization as non-farm gains have been achieved through the first four months of 2005 on a year-over-year basis. Massachusetts' unemployment rate of 4.7% compares favorably to national average of 5.2%. Stability results from the increasing role of services in the economy and contributions made by high technology industries such as research laboratories, computer software, management consulting and health care. The recovering economy and conservative budget management allowed the commonwealth to improve operations in fiscal 2005. The state anticipates collecting approximately $17.1 billion in taxes at the end of fiscal 2005, an increase of 7% from the prior year and projects ending with a closing General Fund balance of $885 million on a $22.7 billion budget. The 2006 budget of $23.2 billion reflects a modest increase of 2.4% over fiscal 2005. Notable increases take place in the areas of debt service, pensions, human services and education. Similar to other states, Massachusetts is likely to face spending pressure in the areas of Medicaid, despite the one-time use of accumulated surplus set-aside, and pension funding. Despite spending down $1.7 billion of the Rainy Day fund through the recession, the 2006 budget forecasts ending the year with a balance of $1.2 billion. Key initiatives in the 2006 budget include the rollback of the personal income tax from 5.3% to 5.0% and the lack of non-recurring revenues to balance the budget. Massachusetts' high debt ratios are likely to remain under pressure with a sizable capital plan, particularly in the areas of schools and transportation. Factors Affecting Michigan Like certain other manufacturing based states, Michigan's economy continues to under perform the national economy. Michigan's job losses have been both protracted and severe. While many other states began adding jobs in 2003 or 2004, Michigan continues to lose jobs. Michigan's economy has lost 7% of its non farm jobs since the mid-2000 peak while many other states lost 2% to 3% of their jobs during the recession. As of May 2005 Michigan's unemployment rate currently stands at 7.1% vs. a national unemployment rate of 5.1%. The weak job environment is related to Michigan's dependence on manufacturing in general and on autos in particular. The Big Three continue to struggle and are actively searching for ways to reduce capacity. Due in part to expectations of continued weak auto and manufacturing conditions, Michigan's state economists forecast slower economic growth in 2005 and 2006 compared to 2004. Despite the difficult economic conditions some pockets of strength exist in areas such as Lansing and Ann Arbor which are more service oriented than areas such as Flint and Detroit. Michigan continues to face budgetary pressures as spending pressures persist and revenues remain soft. The State's May 2005 Consensus Revenue Forecast predicts a continued weak revenue environment through Fiscal Year 2006. During the first few years of the recession Michigan spent down its rainy day fund and has been unable to significantly rebuild this financial cushion. Not all fiscal news is negative however, Michigan benefits from a number of management controls that enhance effectiveness and control over budgetary issues, e.g., balanced budget requirement and gubernatorial line item veto power. Michigan also benefits from a low debt burden and rapid debt amortization. Further, Michigan has a well funded pension system relative to many other states. Michigan created a new defined contribution plan for new state employees hired after 1997; effectively closing the existing state employees defined benefit retirement system. Over time, this move is expected to reduce budgetary pressure by limiting future retirement costs. Factors Affecting Minnesota Minnesota's economy has regained substantially all of its lost jobs from the 2001 recession. The state's economy is less manufacturing dependent than many other Midwestern states and, as a result, Minnesota's job picture has been brighter than many other Midwestern states. The brighter job picture is reflected in a lower than average unemployment rate. Minnesota's unemployment rate of 4.3%, as of May 2005, is well below the nation unemployment rate of 5.1%. Minnesota's economy continues to benefit from higher than average wealth and income metrics. Statement of Additional Information - Oct. 3, 2005 Page 157 Minnesota's tax revenues have grown concomitantly with job growth. Fiscal year 2005 tax revenue growth for Minnesota was a healthy 5.8% from the prior year. The strongest category of tax revenue growth was the corporate income tax which grew by over 40% during the year. Despite the improving revenue environment, the state has had difficulty passing its fiscal year 2006 budget. As we approach fiscal year end a government shut down has been threatened as lawmakers argue over how to allocate state revenues. The main issues of contention include taxes, casinos and health care spending. Essential spending categories will continue to be funded in the event of a shutdown, including debt service payments on state general obligation debt. The projected fiscal year budget gap is estimated to be a little less than $500MM or roughly 3% of the general fund budget. Like other state's Minnesota used its rainy day fund during the recession, but the state has made some progress replenishing its reserves. The general fund cushion improved in fiscal year 2004 to 6.7% of expenditures vs. 2.7% in the prior year. Factors Affecting New York The State of New York's economy remains characterized by two distinct economies. In upstate New York, the economy continues as primarily manufacturing based, while downstate is anchored by the City of New York and its finance and services oriented economy. New York's economy continues its recovery to levels prior to the start of the recession and terrorist acts in 2001. The improvement has been largely due to the economic performance of New York City and its surrounding suburbs. With growth in the region supported by a rebounding Wall Street, finance and insurance industries and the subsequent healthy profits and bonuses. At the end of the first quarter in 2005, the state's unemployment rate dropped to 4.6%, the lowest rate since June 2001, down from 5.1% in February and well below the 6.1% March 2004 rate. This also compares favorably to the national unemployment rate of 5.2% for the same period. Despite the overall job creation, the manufacturing sector continues to bear the brunt of the state's job losses. Employment in the manufacturing and mining sectors combined fell 2.7% in 2004, although a significant improvement from the 6.0% decline in 2003. As a result of the overall improvement in economic performance, along with a temporary increase in the sales and income taxes, the state's fiscal condition has benefited accordingly. The fiscal 2005 budget ended with a General Fund closing balance of $1.2 billion or 2.6% of the General Fund, as well as an increase of $352 million into a new Fiscal Stability Reserve Fund. The fiscal 2006 budget forecasts an increase of 4.7% over the prior year. Despite the fiscal improvement, New York still grapples with a structural budget imbalance, relying on $856 million of non-recurring revenue to close the budget gap. Going forward, the primary issues pressuring the state's operations will continue to be Medicaid, pension funding and school funding. Additional multi-billion dollar annual costs are likely as a result of a court order finding education financing to be unconstitutional. One event of note is that the Fiscal 2006 budget represents the first budget passed on time in the past 21 years. The state maintains large ongoing capital needs and outstanding debt levels which rank in the top five states on a per capita and relative to personal income basis. Factors Affecting Ohio Like many other manufacturing based states, Ohio's economy experienced a period of job loss during the recession. Ohio's economy lost 4% of its jobs from mid 2000 through 2003. The rate of job loss was worse than the national average but not as severe as certain other nearby manufacturing states. Ohio appears to have begun to gradually grow jobs, adding approximately 45,000 jobs since early 2004. Despite recent job growth Ohio's unemployment rate of 6.1% remains above the nation's unemployment rate of 5.1%, as of May 2005. The weaker unemployment number reflects Ohio's exposure to and dependence on the manufacturing sector. Despite the challenging manufacturing environment, certain service based areas of the state appear to be pockets of strength. The regional differences are most apparent in the differing rates of unemployment for various metropolitan areas as of May 2005. Manufacturing based metropolitan areas like Canton (6.2%), Toledo (6.3%) and Youngstown (6.4%) have higher unemployment rates than service based metropolitan areas like Cincinnati (5.2%) and Columbus (5.2%). Statement of Additional Information - Oct. 3, 2005 Page 158 Ohio's revenue environment seems to be improving. Fiscal year 2004 revenues were stronger than anticipated and fiscal year 2005 tax receipts are coming in 3.7% better than budget through May 2005. Most of the strength is due to strong personal income tax receipts. Year to date personal income taxes are 14% above last year's comparable number. Year to date spending is 1% below budget mostly due to lower than expected health care and welfare expenditures. Like certain other manufacturing based states, Ohio had to use the bulk of its rainy day fund during the recession. The General Fund reserve balance is budgeted to fall to $110MM in fiscal year 2005 vs. $533MM in the prior year. Ohio partly balanced its Fiscal Year 2005 budget with a "temporary" sales tax increase of one penny. The tax was scheduled to sunset in July 2005. Rather than letting the temporary tax sunset, the 2006-2007 biennium budget makes half of the new penny permanent and allows the other half to sunset. Like many states, Ohio will be challenged by growing Medicaid spending, one of Ohio's largest expense categories. Ohio benefits from the governor's strong ability to cut spending and the constitutional balance budget requirement. Ohio's debt burden and pension funding levels are better than national averages. Factors Affecting Puerto Rico Historically, the Commonwealth's economy has maintained a very close relationship with that of the United States. Consequently, the slowdown and the subsequent recovery in the United States have been reflected in the Puerto Rico economy but with a lagging effect. Through the first nine months of fiscal year 2005 (6/30 year-end) Puerto Rico's GNP registered an increase of 2.3% while the GDP growth rate of the U.S. came in at 3.7%. Unemployment, traditionally in the double digits for the island, registered a rate of 10.8% through the first nine months of fiscal 2005, an improvement from 11.6% for the same prior year period, but still well above the 5.2% unemployment rate of the U.S. After decades as an economy reliant on manufacturing and agriculture, the Commonwealth of Puerto Rico continues its efforts to diversify its economy by focusing on services and various technological sectors. The commonwealth's fiscal position deteriorated significantly over the last two fiscal years with large operating deficits that have reduced reserves and liquidity to marginal levels. In 2004 Puerto Rico ended the year with an operating deficit of $322 million that was subsequently closed through loans from the Government Development Bank of Puerto Rico, the commonwealth's fiscal agent and advisor. After starting fiscal 2005 with a budget gap of $550 million, an inability to control expenditures led to a year-end gap of approximately $1 billion. In response to the deficits, the government of Puerto Rico issued additional debt in the bond market to help work its way out of the deficit position. Fiscal 2006 is starting with another sizable gap ($1.8 billion) that will require the implementation of severe measures to raise revenues and cut expenses. Historically, the island's debt burden has been very high, partly as a function of the government's centralized role and assuming responsibility for services typically handled at the local level in the United States. With the issuance of the deficit financing and its annual borrowings to finance its capital program, the Commonwealth's outstanding debt level stands at nearly 60% of personal income. As a comparison, the State with the highest debt burden in the United States (Hawaii) has a debt to personal income ratio of 11%. As a result of the deterioration in its credit position, the Commonwealth's general obligation bond ratings were downgraded from Baal and A- to Baa2 and BBB by Moody's and Standard and Poor's, respectively and assigned negative outlooks. Statement of Additional Information - Oct. 3, 2005 Page 159 Appendix C INSURED TAX-EXEMPT FUND Insurance The Fund's entire portfolio of municipal obligations will at all times be fully insured as to the scheduled payment of all installments of principal and interest thereon, except as noted below. This insurance feature minimizes the risks to the Fund and its shareholders associated with any defaults in the municipal obligations owned by the Fund. Each insured municipal obligation in the Fund's portfolio will be covered by either a mutual fund Portfolio Insurance Policy issued by Financial Guaranty Insurance Company (Financial Guaranty), MBIA Insurance Corporation (MBIA) or a comparable insurer or a New Issue Insurance Policy obtained by the issuer of the obligation at the time of its original issuance. If a municipal obligation is already covered by a New Issue Insurance Policy then the obligation is not required to be additionally insured under a Portfolio Insurance Policy. A New Issue Insurance Policy may have been written by Financial Guaranty or other insurers. Premiums are paid from the Fund's assets, and will reduce the current yield on its portfolio by the amount thereof. Currently, there are no issuers insured under a Portfolio Insurance Policy. Both types of policies discussed above insure the scheduled payment of all principal and interest on the municipal obligations as they fall due. The insurance does not guarantee the market value of the municipal obligations nor the value of the shares of the Fund and, except as described above, has no effect on the net asset value or redemption price of the shares of the Fund. The insurance of principal refers to the face or par value of the municipal obligation, and is not affected by the price paid by the Fund or by the market value. The Fund may purchase municipal obligations on which the payment of interest and principal is guaranteed by an agency or instrumentality of the U.S. government or which are rated Aaa, MIG-1 or Prime-1 by Moody's or AAA, A-1 or SP-1 by S&P, in either case without being required to insure the municipal obligations under the Portfolio Insurance Policy. New Issue Insurance. The New Issue Insurance Policies, if any, have been obtained by the respective issuers or underwriters of the municipal obligations and all premiums respecting the securities have been paid in advance by the issuers or underwriters. The policies are noncancelable and will continue in force so long as the municipal obligations are outstanding and the respective insurers remain in business. Since New Issue Insurance remains in effect as long as the insured municipal obligations are outstanding, the insurance may have an effect on the resale value of municipal obligations so insured in the Fund's portfolio. Therefore, New Issue Insurance may be considered to represent an element of market value in regard to municipal obligations thus insured, but the exact effect, if any, of this insurance on market value cannot be estimated. The Fund will acquire municipal obligations subject to New Issue Insurance Policies only where the insurer is rated Aaa by Moody's or AAA by S&P. Portfolio Insurance. The Portfolio Insurance Policy to be obtained by the Fund from Financial Guaranty will be effective only so long as the Fund is in existence, the insurer is still in business, and the municipal obligations described in the Portfolio Insurance Policy continue to be held by the Fund. In the event of a sale of any municipal obligation by the Fund or payment prior to maturity, the Portfolio Insurance Policy terminates as to that municipal obligation. Currently, there are no issuers insured under a Portfolio Insurance Policy. In determining whether to insure any municipal obligation, the insurer applies its own standards, which are not necessarily the same as the criteria used in regard to the selection of municipal obligations by the Fund's investment manager. The insurer's decision is made prior to the Fund's purchase of the municipal obligations. Contracts to purchase municipal obligations are not covered by the Portfolio Insurance Policy although municipal obligations underlying the contracts are covered by this insurance upon their physical delivery to the Fund or its Custodian. Statement of Additional Information - Oct. 3, 2005 Page 160 Secondary Market Insurance. The Fund may at any time purchase from MBIA, Financial Guaranty or a comparable insurer a secondary market insurance policy (Secondary Market Policy) on any municipal obligation currently covered by the Portfolio Insurance Policy. The coverage and obligation to pay monthly premiums under the Portfolio Insurance Policy would cease with the purchase by the Fund of a Secondary Market Policy. By purchasing a Secondary Market Policy, the Fund would, upon payment of a single premium, obtain insurance against nonpayment of scheduled principal and interest for the remaining term of the municipal obligation, regardless of whether the Fund then owned the obligation. This insurance coverage would be noncancelable and would continue in force so long as the municipal obligations so insured are outstanding. The purpose of acquiring such a Policy would be to enable the Fund to sell a municipal obligation to a third party as a Aaa/AAA rated insured obligation at a market price higher than what otherwise might be obtainable if the obligation were sold without the insurance coverage. This rating is not automatic, however, and must specifically be requested for each obligation. Any difference between the excess of an obligation's market value as a Aaa/AAA rated security over its market value without this rating and the single premium payment would inure to the Fund in determining the net capital gain or loss realized by the Fund upon the sale of the obligation. Since the Fund has the right to purchase a Secondary Market Policy for an eligible municipal obligation even if the obligation is currently in default as to any payments by the issuer, the Fund would have the opportunity to sell the obligation rather than be obligated to hold it in its portfolio in order to continue the Portfolio Insurance Policy in force. Because coverage under the Portfolio Insurance Policy terminates upon sale of a municipal obligation insured thereunder, the insurance does not have an effect on the resale value of the obligation. Therefore, it is the intention of the Fund to retain any insured municipal obligations which are in default or in significant risk of default, and to place a value on the insurance which will be equal to the difference between the market value of similar obligations which are not in default. Because of this policy, the Fund's investment manager may be unable to manage the Fund's portfolio to the extent that it holds defaulted municipal obligations, which may limit its ability in certain circumstances to purchase other municipal obligations. While a defaulted municipal obligation is held in the Fund's portfolio, the Fund continues to pay the insurance premium but also collects interest payments from the insurer and retains the right to collect the full amount of principal from the insurer when the municipal obligation comes due. This would not be applicable if the Fund elected to purchase a Secondary Market Policy discussed above with respect to a municipal obligation. The following information regarding these insurers has been derived from information furnished by the insurers. The Fund has not independently verified any of the information, but the Fund is not aware of facts which would render such information inaccurate. Financial Guaranty is a New York stock insurance company regulated by the New York State Department of Insurance and authorized to provide insurance in 50 states and the District of Columbia. Financial Guaranty is a subsidiary of FGIC Corporation, a Delaware holding company, which is a subsidiary of General Electric Capital Corporation. Financial Guaranty, in addition to providing insurance for the payment of interest on and principal of Municipal Bonds held in unit investment trust and mutual fund portfolios, provides New Issue Insurance and insurance for secondary market issues of Municipal Bonds and for portions of new and secondary market issues of Municipal Bonds. The claims-paying ability of Financial Guaranty is rated "AAA" by Standard & Poor's Ratings Services ("S&P) and Fitch Ratings. ("Fitch") and "Aaa" by Moody's Investor Service, Inc. ("Moody's") (collectively, the "Rating Agencies"). MBIA, formerly known as Municipal Bond Investors Assurance Corporation, is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company. MBIA is domiciled in the State of New York and licensed to do business in all 50 states and the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. The claims-paying ability of MBIA is rated "AAA" by S&P and Fitch and "Aaa" by Moody's. Government Securities The Fund may invest in securities guaranteed by an agency or instrumentality of the United States government. These agencies include Federal National Mortgage Association and Federal Housing Administration (FHA). In the case of a default on a FHA security, the outstanding balance is subject to an assignment fee and interest payments may be delayed. This will reduce the return to the Fund. Statement of Additional Information - Oct. 3, 2005 Page 161 Appendix D S&P 500 INDEX FUND ADDITIONAL INFORMATION ABOUT THE S&P 500 INDEX The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the shareholders of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the Fund is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index, which are determined, composed and calculated by S&P without regard to the Fund. S&P has no obligation to take the needs of the Fund or its shareholders into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Fund or the timing of the issuance or sale of the Fund or in the determination or calculation of the equation by which the Fund's shares are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of Fund shares. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN (THE S&P INDEX) AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, ITS SHAREHOLDERS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. Statement of Additional Information - Oct. 3, 2005 Page 162 -----END PRIVACY-ENHANCED MESSAGE-----