-----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, DEB7SzZsohkEZUrR1KGhr68MhjixtXecc1cGPFIITOOE87vm6FE3eYpf+KI3T69r SKjhfYtweujt7wdMYY3IBQ== 0001068800-06-001147.txt : 20061002 0001068800-06-001147.hdr.sgml : 20061002 20061002135808 ACCESSION NUMBER: 0001068800-06-001147 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20061002 DATE AS OF CHANGE: 20061002 EFFECTIVENESS DATE: 20061002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE 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: 061119922 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRSE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRSE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: RIVERSOURCE GLOBAL SERIES, INC. DATE OF NAME CHANGE: 20060504 FORMER COMPANY: FORMER CONFORMED NAME: AXP GLOBAL SERIES INC DATE OF NAME CHANGE: 19991228 FORMER COMPANY: FORMER CONFORMED NAME: IDS GLOBAL SERIES INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE DIVERSIFIED 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: 061119924 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. DATE OF NAME CHANGE: 20060504 FORMER COMPANY: FORMER CONFORMED NAME: AXP FIXED INCOME SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP BOND FUND INC DATE OF NAME CHANGE: 20000829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE 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: 061119932 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP SELECTED SERIES INC DATE OF NAME CHANGE: 20021118 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: RIVERSOURCE MARKET ADVANTAGE SERIES, INC. CENTRAL INDEX KEY: 0000854669 IRS NUMBER: 411946880 STATE OF INCORPORATION: MN FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-30770 FILM NUMBER: 061119935 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP MARKET ADVANTAGE SERIES INC DATE OF NAME CHANGE: 19991124 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: RIVERSOURCE 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: 061119940 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP INCOME SERIES INC DATE OF NAME CHANGE: 20021118 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE MANAGERS SERIES, INC. CENTRAL INDEX KEY: 0001137342 IRS NUMBER: 412002794 STATE OF INCORPORATION: MN FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 333-57852 FILM NUMBER: 061119936 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP PARTNERS SERIES INC DATE OF NAME CHANGE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE 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: 061119937 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP INVESTMENT SERIES INC DATE OF NAME CHANGE: 19991124 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE HIGH YIELD INCOME SERIES, INC. CENTRAL INDEX KEY: 0000728374 IRS NUMBER: 411458705 STATE OF INCORPORATION: MN FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-86637 FILM NUMBER: 061119941 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP HIGH YIELD INCOME SERIES INC DATE OF NAME CHANGE: 20021118 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: RIVERSOURCE GOVERNMENT INCOME SERIES INC CENTRAL INDEX KEY: 0000764802 IRS NUMBER: 412021315 STATE OF INCORPORATION: MN FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-96512 FILM NUMBER: 061119921 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: RIVERSOURCE GOVERNMENT INCOME SERIES, INC. DATE OF NAME CHANGE: 20060504 FORMER COMPANY: FORMER CONFORMED NAME: AXP GOVERNMENT INCOME SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP FEDERAL INCOME FUND INC /MN/ DATE OF NAME CHANGE: 20000829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST CENTRAL INDEX KEY: 0000792717 IRS NUMBER: 411560213 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-05103 FILM NUMBER: 061119925 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP CALIFORNIA TAX-EXEMPT TRUST DATE OF NAME CHANGE: 19990628 FORMER COMPANY: FORMER CONFORMED NAME: IDS CALIFORNIA TAX EXEMPT TRUST DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE TAX-EXEMPT MONEY MARKET 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: 061119927 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: RIVERSROUCE TAX-EXEMPT MONEY MARKET SERIES, INC. DATE OF NAME CHANGE: 20060504 FORMER COMPANY: FORMER CONFORMED NAME: AXP TAX-FREE MONEY SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP TAX-FREE MONEY FUND INC DATE OF NAME CHANGE: 20000225 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE 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: 061119929 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP STRATEGY SERIES INC DATE OF NAME CHANGE: 20000829 FORMER COMPANY: FORMER CONFORMED NAME: IDS STRATEGY FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE SECTOR SERIES, INC. CENTRAL INDEX KEY: 0000831025 IRS NUMBER: 411610263 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-20872 FILM NUMBER: 061119933 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP SECTOR SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP UTILITIES INCOME FUND INC DATE OF NAME CHANGE: 20000829 FORMER COMPANY: FORMER CONFORMED NAME: IDS UTILITIES INCOME FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE 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: 061119938 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP INTERNATIONAL SERIES INC DATE OF NAME CHANGE: 20021118 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: RIVERSOURCE STRATEGIC ALLOCATION 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: 061119930 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP MANAGED SERIES INC DATE OF NAME CHANGE: 19991124 FORMER COMPANY: FORMER CONFORMED NAME: IDS MANAGED RETIREMENT FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE TAX-EXEMPT INCOME 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: 061119928 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP HIGH YIELD TAX-EXEMPT SERIES INC DATE OF NAME CHANGE: 20021118 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE RETIREMENT SERIES TRUST CENTRAL INDEX KEY: 0001352280 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 333-131683 FILM NUMBER: 061119934 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 612-671-4321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: RiverSource Retirement Series Trust DATE OF NAME CHANGE: 20060206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE 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: 061119923 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: RIVERSOURCE EQUITY SERIES, INC. DATE OF NAME CHANGE: 20060504 FORMER COMPANY: FORMER CONFORMED NAME: AXP EQUITY SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP EQUITY SELECT FUND INC DATE OF NAME CHANGE: 19991124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE 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: 061119926 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP TAX-EXEMPT SERIES INC DATE OF NAME CHANGE: 20000127 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: RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. CENTRAL INDEX KEY: 0001140531 IRS NUMBER: 412009895 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 333-64010 FILM NUMBER: 061119939 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP PARTNERS INTERNATIONAL SERIES INC DATE OF NAME CHANGE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST CENTRAL INDEX KEY: 0000792719 IRS NUMBER: 416290232 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-05102 FILM NUMBER: 061119931 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP SPECIAL TAX-EXEMPT SERIES TRUST DATE OF NAME CHANGE: 19990628 FORMER COMPANY: FORMER CONFORMED NAME: IDS SPECIAL TAX EXEMPT SERIES TRUST DATE OF NAME CHANGE: 19920703 0000049697 S000003362 RiverSource Diversified Bond Fund C000009231 RiverSource Diversified Bond Fund Class I RDBIX C000009232 RiverSource Diversified Bond Fund Class A INBNX C000009233 RiverSource Diversified Bond Fund Class B ININX C000009234 RiverSource Diversified Bond Fund Class C AXBCX C000009235 RiverSource Diversified Bond Fund Class Y IDBYX C000038360 RiverSource Diversified Bond Fund Class R2 C000038361 RiverSource Diversified Bond Fund Class R3 C000038362 RiverSource Diversified Bond Fund Class R5 C000038363 RiverSource Diversified Bond Fund Class W C000039562 RiverSource Diversified Bond Fund Class R4 0000052347 S000003395 RiverSource Balanced 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Class Y C000009454 RiverSource Tax-Exempt High Income Fund Class A INHYX C000009455 RiverSource Tax-Exempt High Income Fund Class B IHYBX C000009456 RiverSource Tax-Exempt High Income Fund Class C AHECX 0000315524 S000003407 RiverSource Tax-Exempt Money Market Fund C000009408 RiverSource Tax-Exempt Money Market Fund ITFXX 0000728374 S000003310 RiverSource High Yield Bond Fund C000008855 RiverSource High Yield Bond Fund Class I RSHIX C000008856 RiverSource High Yield Bond Fund Class Y C000008857 RiverSource High Yield Bond Fund Class A INEAX C000008858 RiverSource High Yield Bond Fund Class B IEIBX C000008859 RiverSource High Yield Bond Fund Class C APECX 0000740146 S000003300 RiverSource Equity Value Fund C000008795 RiverSource Equity Value Fund Class C C000008796 RiverSource Equity Value Fund Class I C000008797 RiverSource Equity Value Fund Class A IEVAX C000008798 RiverSource Equity Value Fund Class B INEGX C000008799 RiverSource Equity Value Fund Class Y AEVYX 0000740146 S000003301 RiverSource Small Cap Growth Fund C000008800 RiverSource Small Cap Growth Fund Class I C000008801 RiverSource Small Cap Growth Fund Class Y C000008802 RiverSource Small Cap Growth Fund Class A AXSCX C000008803 RiverSource Small Cap Growth Fund Class B ASGBX C000008804 RiverSource Small Cap Growth Fund Class C APRCX 0000740146 S000003302 RiverSource Small Cap Advantage Fund C000008805 RiverSource Small Cap Advantage Fund Class I C000008806 RiverSource Small Cap Advantage Fund Class Y C000008807 RiverSource Small Cap Advantage Fund Class A ASAAX C000008808 RiverSource Small Cap Advantage Fund Class B ASABX C000008809 RiverSource Small Cap Advantage Fund Class C ADVCX 0000750022 S000003408 RiverSource European Equity Fund C000009409 RiverSource European Equity Fund Class C C000009410 RiverSource European Equity Fund Class I C000009411 RiverSource European Equity Fund Class Y C000009412 RiverSource European Equity Fund Class A AXEAX C000009413 RiverSource European Equity Fund Class B AEEBX 0000750022 S000003409 RiverSource International Opportunity Fund C000009414 RiverSource International Opportunity Fund Class C C000009415 RiverSource International Opportunity Fund Class I ATNIX C000009416 RiverSource International Opportunity Fund Class A INIFX C000009417 RiverSource International Opportunity Fund Class B IWWGX C000009418 RiverSource International Opportunity Fund Class Y IDIYX 0000750022 S000011669 RiverSource Disciplined International Equity Fund C000032024 RiverSource Disciplined International Equity Fund Class A C000032025 RiverSource Disciplined International Equity Fund Class B C000032026 RiverSource Disciplined International Equity Fund Class C C000032027 RiverSource Disciplined International Equity Fund Class I C000032028 RiverSource Disciplined International Fund Equity Class Y 0000755221 S000003404 RiverSource Strategic Allocation Fund C000009395 RiverSource Strategic Allocation Fund Class C RSCCX C000009396 RiverSource Strategic Allocation Fund Class A IMRFX C000009397 RiverSource Strategic Allocation Fund Class B IMRBX C000009398 RiverSource Strategic Allocation Fund Class Y IDRYX C000039563 RiverSource Strategic Allocation Fund Class I C000039564 RiverSource Strategic Allocation Fund Class R2 C000039565 RiverSource Strategic Allocation Fund Class R3 C000039566 RiverSource Strategic Allocation Fund Class R4 C000039567 RiverSource Strategic Allocation Fund Class R5 0000755222 S000003299 RiverSource Precious Metals Fund C000008790 RiverSource Precious Metals Fund Class C C000008791 RiverSource Precious Metals Fund Class I C000008792 RiverSource Precious Metals Fund Class Y AEVYX C000008793 RiverSource Precious Metals Fund Class A INPMX C000008794 RiverSource Precious Metals Fund Class B INPBX 0000764802 S000003306 RiverSource Short Duration U.S. Government Fund C000008827 RiverSource Short Duration U.S. Government Fund Class I AGMIX C000008828 RiverSource Short Duration U.S. Government Fund Class A IFINX C000008829 RiverSource Short Duration U.S. Government Fund Class B ISHOX C000008830 RiverSource Short Duration U.S. Government Fund Class C AXFCX C000008831 RiverSource Short Duration U.S. Government Fund Class Y IDFYX 0000764802 S000003307 RiverSource U.S. Government Mortgage Fund C000008832 RiverSource U.S. Government Mortgage Fund Class I C000008833 RiverSource U.S. Government Mortgage Fund Class Y RSGYX C000008834 RiverSource U.S. Government Mortgage Fund Class A AUGAX C000008835 RiverSource U.S. Government Mortgage Fund Class B AUGBX C000008836 RiverSource U.S. Government Mortgage Fund Class C AUGCX 0000792717 S000003336 RiverSource California Tax-Exempt Fund C000009057 RiverSource California Tax-Exempt Fund Class C C000009058 RiverSource California Tax-Exempt Fund Class A ICALX C000009059 RiverSource California Tax-Exempt Fund Class B ACABX 0000792719 S000003349 RiverSource Massachussetts Tax-Exempt Fund C000009155 RiverSource Massachussetts Tax-Exempt Fund Class C C000009156 RiverSource Massachussetts Tax-Exempt Fund Class A IDMAX C000009157 RiverSource Massachussetts Tax-Exempt Fund Class B AXMBX 0000792719 S000003350 RiverSource Michigan Tax-Exempt Fund C000009158 RiverSource Michigan Tax-Exempt Fund Class B C000009159 RiverSource Michigan Tax-Exempt Fund Class C C000009160 RiverSource Michigan Tax-Exempt Fund Class A INMIX 0000792719 S000003351 RiverSource Minnesota Tax-Exempt Fund C000009161 RiverSource Minnesota Tax-Exempt Fund Class C C000009162 RiverSource Minnesota Tax-Exempt Fund Class A IMNTX C000009163 RiverSource Minnesota Tax-Exempt Fund Class B IDSMX 0000792719 S000003352 RiverSource New York Tax-Exempt Fund C000009164 RiverSource New York Tax-Exempt Fund Class B C000009165 RiverSource New York Tax-Exempt Fund Class C C000009166 RiverSource New York Tax-Exempt Fund Class A INYKX 0000792719 S000003353 RiverSource Ohio Tax-Exempt Fund C000009167 RiverSource Ohio Tax-Exempt Fund Class B C000009168 RiverSource Ohio Tax-Exempt Fund Class C C000009169 RiverSource Ohio Tax-Exempt Fund Class A IOHIX 0000831025 S000003340 RiverSource Dividend Opportunity Fund C000009087 RiverSource Dividend Opportunity Fund Class I RSOIX C000009088 RiverSource Dividend Opportunity Fund Class Y C000009089 RiverSource Dividend Opportunity Fund Class A INUTX C000009090 RiverSource Dividend Opportunity Fund Class B IUTBX C000009091 RiverSource Dividend Opportunity Fund Class C ACUIX 0000831025 S000003341 RiverSource Real Estate Fund C000009092 RiverSource Real Estate Fund Class C C000009093 RiverSource Real Estate Fund Class Y C000009094 RiverSource Real Estate Fund Class A ARLAX C000009095 RiverSource Real Estate Fund Class B AESBX C000009096 RiverSource Real Estate Fund Class I AESIX 0000842918 S000003513 RiverSource Emerging Markets Fund C000009724 RiverSource Emerging Markets Fund Class C C000009725 RiverSource Emerging Markets Fund Class I C000009726 RiverSource Emerging Markets Fund Class Y C000009727 RiverSource Emerging Markets Fund Class A IDEAX C000009728 RiverSource Emerging Markets Fund Class B IEMBX 0000842918 S000003514 RiverSource Emerging Markets Bond Fund C000009729 RiverSource Emerging Markets Bond Fund Class A C000009730 RiverSource Emerging Markets Bond Fund Class B C000009731 RiverSource Emerging Markets Bond Fund Class C C000009732 RiverSource Emerging Markets Bond Fund Class I RSMIX C000009733 RiverSource Emerging Markets Bond Fund Class Y 0000842918 S000003516 RiverSource Global Bond Fund C000009738 RiverSource Global Bond Fund Class Y C000009739 RiverSource Global Bond Fund Class A IGBFX C000009740 RiverSource Global Bond Fund Class B IGLOX C000009741 RiverSource Global Bond Fund Class C AGBCX C000009742 RiverSource Global Bond Fund Class I AGBIX 0000842918 S000003517 RiverSource Global Equity Fund C000009743 RiverSource Global Equity Fund Class C C000009744 RiverSource Global Equity Fund Class A IGLGX C000009745 RiverSource Global Equity Fund Class B IDGBX C000009746 RiverSource Global Equity Fund Class Y IDGYX 0000842918 S000003518 RiverSource Global Technology Fund C000009747 RiverSource Global Technology Fund Class I C000009748 RiverSource Global Technology Fund Class Y C000009749 RiverSource Global Technology Fund Class A AXIAX C000009750 RiverSource Global Technology Fund Class B INVBX C000009751 RiverSource Global Technology Fund Class C AXICX 0000842918 S000007870 RiverSource Absolute Return Currency and Income Fund C000021407 RiverSource Absolute Return Currency and Income Fund Class A C000021408 RiverSource Absolute Return Currency and Income Fund Class B C000021409 RiverSource Absolute Return Currency and Income Fund Class C C000021410 RiverSource Absolute Return Currency and Income Fund Class I C000021411 RiverSource Absolute Return Currency and Income Fund Class Y 0000854669 S000003291 RiverSource Portfolio Builder - Conservative Fund C000008761 RiverSource Portfolio Builder - Conservative Fund Class C C000008762 RiverSource Portfolio Builder - Conservative Fund Class Y C000008763 RiverSource Portfolio Builder - Conservative Fund Class A ABDAX C000008764 RiverSource Portfolio Builder - Conservative Fund Class B ABBDX 0000854669 S000003292 RiverSource Portfolio Builder - Moderate Conservative Fund C000008765 RiverSource Portfolio Builder - Moderate Conservative Fund Class C C000008766 RiverSource Portfolio Builder - Moderate Conservative Fund Class Y C000008767 RiverSource Portfolio Builder - Moderate Conservative Fund Class A AUCAX C000008768 RiverSource Portfolio Builder - Moderate Conservative Fund Class B AMDBX 0000854669 S000003293 RiverSource Portfolio Builder - Moderate Fund C000008769 RiverSource Portfolio Builder - Moderate Fund Class C AMTCX C000008770 RiverSource Portfolio Builder - Moderate Fund Class Y C000008771 RiverSource Portfolio Builder - Moderate Fund Class A ABUAX C000008772 RiverSource Portfolio Builder - Moderate Fund Class B AURBX 0000854669 S000003294 RiverSource Portfolio Builder - Moderate Aggressive Fund C000008773 RiverSource Portfolio Builder - Moderate Aggressive Fund Class C AGECX C000008774 RiverSource Portfolio Builder - Moderate Aggressive Fund Class Y C000008775 RiverSource Portfolio Builder - Moderate Aggressive Fund Class A AXMAX C000008776 RiverSource Portfolio Builder - Moderate Aggressive Fund Class B ABMBX 0000854669 S000003295 RiverSource Portfolio Builder - Aggressive Fund C000008777 RiverSource Portfolio Builder - Aggressive Fund Class C RBGCX C000008778 RiverSource Portfolio Builder - Aggressive Fund Class Y C000008779 RiverSource Portfolio Builder - Aggressive Fund Class A AXBAX C000008780 RiverSource Portfolio Builder - Aggressive Fund Class B AXPBX 0000854669 S000003296 RiverSource Portfolio Builder - Total Equity Fund C000008781 RiverSource Portfolio Builder - Total Equity Fund Class C C000008782 RiverSource Portfolio Builder - Total Equity Fund Class Y C000008783 RiverSource Portfolio Builder - Total Equity Fund Class A AXTAX C000008784 RiverSource Portfolio Builder - Total Equity Fund Class B AXTBX 0000854669 S000003297 RiverSource S&P 500 Index Fund C000008785 RiverSource S&P 500 Index Fund Class D ADIDX C000008786 RiverSource S&P 500 Index Fund Class E ADIEX 0000854669 S000003298 RiverSource Small Company Index Fund C000008787 RiverSource Small Company Index Fund Class A ISIAX C000008788 RiverSource Small Company Index Fund Class B ISIBX C000008789 RiverSource Small Company Index Fund Class Y ISCYX 0001137342 S000003328 RiverSource Aggressive Growth Fund C000009013 RiverSource Aggressive Growth Fund Class C C000009014 RiverSource Aggressive Growth Fund Class I C000009015 RiverSource Aggressive Growth Fund Class A ASGFX C000009016 RiverSource Aggressive Growth Fund Class B ARGBX C000009017 RiverSource Aggressive Growth Fund Class Y 0001137342 S000003329 RiverSource Fundamental Growth Fund C000009018 RiverSource Fundamental Growth Fund Class B C000009019 RiverSource Fundamental Growth Fund Class C C000009020 RiverSource Fundamental Growth Fund Class Y C000009021 RiverSource Fundamental Growth Fund Class A AXPAX C000009022 RiverSource Fundamental Growth Fund Class I APGIX 0001137342 S000003330 RiverSource Fundamental Value Fund C000009023 RiverSource Fundamental Value Fund Class Y C000009024 RiverSource Fundamental Value Fund Class A AFVAX C000009025 RiverSource Fundamental Value Fund Class B AFVBX C000009026 RiverSource Fundamental Value Fund Class C AFVCX C000009027 RiverSource Fundamental Value Fund Class I AFVIX 0001137342 S000003331 RiverSource Select Value Fund C000009028 RiverSource Select Value Fund Class I C000009029 RiverSource Select Value Fund Class Y C000009030 RiverSource Select Value Fund Class A AXVAX C000009031 RiverSource Select Value Fund Class B AXVBX C000009032 RiverSource Select Value Fund Class C ACSVX 0001137342 S000003332 RiverSource Small Cap Equity Fund C000009033 RiverSource Small Cap Equity Fund Class C C000009034 RiverSource Small Cap Equity Fund Class I C000009035 RiverSource Small Cap Equity Fund Class Y C000009036 RiverSource Small Cap Equity Fund Class A AXSAX C000009037 RiverSource Small Cap Equity Fund Class B AXSBX 0001137342 S000003333 RiverSource Small Cap Value Fund C000009038 RiverSource Small Cap Value Fund Class I C000009039 RiverSource Small Cap Value Fund Class Y C000009040 RiverSource Small Cap Value Fund Class A ASVAX C000009041 RiverSource Small Cap Value Fund Class B ASVBX C000009042 RiverSource Small Cap Value Fund Class C APVCX 0001137342 S000003334 RiverSource Value Fund C000009043 RiverSource Value Fund Class Y C000009044 RiverSource Value Fund Class A AVLAX C000009045 RiverSource Value Fund Class B AVFBX C000009046 RiverSource Value Fund Class C AVUCX C000009047 RiverSource Value Fund Class I AUEIX 0001140531 S000003412 RiverSource International Aggressive Growth Fund C000009427 RiverSource International Aggressive Growth Fund Class C C000009428 RiverSource International Aggressive Growth Fund Class Y C000009429 RiverSource International Aggressive Growth Fund Class A AXGAX C000009430 RiverSource International Aggressive Growth Fund Class B APIBX C000009431 RiverSource International Aggressive Growth Fund Class I AIGGX 0001140531 S000003413 RiverSource International Equity Fund C000009432 RiverSource International Equity Fund Class C C000009433 RiverSource International Equity Fund Class I AILIX C000009434 RiverSource International Equity Fund Class Y C000009435 RiverSource International Equity Fund Class A AAICX C000009436 RiverSource International Equity Fund Class B APCBX 0001140531 S000003414 RiverSource International Select Value Fund C000009437 RiverSource International Select Value Fund Class Y C000009438 RiverSource International Select Value Fund Class A APIAX C000009439 RiverSource International Select Value Fund Class B AXIBX C000009440 RiverSource International Select Value Fund Class C APICX C000009441 RiverSource International Select Value Fund Class I APRIX 0001140531 S000003415 RiverSource International Small Cap Fund C000009442 RiverSource International Small Cap Fund Class C C000009443 RiverSource International Small Cap Fund Class I C000009444 RiverSource International Small Cap Fund Class Y C000009445 RiverSource International Small Cap Fund Class A AISCX C000009446 RiverSource International Small Cap Fund Class B APNBX 0001352280 S000011354 RiverSource Retirement Plus Fund - 2010 C000031460 RiverSource Retirement Plus Fund - 2010 Class A C000031461 RiverSource Retirement Plus Fund - 2010 Class Y C000039570 RiverSource Retirement Plus 2010 Fund Class R2 C000039571 RiverSource Retirement Plus 2010 Fund Class R3 C000039572 RiverSource Retirement Plus 2010 Fund Class R4 C000039573 RiverSource Retirement Plus 2010 Fund Class R5 0001352280 S000011355 RiverSource Retirement Plus Fund - 2015 C000031462 RiverSource Retirement Plus Fund - 2015 Class A C000031463 RiverSource Retirement Plus Fund - 2015 Class Y C000039574 RiverSource Retirement Plus 2015 Fund Class R2 C000039575 RiverSource Retirement Plus 2015 Fund Class R3 C000039576 RiverSource Retirement Plus 2015 Fund Class R4 C000039577 RiverSource Retirement Plus 2015 Fund Class R5 0001352280 S000011356 RiverSource Retirement Plus Fund - 2020 C000031464 RiverSource Retirement Plus Fund - 2020 Class A C000031465 RiverSource Retirement Plus Fund - 2020 Class Y C000039578 RiverSource Retirement Plus 2020 Fund Class R3 C000039579 RiverSource Retirement Plus 2020 Fund Class R4 C000039580 RiverSource Retirement Plus 2020 Fund Class R5 C000039581 RiverSource Retirement Plus 2020 Fund Class R2 0001352280 S000011357 RiverSource Retirement Plus Fund - 2025 C000031466 RiverSource Retirement Plus Fund - 2025 Class A C000031467 RiverSource Retirement Plus Fund - 2025 Class Y C000039582 RiverSource Retirement Plus 2025 Fund Class R2 C000039583 RiverSource Retirement Plus 2025 Fund Class R3 C000039584 RiverSource Retirement Plus 2025 Fund Class R4 C000039585 RiverSource Retirement Plus 2025 Fund Class R5 0001352280 S000011358 RiverSource Retirement Plus Fund - 2030 C000031468 RiverSource Retirement Plus Fund - 2030 Class Y C000031469 RiverSource Retirement Plus Fund - 2030 Class A C000039586 RiverSource Retirement Plus 2030 Fund Class R2 C000039587 RiverSource Retirement Plus 2030 Fund Class R3 C000039588 RiverSource Retirement Plus 2030 Fund Class R4 C000039589 RiverSource Retirement Plus 2030 Fund Class R5 0001352280 S000011359 RiverSource Retirement Plus Fund - 2035 C000031470 RiverSource Retirement Plus Fund - 2035 Class A C000031471 RiverSource Retirement Plus Fund - 2035 Class Y C000039590 RiverSource Retirement Plus 2035 Fund Class R2 C000039591 RiverSource Retirement Plus 2035 Fund Class R3 C000039592 RiverSource Retirement Plus 2035 Fund Class R4 C000039593 RiverSource Retirement Plus 2035 Fund Class R5 0001352280 S000011360 RiverSource Retirement Plus Fund - 2040 C000031472 RiverSource Retirement Plus Fund - 2040 Class A C000031473 RiverSource Retirement Plus Fund - 2040 Class Y C000039594 RiverSource Retirement Plus 2040 Fund Class R2 C000039595 RiverSource Retirement Plus 2040 Fund Class R3 C000039596 RiverSource Retirement Plus 2040 Fund Class R4 C000039597 RiverSource Retirement Plus 2040 Fund Class R5 0001352280 S000011361 RiverSource Retirement Plus Fund - 2045 C000031474 RiverSource Retirement Plus Fund - 2045 Class A C000031475 RiverSource Retirement Plus Fund - 2045 Class Y C000039598 RiverSource Retirement Plus 2045 Fund Class R2 C000039599 RiverSource Retirement Plus 2045 Fund Class R3 C000039600 RiverSource Retirement Plus 2045 Fund Class R4 C000039601 RiverSource Retirement Plus 2045 Fund Class R5 497 1 s6500m.txt STATEMENT OF ADDITIONAL INFORMATION - SEPTEMBER 29, 2006 STATEMENT OF ADDITIONAL INFORMATION SEPT. 29, 2006 RIVERSOURCE(SM) BOND SERIES, INC. RIVERSOURCE MANAGERS SERIES, INC. RiverSource Core Bond Fund RiverSource Aggressive Growth Fund RiverSource Floating Rate Fund RiverSource Fundamental Growth Fund RiverSource Income Opportunities Fund RiverSource Fundamental Value Fund RiverSource Inflation Protected Securities Fund RiverSource Select Value Fund RiverSource Limited Duration Bond Fund RiverSource Small Cap Equity Fund RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RiverSource Small Cap Value Fund RiverSource California Tax-Exempt Fund RiverSource Value Fund RIVERSOURCE DIMENSIONS SERIES, INC. RIVERSOURCE MARKET ADVANTAGE SERIES, INC. RiverSource Disciplined Small and Mid Cap Equity Fund RiverSource Portfolio Builder Aggressive Fund RiverSource Disciplined Small Cap Value Fund RiverSource Portfolio Builder Conservative Fund RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. RiverSource Portfolio Builder Moderate Aggressive Fund RiverSource Diversified Bond Fund RiverSource Portfolio Builder Moderate Conservative Fund RIVERSOURCE EQUITY SERIES, INC. RiverSource Portfolio Builder Moderate Fund RiverSource Mid Cap Growth Fund RiverSource Portfolio Builder Total Equity Fund RIVERSOURCE GLOBAL SERIES, INC. RiverSource S&P 500 Index Fund RiverSource Absolute Return Currency and Income Fund RiverSource Small Company Index Fund RiverSource Emerging Markets Bond Fund RIVERSOURCE MONEY MARKET SERIES, INC. RiverSource Emerging Markets Fund RiverSource Cash Management Fund RiverSource Global Bond Fund RIVERSOURCE RETIREMENT SERIES TRUST RiverSource Global Equity Fund RiverSource Retirement Plus(SM) 2010 Fund RiverSource Global Technology Fund RiverSource Retirement Plus 2015 Fund RIVERSOURCE GOVERNMENT INCOME SERIES, INC. RiverSource Retirement Plus 2020 Fund RiverSource Short Duration U.S. Government Fund RiverSource Retirement Plus 2025 Fund RiverSource U.S. Government Mortgage Fund RiverSource Retirement Plus 2030 Fund RIVERSOURCE HIGH YIELD INCOME SERIES, INC. RiverSource Retirement Plus 2035 Fund RiverSource High Yield Bond Fund RiverSource Retirement Plus 2040 Fund RIVERSOURCE INCOME SERIES, INC. RiverSource Retirement Plus 2045 Fund RiverSource Income Builder Basic Income Fund RIVERSOURCE SECTOR SERIES, INC. RiverSource Income Builder Enhanced Income Fund RiverSource Dividend Opportunity Fund RiverSource Income Builder Moderate Income Fund RiverSource Real Estate Fund RIVERSOURCE INTERNATIONAL MANAGERS SERIES, INC. RIVERSOURCE SELECTED SERIES, INC. RiverSource International Aggressive Fund Growth Fund RiverSource Precious Metals Fund RiverSource International Equity Fund RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST RiverSource International Select Value Fund RiverSource Massachusetts Tax-Exempt Fund RiverSource International Small Cap Fund RiverSource Michigan Tax-Exempt Fund RIVERSOURCE INTERNATIONAL SERIES, INC. RiverSource Minnesota Tax-Exempt Fund RiverSource Disciplined International Equity Fund RiverSource New York Tax-Exempt Fund RiverSource European Equity Fund RiverSource Ohio Tax-Exempt Fund RiverSource International Opportunity Fund RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC. RIVERSOURCE INVESTMENT SERIES, INC. RiverSource Strategic Allocation Fund RiverSource Balanced Fund RIVERSOURCE STRATEGY SERIES, INC. RiverSource Diversified Equity Income Fund RiverSource Equity Value Fund RiverSource Mid Cap Value Fund RiverSource Small Cap Advantage Fund RIVERSOURCE LARGE CAP SERIES, INC. RiverSource Small Cap Growth Fund RiverSource Disciplined Equity Fund RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC. RiverSource Growth Fund RiverSource Tax-Exempt High Income Fund RiverSource Large Cap Equity Fund RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES, INC. RiverSource Large Cap Value Fund RiverSource Tax-Exempt Money Market Fund RIVERSOURCE TAX-EXEMPT SERIES, INC. RiverSource Intermediate Tax-Exempt Fund RiverSource Tax-Exempt Bond Fund
This is the Statement of Additional Information (SAI) for each of the funds listed on the previous page. This SAI is not a prospectus. It should be read together with the appropriate current fund prospectus, the date of which can be found in Table 1 of this SAI. Each fund's financial statements for its most recent fiscal period are contained in the fund's Annual or Semiannual Report to shareholders. The Independent Registered Public Accounting Firm's Report and the Financial Statements, including Notes to the Financial Statements and the Schedule of Investments in Securities and any applicable Schedule of Affiliated Funds, contained in the Annual Report, are incorporated in this SAI by reference. No other portion of the Annual Report is incorporated by reference. For a free copy of a fund prospectus, annual or semiannual report, contact your financial institution or write to RiverSource Funds, 734 Ameriprise Financial Center, Minneapolis, MN 55474, call (888) 791-3380 or visit riversource.com/funds. Each fund is governed by a Board of Directors/Trustees ("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 Fundamental and Nonfundamental Investment Policies...............................p. 6 Investment Strategies and Types of Investments .................................p. 16 Information Regarding Risks and Investment Strategies ..........................p. 18 Securities Transactions ........................................................p. 44 Brokerage Commissions Paid to Brokers Affiliated with the Investment Manager ...p. 57 Valuing Fund Shares ............................................................p. 61 Portfolio Holdings Disclosure ..................................................p. 70 Proxy Voting ...................................................................p. 71 Investing in a Fund ............................................................p. 73 Selling Shares .................................................................p. 77 Pay-out Plans ..................................................................p. 78 Capital Loss Carryover..........................................................p. 79 Taxes ..........................................................................p. 83 Agreements......................................................................p. 87 Organizational Information ....................................................p. 158 Board Members and Officers ....................................................p. 162 Control Persons and Principal Holders of Securities............................p. 173 Independent Registered Public Accounting Firm..................................p. 185 Appendix A: Description of Ratings.............................................p. 186 Appendix B: State Risk Factors.................................................p. 192 Appendix C: Additional Information about the S&P 500 Index.....................p. 193
Statement of Additional Information - Sept. 29, 2006 Page 2 LIST OF TABLES 1. Fund Fiscal Year Ends, Prospectus Date and Investment Categories........4 2. Fundamental Policies....................................................6 3. Nonfundamental Policies................................................10 4. Investment Strategies and Types of Investments.........................16 5. Total Brokerage Commissions............................................46 6. Brokerage Directed for Research and Turnover Rates.....................48 7. Securities of Regular Brokers or Dealers...............................51 8. Brokerage Commissions Paid to Investment Manager or Affiliates.........58 9. Valuing Fund Shares....................................................61 10. Class A Sales Charge...................................................73 11. Public Offering Price..................................................74 12. Capital Loss Carryover.................................................79 13. Corporate Deduction and Qualified Dividend Income......................84 14. Investment Management Services Agreement Fee Schedule..................87 15. Lipper Indexes.........................................................95 16. Performance Incentive Adjustment Calculation...........................96 17. Management Fees and Nonadvisory Expenses...............................97 18. Subadvisers and Subadvisory Agreement Fee Schedules...................102 19. Subadvisory Fees......................................................105 20. Portfolio Managers....................................................107 21. Administrative Services Agreement Fee Schedule........................146 22. Administrative Fees...................................................148 23. Sales Charges Paid to Distributor.....................................152 24. 12b-1 Fees............................................................155 25. Fund History Table for RiverSource Funds..............................158 26. Board Members.........................................................162 27. Fund Officers.........................................................163 28. Committee Meetings....................................................164 29. Board Member Holdings - All Funds.....................................165 30. Board Member Holdings - Individual Funds..............................165 31. Board Member Compensation - All Funds.................................168 32. Board Member Compensation - Individual Funds..........................169 33. Control Persons and Principal Holders of Securities...................173
Statement of Additional Information - Sept. 29, 2006 Page 3
TABLE 1. FUND FISCAL YEAR ENDS, PROSPECTUS DATE AND INVESTMENT CATEGORIES - --------------------------------------------------------------------------------------------------------------- FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY - --------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income October 31 June 2, 2006 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Aggressive Growth May 31 July 28, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Balanced September 30 Nov. 29, 2005 Balanced - --------------------------------------------------------------------------------------------------------------- California Tax-Exempt August 31 Oct. 3, 2005 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Cash Management July 31 Sept. 29, 2006 Taxable money market - --------------------------------------------------------------------------------------------------------------- Core Bond July 31 Sept. 29, 2006 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Disciplined Equity July 31 Sept. 29, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined International Equity October 31 April 24, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity July 31 Sept. 29, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value July 31 Sept. 29, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Diversified Bond August 31 Oct. 28, 2005 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Diversified Equity Income September 30 Nov. 29, 2005 Equity - --------------------------------------------------------------------------------------------------------------- Dividend Opportunity June 30 Aug. 29, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Emerging Markets October 31 Dec. 30, 2005 Equity - --------------------------------------------------------------------------------------------------------------- Emerging Markets Bond October 31 July 28, 2006 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Equity Value March 31 May 30, 2006 Equity - --------------------------------------------------------------------------------------------------------------- European Equity October 31 Dec. 30, 2005 Equity - --------------------------------------------------------------------------------------------------------------- Floating Rate July 31 Sept. 29, 2006 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Fundamental Growth May 31 July 28, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Fundamental Value May 31 July 28, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Global Bond October 31 Dec. 30, 2005 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Global Equity October 31 Dec. 30, 2005 Equity - --------------------------------------------------------------------------------------------------------------- Global Technology October 31 Dec. 30, 2005 Equity - --------------------------------------------------------------------------------------------------------------- Growth July 31 Sept. 29, 2006 Equity - --------------------------------------------------------------------------------------------------------------- High Yield Bond May 31 July 28, 2006 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Basic Income May 31 July 28, 2006 Funds-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income May 31 July 28, 2006 Funds-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income May 31 July 28, 2006 Funds-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Income Opportunities July 31 Sept. 29, 2006 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Inflation Protected Securities July 31 Sept. 29, 2006 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt November 30 Jan. 27, 2006 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- International Aggressive Growth October 31 Dec. 30, 2005 Equity - --------------------------------------------------------------------------------------------------------------- International Equity October 31 Dec. 30, 2005 Equity - --------------------------------------------------------------------------------------------------------------- International Opportunity October 31 Dec. 30, 2005 Equity - --------------------------------------------------------------------------------------------------------------- International Select Value October 31 Dec. 30, 2005 Equity - --------------------------------------------------------------------------------------------------------------- International Small Cap October 31 Dec. 30, 2005 Equity - --------------------------------------------------------------------------------------------------------------- Large Cap Equity July 31 Sept. 29, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Large Cap Value July 31 Sept. 29, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Limited Duration Bond July 31 Sept. 29, 2006 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Massachusetts Tax-Exempt August 31 Oct. 3, 2005 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Michigan Tax-Exempt August 31 Oct. 3, 2005 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Mid Cap Growth November 30 Jan. 27, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Mid Cap Value September 30 Nov. 29, 2005 Equity - --------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt August 31 Oct. 3, 2005 State tax-exempt fixed income - ---------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 4
- --------------------------------------------------------------------------------------------------------------- FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY - --------------------------------------------------------------------------------------------------------------- New York Tax-Exempt August 31 Oct. 3, 2005 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Ohio Tax-Exempt August 31 Oct. 3, 2005 State tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive January 31 March 31, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative January 31 March 31, 2006 Funds-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate January 31 March 31, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive January 31 March 31, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative January 31 March 31, 2006 Funds-of-funds - fixed income - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity January 31 March 31, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Precious Metals March 31 May 30, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Real Estate June 30 Aug. 29, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 April 30 April 26, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 April 30 April 26, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 April 30 April 26, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 April 30 April 26, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 April 30 April 26, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 April 30 April 26, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 April 30 April 26, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 April 30 April 26, 2006 Funds-of-funds - equity - --------------------------------------------------------------------------------------------------------------- S&P 500 Index January 31 March 31, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Select Value May 31 July 28, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government May 31 July 28, 2006 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Small Cap Advantage March 31 May 30, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Small Cap Equity May 31 July 28, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Small Cap Growth March 31 May 30, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Small Cap Value May 31 July 28, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Small Company Index January 31 March 31, 2006 Equity - --------------------------------------------------------------------------------------------------------------- Strategic Allocation September 30 Nov. 29, 2005 Balanced - --------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond November 30 Jan. 27, 2006 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income November 30 Jan. 27, 2006 Tax-exempt fixed income - --------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market December 31 March 1, 2006 Tax-exempt money market - --------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage May 31 July 28, 2006 Taxable fixed income - --------------------------------------------------------------------------------------------------------------- Value May 31 July 28, 2006 Equity - --------------------------------------------------------------------------------------------------------------- The taxable fixed income fund investment category includes Absolute Return Currency and Income Fund, which is an alternative investment strategy. As of the date of this SAI, the fund has not passed its first fiscal year end, and therefore has no reporting information.
FUNDS-OF-FUNDS Funds-of-funds invest in a combination of underlying funds. These underlying funds have their own investment policies that may be more or less restrictive than the policies of the funds-of-funds. The policies of the underlying funds may permit funds-of-funds to engage in investment strategies indirectly that would otherwise be prohibited under the investment restrictions of the funds-of-funds. Statement of Additional Information - Sept. 29, 2006 Page 5 FUNDAMENTAL AND NONFUNDAMENTAL INVESTMENT POLICIES Fundamental investment policies adopted by a fund cannot be changed without the approval of a majority of the outstanding voting securities of the fund as defined in the Investment Company Act of 1940, as amended (the 1940 Act). Nonfundamental investment policies may be changed by the Board at any time. Notwithstanding any of a fund's other investment policies, each fund may invest its assets in an open-end management investment company having substantially the same investment objectives, policies, and restrictions as the fund for the purpose of having those assets managed as part of a combined pool. FUNDAMENTAL POLICIES Fundamental policies are policies that can be changed only with shareholder approval. FOR EACH FUND: The fund will not: o Act as an underwriter (sell securities for others). However, under the securities laws, the fund may be deemed to be an underwriter when it purchases securities directly from the issuer and later resells them. o Lend securities or participate in an interfund lending program if the total of all such loans would exceed 33 1/3% of the fund's total assets except this fundamental investment policy shall not prohibit the fund from purchasing money market securities, loans, loan participation or other debt securities, or from entering into repurchase agreements. For funds-of-funds - equity, under current Board policy, the fund has no current intention to lend to a material extent. o Borrow money, except for temporary purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings) immediately after the borrowings. For funds-of-funds - equity, under current Board policy, the fund has no current intention to borrow to a material extent. ADDITIONALLY FOR CASH MANAGEMENT THE FUND WILL NOT: o Buy on margin or sell short or deal in options to buy or sell securities. o Purchase common stocks, preferred stocks, warrants, other equity securities, corporate bonds or debentures, state bonds, municipal bonds, or industrial revenue bonds. ADDITIONALLY FOR TAX-EXEMPT MONEY MARKET THE FUND WILL NOT: o Buy on margin or sell short. In addition to the policies described above and any fundamental policy described in the prospectus, the chart below shows fund-specific policies that may be changed only with shareholder approval. The chart indicates whether or not the fund has a policy on a particular topic. A shaded box indicates that the fund does not have a policy on a particular topic. The specific policy is stated in the paragraphs that follow the table. TABLE 2. FUNDAMENTAL POLICIES The fund will not:
- ------------------------------------------------------------------------------------------------------------------------------------ A B C D E F G BUY OR SELL BUY OR SELL ISSUE SENIOR BUY MORE THAN INVEST MORE THAN CONCENTRATE IN INVEST LESS FUND REAL ESTATE COMMODITIES SECURITIES 10% OF AN ISSUER 5% IN AN ISSUER ANY ONE INDUSTRY THAN 80% - ------------------------------------------------------------------------------------------------------------------------------------ Absolute Return A1 B1 C1 F7 Currency and Income - ------------------------------------------------------------------------------------------------------------------------------------ Aggressive Growth A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced A1 B1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt A1 B1 G1 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Management A3 A3 D1 E1 - ------------------------------------------------------------------------------------------------------------------------------------ Core Bond A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Equity A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 6
- ------------------------------------------------------------------------------------------------------------------------------------ A B C D E F G BUY OR SELL BUY OR SELL ISSUE SENIOR BUY MORE THAN INVEST MORE THAN CONCENTRATE IN INVEST LESS FUND REAL ESTATE COMMODITIES SECURITIES 10% OF AN ISSUER 5% IN AN ISSUER ANY ONE INDUSTRY THAN 80% - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined A1 B4 C1 D1 E1 F1 International Equity - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Small and A1 B4 C1 D1 E1 F1 Mid Cap Equity - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value A1 B4 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Bond A1 B1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Equity Income A1 B1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Dividend Opportunity A1 B1 D1 E1 - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Bond A1 B4 C1 F5 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ European Equity A1 B1 C1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Floating Rate A1 B4 C1 D1 E1 F6 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Growth A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Value A1 B3 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Global Bond A1 B1 C1 D1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Global Equity A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Global Technology A1 B1 C1 - ------------------------------------------------------------------------------------------------------------------------------------ Growth A1 B1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ High Yield Bond A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder A1 B4 C1 F2 Basic Income - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder A1 B4 C1 F2 Enhanced Income - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder A1 B4 C1 F2 Moderate Income - ------------------------------------------------------------------------------------------------------------------------------------ Income Opportunities A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Inflation Protected A1 B1 C1 F1 Securities - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt A1 B1 D1 E1 G3 - ------------------------------------------------------------------------------------------------------------------------------------ International A1 B3 C1 D1 E1 F1 Aggressive Growth - ------------------------------------------------------------------------------------------------------------------------------------ International Equity A1 B3 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ International Opportunity A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ International Select Value A1 B3 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ International Small Cap A1 B3 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Equity A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Value A1 B3 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Limited Duration Bond A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Massachusetts Tax-Exempt A1 B1 G1 - ------------------------------------------------------------------------------------------------------------------------------------ Michigan Tax-Exempt A1 B1 G1 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Growth A1 B1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Minnesota Tax-Exempt A1 B1 G1 - ------------------------------------------------------------------------------------------------------------------------------------ New York Tax-Exempt A1 B1 G1 - ------------------------------------------------------------------------------------------------------------------------------------ Ohio Tax-Exempt A1 B1 G1 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 7
- ------------------------------------------------------------------------------------------------------------------------------------ A B C D E F G BUY OR SELL BUY OR SELL ISSUE SENIOR BUY MORE THAN INVEST MORE THAN CONCENTRATE IN INVEST LESS FUND REAL ESTATE COMMODITIES SECURITIES 10% OF AN ISSUER 5% IN AN ISSUER ANY ONE INDUSTRY THAN 80% - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder A1 B1 C1 F2 Aggressive - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder A1 B1 C1 F2 Conservative - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder A1 B1 C1 F2 Moderate - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder A1 B1 C1 F2 Moderate Aggressive - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder A1 B1 C1 F2 Moderate Conservative - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder A1 B1 C1 F2 Total Equity - ------------------------------------------------------------------------------------------------------------------------------------ Precious Metals A1 B1 C1 F3 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate A1 B1 C1 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 A1 B4 C1 F2 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 A1 B4 C1 F2 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 A1 B4 C1 F2 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 A1 B4 C1 F2 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 A1 B4 C1 F2 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 A1 B4 C1 F2 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 A1 B4 C1 F2 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 A1 B4 C1 F2 - ------------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index A1 B1 C1 F4 - ------------------------------------------------------------------------------------------------------------------------------------ Select Value A1 B3 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Short Duration A1 B1 C1 D1 E1 F1 U.S. Government - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Equity A1 B3 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value A1 B3 C1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Small Company Index A1 B1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Allocation A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond A1 B1 D1 E1 G3 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income A1 B1 D1 E1 G2 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market A2 B2 D1 E1 G3 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage A1 B1 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ Value A1 B3 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------------ 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. For purposes of this policy, the fund will not include any investments subject to the alternative minimum tax. Additionally, the fund may purchase gold, silver, or other precious metals, strategic metals or other metals occurring naturally with such metals. The fund does not intend to purchase bonds or other debt securities the interest from which is subject to the alternative minimum tax.
Statement of Additional Information - Sept. 29, 2006 Page 8 A. BUY OR SELL REAL ESTATE A1 - The fund will not buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. A2 - The fund will not invest in real estate, but the fund can invest in municipal bonds and notes secured by real estate or interest therein. For purposes of this policy, real estate includes real estate limited partnerships. A3 - The fund will not buy or sell real estate, commodities or commodity contracts. For purposes of this policy, real estate includes real estate limited partnerships. B. BUY OR SELL PHYSICAL COMMODITIES B1 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. B2 - The fund will not invest in commodities or commodity contracts. B3 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options, futures contracts and foreign currency or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. B4 - The fund will not buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options, futures contracts and foreign currency or from entering into forward currency contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. C. ISSUE SENIOR SECURITIES C1 - The fund will not issue senior securities, except as permitted under the 1940 Act. D. BUY MORE THAN 10% OF AN ISSUER D1 - The fund will not purchase more than 10% of the outstanding voting securities of an issuer, except that up to 25% of the fund's assets may be invested without regard to this 10% limitation. E. INVEST MORE THAN 5% IN AN ISSUER E1 - The fund will not invest more than 5% of its total assets in securities of any company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or other investment companies, and except that up to 25% of the fund's total assets may be invested without regard to this 5% limitation. F. CONCENTRATE F1 - The fund will not concentrate in any one industry. According to the present interpretation by the Securities and Exchange Commission (SEC), this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. F2 - The fund will not concentrate in any one industry. According to the present interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. The fund itself does not intend to concentrate, however the aggregation of holdings of the underlying funds may result in the fund indirectly investing more than 25% of its assets in a particular industry. The fund does not control the investments of the underlying funds and any indirect concentration will occur only as a result of the fund following its investment objectives by investing in the underlying funds. F3 - The fund will not invest less than 25% of its total assets in the precious metals industry, based on current market value at the time of purchase, unless market conditions temporarily require a defensive investment strategy. Statement of Additional Information - Sept. 29, 2006 Page 9 F4 - The fund will not concentrate in any one industry unless that industry represents more than 25% of the index tracked by the fund. For all other industries, in accordance with the current interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. F5 - While the fund may invest 25% or more of its total assets in the securities of foreign governmental and corporate entities located in the same country, it will not invest 25% or more of its total assets in any single foreign governmental issuer. F6 - The fund will not concentrate in any one industry. According to the present interpretation by the SEC, this means that up to 25% of the fund's total assets, based on current market value at time of purchase, can be invested in any one industry. For purposes of this restriction, loans will be considered investments in the industry of the underlying borrower, rather than that of the seller of the loan. F7 - Concentrate in any one industry, provided however, that this restriction shall not apply to securities or obligations issued or guaranteed by the U.S. Government, banks or bank holding companies or finance companies. For all other industries, this means that up to 25% of the fund's total assets, based on current market value at the time of purchase, can be invested in any one industry. G. INVEST LESS THAN 80% G1 - The fund will not under normal market conditions, invest less than 80% of its net assets in municipal obligations that are generally exempt from federal income tax as well as respective state and local income tax. G2 - The fund will not under normal market conditions, invest less than 80% of its net assets in bonds and notes issued by or on behalf of state and local governmental units whose interest, in the opinion of counsel for the issuer, is exempt from federal income tax and is not subject to the alternative minimum tax. G3 - The fund will not under normal market conditions, invest less than 80% of its net assets in bonds and other debt securities issued by or on behalf of state or local governmental units whose interest, in the opinion of counsel for the issuer, is exempt from federal income tax. NONFUNDAMENTAL POLICIES Nonfundamental policies are policies that can be changed by the Board without shareholder approval. The 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 DEPOSIT ILLIQUID MARGIN, MONEY INVESTING TO ON SECURITIES; INVESTMENT SELLING MARKET CONTROL OR FUND FUTURES BULLION COMPANIES SHORT SECURITIES MANAGE - ------------------------------------------------------------------------------------------------------------------------------- Absolute Return A1 B2 C2 F1 Currency and Income - ------------------------------------------------------------------------------------------------------------------------------- Aggressive Growth A1 B2 C1 D6 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Balanced A1 B2 C1 D3 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt A1 B4 D5 - ------------------------------------------------------------------------------------------------------------------------------- Cash Management B1 C1 See Table 2 - ------------------------------------------------------------------------------------------------------------------------------- Core Bond A1 B2 C1 D3 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity A1 B2 C1 D6 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Disciplined A1 B2 C2 D8 E1 F1 International Equity - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- G H I J K L TAX- INVEST FOREIGN DEBT EXEMPT EQUITY WHILE DIVERSIFI- FUND SECURITIES SECURITIES SECURITIES SECURITIES BORROWING CATION - ------------------------------------------------------------------------------------------------------------------------------- Absolute Return K1 Currency and Income - ------------------------------------------------------------------------------------------------------------------------------- Aggressive Growth G1-15% H9 - ------------------------------------------------------------------------------------------------------------------------------- Balanced G1-25% - ------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt H16 I1,I4,I6 - ------------------------------------------------------------------------------------------------------------------------------- Cash Management H15 - ------------------------------------------------------------------------------------------------------------------------------- Core Bond G1-15% - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity G1-20% H6 - ------------------------------------------------------------------------------------------------------------------------------- Disciplined G1-100% K1 International Equity - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 10
- ------------------------------------------------------------------------------------------------------------------------------- A B C D E F DEPOSIT ILLIQUID MARGIN, MONEY INVESTING TO ON SECURITIES; INVESTMENT SELLING MARKET CONTROL OR FUND FUTURES BULLION COMPANIES SHORT SECURITIES MANAGE - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and A1 B2 C2 D8 E1 F1 Mid Cap Equity - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Small A1 B2 C2 D1 E1 F1 Cap Value - ------------------------------------------------------------------------------------------------------------------------------- Diversified Bond A1 B2 C1 D6 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Diversified A1 B2 C1 D3 E1 F1 Equity Income - ------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity A1 B2 C1 D3 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Emerging Markets A1 B2 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Emerging A1 B2 C2 D1 E1 F1 Markets Bond - ------------------------------------------------------------------------------------------------------------------------------- Equity Value A1 B2 C1 D3 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- European Equity A1 B2 D6 - ------------------------------------------------------------------------------------------------------------------------------- Floating Rate A1 B2 C2 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Fundamental Growth A1 B2 C1 D6 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Fundamental Value A1 B2 C1 D1 E1 - ------------------------------------------------------------------------------------------------------------------------------- Global Bond A1 B2 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Global Equity A1 B2 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Global Technology A1 B2 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Growth A1 B2 C1 D6 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- High Yield Bond A1 B2 C1 D5 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Income Builder A1 B2 D1 E1 F1 Basic Income - ------------------------------------------------------------------------------------------------------------------------------- Income Builder A1 B2 D1 E1 F1 Enhanced Income - ------------------------------------------------------------------------------------------------------------------------------- Income Builder A1 B2 D1 E1 F1 Moderate Income - ------------------------------------------------------------------------------------------------------------------------------- Income Opportunities A1 B2 C1 D3 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Inflation Protected A1 B2 C1 D3 Securities - ------------------------------------------------------------------------------------------------------------------------------- Intermediate A1 B4 J2 D2 Tax-Exempt - ------------------------------------------------------------------------------------------------------------------------------- International A1 B2 C1 D1 E1 Aggressive Growth - ------------------------------------------------------------------------------------------------------------------------------- International Equity A1 B2 C1 D1 E1 - ------------------------------------------------------------------------------------------------------------------------------- International A1 B2 C1 D1 E1 F1 Opportunity - ------------------------------------------------------------------------------------------------------------------------------- International A1 B2 C1 D1 E1 Select Value - ------------------------------------------------------------------------------------------------------------------------------- International A1 B2 C1 D1 E1 Small Cap - ------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity A1 B2 C1 D6 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Large Cap Value A1 B2 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Limited A1 B2 C1 D3 E1 F1 Duration Bond - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- G H I J K L TAX- INVEST FOREIGN DEBT EXEMPT EQUITY WHILE DIVERSIFI- FUND SECURITIES SECURITIES SECURITIES SECURITIES BORROWING CATION - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and G1-20% H6 K1 Mid Cap Equity - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Small G1-20% H6 K1 Cap Value - ------------------------------------------------------------------------------------------------------------------------------- Diversified Bond G1-15% - ------------------------------------------------------------------------------------------------------------------------------- Diversified G1-25% H11 Equity Income - ------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity G1-25% H4 - ------------------------------------------------------------------------------------------------------------------------------- Emerging Markets G1-100% H1, H7 - ------------------------------------------------------------------------------------------------------------------------------- Emerging G1-100% K1 Markets Bond - ------------------------------------------------------------------------------------------------------------------------------- Equity Value G1-25% H12, H14 - ------------------------------------------------------------------------------------------------------------------------------- European Equity G1-100% L1, L2 - ------------------------------------------------------------------------------------------------------------------------------- Floating Rate G1-20% K1 - ------------------------------------------------------------------------------------------------------------------------------- Fundamental Growth G1-15% H7 - ------------------------------------------------------------------------------------------------------------------------------- Fundamental Value K1 - ------------------------------------------------------------------------------------------------------------------------------- Global Bond G1-100% H14 - ------------------------------------------------------------------------------------------------------------------------------- Global Equity G1-100% H1, H6 - ------------------------------------------------------------------------------------------------------------------------------- Global Technology G1-100% H1, H6 - ------------------------------------------------------------------------------------------------------------------------------- Growth G1-25% H4 - ------------------------------------------------------------------------------------------------------------------------------- High Yield Bond G1-25% J1 - ------------------------------------------------------------------------------------------------------------------------------- Income Builder K1 Basic Income - ------------------------------------------------------------------------------------------------------------------------------- Income Builder K1 Enhanced Income - ------------------------------------------------------------------------------------------------------------------------------- Income Builder K1 Moderate Income - ------------------------------------------------------------------------------------------------------------------------------- Income Opportunities G1-25% - ------------------------------------------------------------------------------------------------------------------------------- Inflation Protected G1-15% Securities - ------------------------------------------------------------------------------------------------------------------------------- Intermediate H10 I2, I3, J2 Tax-Exempt I5, I6 - ------------------------------------------------------------------------------------------------------------------------------- International G1-100% Aggressive Growth - ------------------------------------------------------------------------------------------------------------------------------- International Equity G1-100% - ------------------------------------------------------------------------------------------------------------------------------- International G3-100% Opportunity - ------------------------------------------------------------------------------------------------------------------------------- International G1-100% K1 Select Value - ------------------------------------------------------------------------------------------------------------------------------- International G1-100% Small Cap - ------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity G1-20% H6 - ------------------------------------------------------------------------------------------------------------------------------- Large Cap Value G1-20% H7 - ------------------------------------------------------------------------------------------------------------------------------- Limited G1-15% Duration Bond - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 11
- ------------------------------------------------------------------------------------------------------------------------------- A B C D E F DEPOSIT ILLIQUID MARGIN, MONEY INVESTING TO ON SECURITIES; INVESTMENT SELLING MARKET CONTROL OR FUND FUTURES BULLION COMPANIES SHORT SECURITIES MANAGE - ------------------------------------------------------------------------------------------------------------------------------- Massachusetts A1 B4 D5 Tax-Exempt - ------------------------------------------------------------------------------------------------------------------------------- Michigan Tax-Exempt A1 B4 D5 - ------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth A1 B2 C1 D1 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value A1 B2 C1 D3 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Minnesota A1 B4 D5 Tax-Exempt - ------------------------------------------------------------------------------------------------------------------------------- New York A1 B4 D5 Tax-Exempt - ------------------------------------------------------------------------------------------------------------------------------- Ohio Tax-Exempt A1 B4 D5 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder A1 B2 D6 Aggressive - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder A1 B2 D6 Conservative - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder A1 B2 D6 Moderate - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder A1 B2 D6 Moderate Aggressive - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder A1 B2 D6 Moderate Conservative - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder A1 B2 D6 Total Equity - ------------------------------------------------------------------------------------------------------------------------------- Precious Metals A1 B2, B3 C1 D6 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Real Estate A1 B2 C1 D6 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 A1 B2 D8 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 A1 B2 D8 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 A1 B2 D8 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 A1 B2 D8 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 A1 B2 D8 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 A1 B2 D8 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 A1 B2 D8 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 A1 B2 D8 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index A1 B2 D3 - ------------------------------------------------------------------------------------------------------------------------------- Select Value A1 B2 C1 D1 E1 - ------------------------------------------------------------------------------------------------------------------------------- Short Duration A1 B2 C1 D7 E1 F1 U.S. Government - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage A1 B2 C1 D1 E1 - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Equity A2 B2 C1 D1 E1 - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth A1 B2 C1 D1 E1 - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Value A1 B2 C1 D1 E1 - ------------------------------------------------------------------------------------------------------------------------------- Small Company Index A1 B2 C1 D4 E1 F1 - ------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation A1 B2 C1 D3 F1 - ------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond A1 B4 J2 D2 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- G H I J K L TAX- INVEST FOREIGN DEBT EXEMPT EQUITY WHILE DIVERSIFI- FUND SECURITIES SECURITIES SECURITIES SECURITIES BORROWING CATION - ------------------------------------------------------------------------------------------------------------------------------- Massachusetts H16 I1, I4, I6 Tax-Exempt - ------------------------------------------------------------------------------------------------------------------------------- Michigan Tax-Exempt H16 I1, I4, I6 - ------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth G1-15% H5 - ------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value G1-25% H8 - ------------------------------------------------------------------------------------------------------------------------------- Minnesota H16 I1, I4, I6 Tax-Exempt - ------------------------------------------------------------------------------------------------------------------------------- New York H16 I1, I4, I6 Tax-Exempt - ------------------------------------------------------------------------------------------------------------------------------- Ohio Tax-Exempt H16 I1, I4, I6 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive* - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity - ------------------------------------------------------------------------------------------------------------------------------- Precious Metals G2 H6, H17 - ------------------------------------------------------------------------------------------------------------------------------- Real Estate G1-10% - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 K1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 K1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 K1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 K1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 K1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 K1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 K1 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 K1 - ------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index L1, L2 - ------------------------------------------------------------------------------------------------------------------------------- Select Value G1-20% H3 - ------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Equity G1-20% K1 - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Value K1 L1, L2 - ------------------------------------------------------------------------------------------------------------------------------- Small Company Index - ------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation G1-50% H2, H9 - ------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond H18 I2 J2 - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 12
- ------------------------------------------------------------------------------------------------------------------------------- A B C D E F DEPOSIT ILLIQUID MARGIN, MONEY INVESTING TO ON SECURITIES; INVESTMENT SELLING MARKET CONTROL OR FUND FUTURES BULLION COMPANIES SHORT SECURITIES MANAGE - ------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt A1 B4 D2 High Income - ------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt B1 Money Market - ------------------------------------------------------------------------------------------------------------------------------- U.S. Government A1 B2 C1 D7 E1 F1 Mortgage - ------------------------------------------------------------------------------------------------------------------------------- Value A1 B2 C2 D1 E1 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- G H I J K L TAX- INVEST FOREIGN DEBT EXEMPT EQUITY WHILE DIVERSIFI- FUND SECURITIES SECURITIES SECURITIES SECURITIES BORROWING CATION - ------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt I2, I3 High Income - ------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market - ------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage - ------------------------------------------------------------------------------------------------------------------------------- Value G1-25% H13 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. 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. 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). 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. B3 - 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. B4 - 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. 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. 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. Statement of Additional Information - Sept. 29, 2006 Page 13 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 short, except the fund may enter into interest rate futures contracts. D6 - 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. D7 - The fund will not buy on margin, except the fund may make margin payments in connection with interest rate futures contracts. D8 - The fund will not buy on margin or sell short, except in connection with derivative instruments. 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 - The fund may invest its total assets, up to the amount shown, in foreign investments. Investments in U.S. issuers generally will constitute less than 20% of the fund's total assets. H. DEBT SECURITIES H1 - The fund may invest up to 20% of its net assets in bonds. H2 - 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. H3 - 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. H4 - The fund may not purchase debt securities rated below investment grade. H5 - 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. H6 - The fund will not invest more than 5% of its net assets in bonds below investment grade. H7 - The fund may invest up to 10% of its net assets in bonds rated below investment grade. H8 - No more than 10% of the fund's net assets may be invested in bonds below investment grade unless the bonds are convertible securities. H9 - No more than 15% of the fund's total assets will be invested in below investment-grade debt securities. H10 - The fund may invest 20% of its net assets in bonds rated or considered below investment grade (less than BBB/Baa). H11 - No more than 20% of the fund's net assets may be invested in bonds below investment grade unless the bonds are convertible securities. Statement of Additional Information - Sept. 29, 2006 Page 14 H12 - 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. H13 - No more than 10% of the fund's assets will be held in debt securities rated BB/Ba or lower. H14 - The fund may not invest in debt securities rated lower than B (or in unrated bonds of comparable quality). H15 - 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. H16 - No more than 10% of the fund's net assets will be held in inverse floaters. H17 - 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). H18 - 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's 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 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. I6 - 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. 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. K. INVEST WHILE BORROWING K1 - The fund will not make additional investments while any borrowing remains outstanding. Statement of Additional Information - Sept. 29, 2006 Page 15 L. DIVERSIFICATION L1 - The fund will not purchase more than 10% of the outstanding voting securities of an issuer, except that up to 25% of the fund's assets may be invested without regard to this 10% limitation. L2 - The fund will not 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
- ------------------------------------------------------------------------------------------------------------------------------- FUNDS-OF-FUNDS STATE -EQUITY TAXABLE TAXABLE TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT AND FIXED MONEY MONEY FIXED FIXED INVESTMENT STRATEGY BALANCED EQUITY FIXED INCOME INCOME MARKET MARKET INCOME INCOME - ------------------------------------------------------------------------------------------------------------------------------- Agency and government securities o o o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Borrowing o o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Cash/money market instruments o o o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Collateralized bond obligations o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Commercial paper o o o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Common stock o o o - ------------------------------------------------------------------------------------------------------------------------------- Convertible securities o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Corporate bonds o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Debt obligations o o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Depositary receipts o o o - ------------------------------------------------------------------------------------------------------------------------------- Derivative instruments o o o o o o (including options and futures) - ------------------------------------------------------------------------------------------------------------------------------- Exchange-traded funds o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Floating rate loans o o - ------------------------------------------------------------------------------------------------------------------------------- Foreign currency transactions o o o o - ------------------------------------------------------------------------------------------------------------------------------- Foreign securities o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Funding agreements o o o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- High yield debt securities (junk bonds) o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Illiquid and restricted securities o o o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Indexed securities o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Inflation protected securities o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Inverse floaters o o o o - ------------------------------------------------------------------------------------------------------------------------------- Investment companies o o o o o - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 16
- ------------------------------------------------------------------------------------------------------------------------------- FUNDS-OF-FUNDS STATE -EQUITY TAXABLE TAXABLE TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT AND FIXED MONEY MONEY FIXED FIXED INVESTMENT STRATEGY BALANCED EQUITY FIXED INCOME INCOME MARKET MARKET INCOME INCOME - ------------------------------------------------------------------------------------------------------------------------------- Lending of portfolio securities o o o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Loan participations o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Mortgage- and asset-backed securities o o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Mortgage dollar rolls o o o o - ------------------------------------------------------------------------------------------------------------------------------- Municipal obligations o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Preferred stock o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Real estate investment trusts o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Repurchase agreements o o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Reverse repurchase agreements o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Short sales - ------------------------------------------------------------------------------------------------------------------------------- Sovereign debt o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Structured investments o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Swap agreements o o o o - ------------------------------------------------------------------------------------------------------------------------------- Variable- or floating-rate securities o o o o o o o o - ------------------------------------------------------------------------------------------------------------------------------- Warrants o o o o o - ------------------------------------------------------------------------------------------------------------------------------- When-issued securities and o o o o o forward commitments - ------------------------------------------------------------------------------------------------------------------------------- Zero-coupon, step-coupon and o o o o o pay-in-kind securities - ------------------------------------------------------------------------------------------------------------------------------- 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. The following funds are not authorized to invest in common stock: Short Duration U.S. Government, U.S. Government Mortgage. The following funds are not authorized to invest in convertible securities: Short Duration U.S. Government, U.S. Government Mortgage. The following funds are not authorized to invest in depositary receipts: Short Duration U.S. Government, U.S. Government Mortgage. The following funds are not authorized to engage in foreign currency transactions: Short Duration U.S. Government, U.S. Government Mortgage. The following funds are not authorized to invest in foreign securities: U.S. Government Mortgage. 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, Small Cap Advantage, Small Company Index, Tax-Exempt Bond, European Equity, International Opportunity, Short Duration U.S. Government, U.S. Government Mortgage. The following funds are authorized to invest in inverse floaters: Real Estate. 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. The following funds are authorized to invest in mortgage dollar rolls: Real Estate. The following funds are not authorized to invest in preferred stock: Tax-Exempt High Income, Intermediate Tax-Exempt, Tax-Exempt Bond, Short Duration U.S. Government, U.S. Government Mortgage. The following funds are authorized to engage in short sales: S&P 500 Index, Short Duration U.S. Government, U.S. Government Mortgage. 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. Equity funds are authorized to invest in total return equity swap agreements. Tax-exempt fixed income funds are authorized to invest in interest rate swap agreements. Taxable fixed income and balanced funds are authorized to invest in interest rate swap agreements and Commercial Mortgage-Backed Security (CMBS) total return swap agreements.
Statement of Additional Information - Sept. 29, 2006 Page 17 INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES RISKS The following is a summary of common risk characteristics. Following this summary is a description of certain investments and investment strategies and the risks most commonly associated with them (including certain risks not described below and, in some cases, a more comprehensive discussion of how the risks apply to a particular investment or investment strategy). A mutual fund's risk profile is largely defined by the fund's primary securities and investment strategies. However, most mutual funds are allowed to use certain other strategies and investments that may have different risk characteristics. Accordingly, one or more of the following types of risk may be associated with a fund at any time (for a description of principal risks for an individual fund, please see that fund's prospectus): ACTIVE MANAGEMENT RISK. For a fund that is actively managed, its performance will reflect in part the ability of the portfolio managers to make investment decisions that are suited to achieving the fund's investment objective. Due to its active management, a fund could underperform other mutual funds with similar investment objectives. AFFILIATED FUND RISK. For funds-of-funds, the risk that the investment manager may have potential conflicts of interest in selecting underlying funds because the fees paid to it by some underlying funds are higher than the fees paid by other underlying funds. However, the investment manager is a fiduciary to the funds and is legally obligated to act in their best interests when selecting underlying funds, without taking fees into consideration. ALLOCATION RISK. For funds-of-funds, the risk that the investment manager's evaluations regarding asset classes or underlying funds may be incorrect. There is no guarantee that the underlying funds will achieve their investment objectives. There is also a risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the asset class. CREDIT RISK. Credit risk is the risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable or unwilling to honor a financial obligation, such as payments due on a bond or a note. If the fund purchases unrated securities, or if the rating of a security is reduced after purchase, the fund will depend on the investment manager's analysis of credit risk more heavily than usual. CONFIDENTIAL INFORMATION ACCESS RISK. For funds investing in floating rate loans, the investment manager normally will seek to avoid the receipt of material, non-public information (Confidential Information) about the issuers of floating rate loans being considered for acquisition by the fund, or held in the fund. In many instances, issuers of floating rate loans offer to furnish Confidential Information to prospective purchases or holders of the issuer's floating rate loans to help potential investors assess the value of the loan. The investment manager's decision not to receive Confidential Information from these issuers may disadvantage the fund as compared to other floating rate loan investors, and may adversely affect the price the fund pays for the loans it purchases, or the price at which the fund sells the loans. Further, in situations when holders of floating rate loans are asked, for example, to grant consents, waivers or amendments, the investment manager's ability to assess the desirability of such consents, waivers or amendments may be compromised. For these and other reasons, it is possible that the investment manager's decision under normal circumstances not to receive Confidential Information could adversely affect the fund's performance. COUNTERPARTY RISK. Counterparty risk is the risk that a counterparty to a financial instrument entered into by the fund or held by a special purpose or structured vehicle becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties. The fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The fund may obtain only limited recovery or may obtain no recovery in such circumstances. The fund will typically enter into financial instrument transactions with counterparties whose credit rating is investment grade, or, if unrated, determined to be of comparable quality by the investment manager. Statement of Additional Information - Sept. 29, 2006 Page 18 DERIVATIVES RISK. Derivatives are financial instruments where value depends upon, or is derived from, the value of something else, such as underlying investments, pools of investments, options, futures, indexes or currencies. Just as with securities in which the fund invests directly, derivatives are subject to a number of risks, including market, liquidity, interest rate and credit risk. In addition, gains or losses involving derivatives may be substantial, because a relatively small price movement in the underlying security, currency or index may result in a substantial gain or loss for the fund. The fund will suffer a loss in connection with the use of derivative instruments if prices do not move in the direction anticipated by the fund's portfolio managers when entering into the derivative instrument. DIVERSIFICATION RISK. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. Because each investment has a greater effect on the fund's performance, the fund may be more exposed to the risks of loss and volatility than a fund that invests more broadly. For funds-of-funds, although most of the underlying funds are diversified funds, because the fund invests in a limited number of underlying funds, it is considered a non-diversified fund. FOREIGN/EMERGING MARKETS RISK. The following are all components of foreign/emerging markets risk: Country risk includes the political, economic, and other conditions of the country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. The liquidity of foreign investments may be more limited than for most U.S. investments, which means that, at times it may be difficult to sell foreign securities at desirable prices. Currency risk results from the constantly changing exchange rates between local currency and the U.S. dollar. Whenever the fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add to or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social, and political) in these countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. GEOGRAPHIC CONCENTRATION RISK. The fund may be particularly susceptible to economic, political or regulatory events affecting companies and countries within the specific geographic region in which the fund focuses its investments. Currency devaluations could occur in countries that have not yet experienced currency devaluation to date, or could continue to occur in countries that have already experienced such devaluations. As a result, the fund may be more volatile than a more geographically diversified fund. For state-specific funds. Because state-specific tax-exempt funds invest primarily in the municipal securities issued by the state and political sub-divisions of the state, each fund will be particularly affected by political and economic conditions and developments in the state in which it invests. This vulnerability to factors affecting the state's tax-exempt investments will be significantly greater than that of a more geographically diversified fund, which may result in greater losses and volatility. See Appendix B for details. The value of municipal securities owned by a fund also may be adversely affected by future changes in federal or state income tax laws. In addition, because of the relatively small number of issuers of tax-exempt securities, the fund may invest a higher percentage of its assets in a single issuer and, therefore, be more exposed to the risk of loss by investing in a few issuers than a fund that invests more broadly. At times, the fund and other accounts managed by the investment manager may own all or most of the debt of a particular issuer. This concentration of ownership may make it more difficult to sell, or to determine the fair value of, these investments. Statement of Additional Information - Sept. 29, 2006 Page 19 HIGHLY LEVERAGED TRANSACTIONS RISK. Certain corporate loans and corporate debt securities involve refinancings, recapitalizations, mergers and acquisitions, and other financings for general corporate purposes. These investments also may include senior obligations of a borrower issued in connection with a restructuring pursuant to Chapter 11 of the U.S. Bankruptcy Code (commonly known as "debtor-in-possession" financings), provided that such senior obligations are determined by the fund's investment manager upon its credit analysis to be a suitable investment by the fund. In such highly leveraged transactions, the borrower assumes large amounts of debt in order to have the financial resources to attempt to achieve its business objectives. Such business objectives may include but are not limited to: management's taking over control of a company (leveraged buy-out); reorganizing the assets and liabilities of a company (leveraged recapitalization); or acquiring another company. Loans or securities that are part of highly leveraged transactions involve a greater risk (including default and bankruptcy) than other investments. IMPAIRMENT OF COLLATERAL RISK. The value of collateral, if any, securing a floating rate loan can decline, and may be insufficient to meet the borrower's obligations or difficult to liquidate. In addition, the fund's access to collateral may be limited by bankruptcy or other insolvency laws. Further, certain floating rate loans may not be fully collateralized and may decline in value. INDEXING RISK. For funds that are managed to an index, the fund's performance will rise and fall as the performance of the index rises and falls. INFLATION PROTECTED SECURITIES RISK. Inflation-protected debt securities tend to react to change in real interest rates. Real interest rates can be described as nominal interest rates minus the expected impact of inflation. In general, the price of an inflation-protected debt security falls when real interest rates rise, and rises when real interest rates fall. Interest payments on inflation-protected debt securities will vary as the principal and/or interest is adjusted for inflation and may be more volatile than interest paid on ordinary bonds. In periods of deflation, the fund may have no income at all. Income earned by a shareholder depends on the amount of principal invested and that principal will not grow with inflation unless the investor reinvests the portion of fund distributions that comes from inflation adjustments. INTEREST RATE RISK. The securities in the portfolio are subject to the risk of losses attributable to changes in interest rates. Interest rate risk is generally associated with bond prices: when interest rates rise, bond prices fall. In general, the longer the maturity or duration of a bond, the greater its sensitivity to changes in interest rates. ISSUER RISK. An issuer, or the value of its stocks or bonds, may perform poorly. Poor performance may be caused by poor management decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures, or other factors. LIQUIDITY RISK. The risk associated from a lack of marketability of securities which may make it difficult or impossible to sell at desirable prices in order to minimize loss. The Fund may have to lower the selling price, sell other investments, or forego another, more appealing investment opportunity. MARKET RISK. The market value of securities may fall or fail to rise. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of securities may fluctuate, sometimes rapidly and unpredictably. This risk is generally greater for small and mid-sized companies, which tend to be more vulnerable to adverse developments. In addition, focus on a particular style, for example, investment in growth or value securities, may cause the Fund to underperform other mutual funds if that style falls out of favor with the market. PREPAYMENT AND EXTENSION RISK. The risk that a bond or other security might be called, or otherwise converted, prepaid, or redeemed, before maturity. This risk is primarily associated with asset-backed securities, including mortgage backed securities. If a security is converted, prepaid, or redeemed, before maturity, particularly during a time of declining interest rates, the portfolio managers may not be able to reinvest in securities providing as high a level of income, resulting in a reduced yield to the fund. Conversely, as interest rates rise, the likelihood of prepayment decreases. The portfolio managers may be unable to capitalize on securities with higher interest rates because the Fund's investments are locked in at a lower rate for a longer period of time. Statement of Additional Information - Sept. 29, 2006 Page 20 QUANTITATIVE MODEL RISK. Securities selected using quantitative methods may perform differently from the market as a whole as a result of the factors used in the quantitative method, the weight placed on each factor, and changes in the factors' historical trends. The quantitative methodology employed by the investment manager has been extensively tested using historical securities market data, but has only recently begun to be used to manage open-end mutual funds. There can be no assurance that the methodology will enable the fund to achieve its objective. REINVESTMENT RISK. The risk that an investor will not be able to reinvest income or principal at the same rate it currently is earning. SECTOR RISK. Investments that are concentrated in a particular issuer, geographic region, or sector will be more susceptible to changes in price. The more a fund diversifies, the more it spreads risk and potentially reduces the risks of loss and volatility. SMALL AND MID-SIZED COMPANY RISK. Investments in small and medium companies often involve greater risks than investments in larger, more established companies because small and medium companies may lack the management experience, financial resources, product diversification, experience, and competitive strengths of larger companies. Additionally, in many instances the securities of small and medium companies are traded only over-the-counter or on regional securities exchanges and the frequency and volume of their trading is substantially less and may be more volatile than is typical of larger companies. TAX RISK. As a regulated investment company, a fund must derive at least 90% of its gross income for each taxable year from sources treated as "qualifying income" under the Internal Revenue Code of 1986, as amended. The Fund currently intends to take positions in forward currency contracts with notional value up to the Fund's total net assets. Although foreign currency gains currently constitute "qualifying income" the Treasury Department has the authority to issue regulations excluding from the definition of "qualifying incomes" a fund's foreign currency gains not "directly related" to its "principal business" of investing in stocks or securities (or options and futures with respect thereto). Such regulations might treat gains from some of the Fund's foreign currency-denominated positions as not "qualifying income" and there is a remote possibility that such regulations might be applied retroactively, in which case, the Fund might not qualify as a regulated investment company for one or more years. In the event the Treasury Department issues such regulations, the Fund's Board of Directors may authorize a significant change in investment strategy or Fund liquidation. TRACKING ERROR RISK. For funds that are managed to an index, the fund may not track the index perfectly because differences between the index and the fund's portfolio can cause differences in performance. The investment manager purchases securities and other instruments in an attempt to replicate the performance of the index. However, the tools that the investment manager uses to replicate the index are not perfect and the fund's performance is affected by factors such as the size of the fund's portfolio, transaction costs, management fees and expenses, brokerage commissions and fees, the extent and timing of cash flows in and out of the fund and changes in the index. In addition, the returns from a specific type of security (for example, mid-cap stocks) may trail returns from other asset classes or the overall market. Each type of security will go through cycles of doing better or worse than stocks or bonds in general. These periods may last for several years. UNDERLYING FUND SELECTION RISK. For funds-of-funds, the risk that the selected underlying funds' performance may be lower than the performance of the asset class they were selected to represent or may be lower than the performance of alternative underlying funds that could have been selected to represent the investment category. Statement of Additional Information - Sept. 29, 2006 Page 21 INVESTMENT STRATEGIES The following information supplements the discussion of each fund's investment objectives, policies, and strategies that are described in the prospectus and in this SAI. The following describes strategies that many mutual funds use and types of securities that they purchase. Please refer to the table titled Investment Strategies and Types of Investments to see which are applicable to various categories of funds. AGENCY AND GOVERNMENT SECURITIES The U.S. government and its agencies issue many different types of securities. U.S. Treasury bonds, notes, and bills and securities, including mortgage pass through certificates of the Government National Mortgage Association (GNMA), are guaranteed by the U.S. government. Other U.S. government securities are issued or guaranteed by federal agencies or government-sponsored enterprises but are not guaranteed by the U.S. government. This may increase the credit risk associated with these investments. Government-sponsored entities issuing securities include privately owned, publicly chartered entities created to reduce borrowing costs for certain sectors of the economy, such as farmers, homeowners, and students. They include the Federal Farm Credit Bank System, Farm Credit Financial Assistance Corporation, Federal Home Loan Bank, Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Student Loan Marketing Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored entities may issue discount notes (with maturities ranging from overnight to 360 days) and bonds. Agency and government securities are subject to the same concerns as other debt obligations. (See also Debt Obligations and Mortgage- and Asset-Backed Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with agency and government securities include: Inflation Risk, Interest Rate Risk, Prepayment and Extension Risk, and Reinvestment Risk. BORROWING A fund may borrow money for temporary purposes or to engage in transactions permissible under the 1940 Act that may be considered a borrowing (such as derivative instruments). Borrowings are subject to costs (in addition to any interest that may be paid) and typically reduce a fund's total return. Except as noted in the nonfundamental policies, however, a fund may not buy securities on margin. Although one or more of the other risks described in this SAI may apply, the largest risks associated with borrowing include: Inflation Risk. CASH/MONEY MARKET INSTRUMENTS Cash-equivalent investments include short-term U.S. and Canadian government securities and negotiable certificates of deposit, non-negotiable fixed-time deposits, bankers' acceptances, and letters of credit of banks or savings and loan associations having capital, surplus, and undivided profits (as of the date of its most recently published annual financial statements) in excess of $100 million (or the equivalent in the instance of a foreign branch of a U.S. bank) at the date of investment. A fund also may purchase short-term notes and obligations of U.S. and foreign banks and corporations and may use repurchase agreements with broker-dealers registered under the Securities Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.) These types of instruments generally offer low rates of return and subject a fund to certain costs and expenses. See Appendix A for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with cash/money market instruments include: Credit Risk and Inflation Risk. Statement of Additional Information - Sept. 29, 2006 Page 22 COLLATERALIZED BOND OBLIGATIONS Collateralized bond obligations (CBOs) are investment grade bonds backed by a pool of bonds, which may include junk bonds. CBOs are similar in concept to collateralized mortgage obligations (CMOs), but differ in that CBOs represent different degrees of credit quality rather than different maturities. (See also Mortgage- and Asset-Backed Securities.) Underwriters of CBOs package a large and diversified pool of high-risk, high-yield junk bonds, which is then separated into "tiers." Typically, the first tier represents the higher quality collateral and pays the lowest interest rate; the second tier is backed by riskier bonds and pays a higher rate; the third tier represents the lowest credit quality and instead of receiving a fixed interest rate receives the residual interest payments -- money that is left over after the higher tiers have been paid. CBOs, like CMOs, are substantially overcollateralized and this, plus the diversification of the pool backing them, may earn certain of the tiers investment-grade bond ratings. Holders of third-tier CBOs stand to earn high yields or less money depending on the rate of defaults in the collateral pool. (See also High-Yield Debt Securities (Junk Bonds).) Although one or more of the other risks described in this SAI may apply, the largest risks associated with CBOs include: Credit Risk, Interest Rate Risk and Prepayment and Extension Risk. COMMERCIAL PAPER Commercial paper is a short-term debt obligation with a maturity ranging from 2 to 270 days issued by banks, corporations, and other borrowers. It is sold to investors with temporary idle cash as a way to increase returns on a short-term basis. These instruments are generally unsecured, which increases the credit risk associated with this type of investment. (See also Debt Obligations and Illiquid and Restricted Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with commercial paper include: Credit Risk and Liquidity Risk. COMMON STOCK Common stock represents units of ownership in a corporation. Owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. The price of common stock is generally determined by corporate earnings, type of products or services offered, projected growth rates, experience of management, liquidity, and general market conditions for the markets on which the stock trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with common stock include: Issuer Risk, Market Risk, and Small and Mid-Sized Company Risk. CONVERTIBLE SECURITIES Convertible securities are bonds, debentures, notes, preferred stocks, or other securities that may be converted into common, preferred or other securities of the same or a different issuer within a particular period of time at a specified price. Some convertible securities, such as preferred equity-redemption cumulative stock (PERCs), have mandatory conversion features. Others are voluntary. A convertible security entitles the holder to receive interest normally paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted, or exchanged. Convertible securities have unique investment characteristics in that they generally (i) have higher yields than common stocks but lower yields than comparable non-convertible securities, (ii) are less subject to fluctuation in value than the underlying stock since they have fixed income characteristics, and (iii) provide the potential for capital appreciation if the market price of the underlying common stock increases. Statement of Additional Information - Sept. 29, 2006 Page 23 The value of a convertible security is a function of its "investment value" (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its "conversion value" (the security's worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. Generally, the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with convertible securities include: Interest Rate Risk, Issuer Risk, Market Risk, Prepayment and Extension Risk, and Reinvestment Risk. CORPORATE BONDS Corporate bonds are debt obligations issued by private corporations, as distinct from bonds issued by a government agency or a municipality. Corporate bonds typically have four distinguishing features: (1) they are taxable; (2) they have a par value of $1,000; (3) they have a term maturity, which means they come due all at once; and (4) many are traded on major exchanges. Corporate bonds are subject to the same concerns as other debt obligations. (See also Debt Obligations and High-Yield Debt Securities (Junk Bonds).) Corporate bonds may be either secured or unsecured. Unsecured corporate bonds are generally referred to as "debentures." See Appendix A for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with corporate bonds include: Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk. DEBT OBLIGATIONS Many different types of debt obligations exist (for example, bills, bonds, or notes). Issuers of debt obligations have a contractual obligation to pay interest at a fixed, variable or floating rate on specified dates and to repay principal on a specified maturity date. Certain debt obligations (usually intermediate- and long-term bonds) have provisions that allow the issuer to redeem or "call" a bond before its maturity. Issuers are most likely to call these securities during periods of falling interest rates. When this happens, an investor may have to replace these securities with lower yielding securities, which could result in a lower return. The market value of debt obligations is affected primarily by changes in prevailing interest rates and the issuers perceived ability to repay the debt. The market value of a debt obligation generally reacts inversely to interest rate changes. When prevailing interest rates decline, the price usually rises, and when prevailing interest rates rise, the price usually declines. In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. As noted, the values of debt obligations also may be affected by changes in the credit rating or financial condition of their issuers. Generally, the lower the quality rating of a security, the higher the degree of risk as to the payment of interest and return of principal. To compensate investors for taking on such increased risk, those issuers deemed to be less creditworthy generally must offer their investors higher interest rates than do issuers with better credit ratings. (See also Agency and Government Securities, Corporate Bonds, and High-Yield Debt Securities (Junk Bonds).) Statement of Additional Information - Sept. 29, 2006 Page 24 Generally, debt obligations that are investment grade are those that have been rated in one of the top four credit quality categories by two out of the three independent rating agencies. In the event that a debt obligation has been rated by only two agencies, the most conservative, or lower, rating must be in one of the top four credit quality categories in order for the security to be considered investment grade. If only one agency has rated the debt obligation, that rating must be in one of the top four credit quality categories for the security to be considered investment grade. See Appendix A for a discussion of securities ratings. All ratings limitations are applied at the time of purchase. Subsequent to purchase, a debt security may cease to be rated or its rating may be reduced below the minimum required for purchase by a fund. Neither event will require the sale of such a security, but it will be a factor in considering whether to continue to hold the security. To the extent that ratings change as a result of changes in a rating agency or its rating system, a fund will attempt to use comparable ratings as standards for selecting investments. Although one or more of the other risks described in this SAI may apply, the largest risks associated with debt obligations include: Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk. DEPOSITARY RECEIPTS Some foreign securities are traded in the form of American Depositary Receipts (ADRs). ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities of foreign issuers. European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts typically issued by foreign banks or trust companies, evidencing ownership of underlying securities issued by either a foreign or U.S. issuer. Generally, depositary receipts in registered form are designed for use in the U.S. and depositary receipts in bearer form are designed for use in securities markets outside the U.S. Depositary receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. Depositary receipts involve the risks of other investments in foreign securities. In addition, ADR holders may not have all the legal rights of shareholders and may experience difficulty in receiving shareholder communications. (See also Common Stock and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with depositary receipts include: Foreign/Emerging Markets Risk, Issuer Risk, and Market Risk. DERIVATIVE INSTRUMENTS Derivative instruments are commonly defined to include securities or contracts whose values depend, in whole or in part, on (or "derive" from) the value of one or more other assets, such as securities, currencies, or commodities. A derivative instrument generally consists of, is based upon, or exhibits characteristics similar to options or forward contracts. Such instruments may be used to maintain cash reserves while remaining fully invested, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns. Derivative instruments are characterized by requiring little or no initial payment. Their value changes daily based on a security, a currency, a group of securities or currencies, or an index. A small change in the value of the underlying security, currency, or index can cause a sizable percentage gain or loss in the price of the derivative instrument. Options and forward contracts are considered to be the basic "building blocks" of derivatives. For example, forward-based derivatives include forward contracts, swap contracts, and exchange-traded futures. Forward-based derivatives are sometimes referred to generically as "futures contracts." Option-based derivatives include privately negotiated, over-the-counter (OTC) options (including caps, floors, collars, and options on futures) and exchange-traded options on futures. Diverse types of derivatives may be created by combining options or futures in different ways, and by applying these structures to a wide range of underlying assets. Statement of Additional Information - Sept. 29, 2006 Page 25 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, Chicago Board Options Exchange, or NASDAQ will be valued at the last quoted sales price or, if such a price is not readily available, at the mean of the last bid and ask prices. Options on certain securities are not actively traded on any exchange, but may be entered into directly with a dealer. These options may be more difficult to close. If an investor is unable to effect a closing purchase transaction, it will not be able to sell the underlying security until the call written by the investor expires or is exercised. Futures Contracts. A futures contract is a sales contract between a buyer (holding the "long" position) and a seller (holding the "short" position) for an asset with delivery deferred until a future date. The buyer agrees to pay a fixed price at the agreed future date and the seller agrees to deliver the asset. The seller hopes that the market price on the delivery date is less than the agreed upon price, while the buyer hopes for the contrary. Many futures contracts trade in a manner similar to the way a stock trades on a stock exchange and the commodity exchanges. Generally, a futures contract is terminated by entering into an offsetting transaction. An offsetting transaction is effected by an investor taking an opposite position. At the time a futures contract is made, a good faith deposit called initial margin is set up. Daily thereafter, the futures contract is valued and the payment of variation margin is required so that each day a buyer would pay out cash in an amount equal to any decline in the contract's value or receive cash equal to any increase. At the time a futures contract is closed out, a nominal commission is paid, which is generally lower than the commission on a comparable transaction in the cash market. Futures contracts may be based on various securities, securities indexes (such as the S&P 500 Index), foreign currencies and other financial instruments and indexes. A fund may engage in futures and related options transactions to produce incremental earnings, to hedge existing positions, and to increase flexibility. The fund intends to comply with Rule 4.5 of the Commodity Futures Trading Commission (CFTC), under which a mutual fund is exempt from the definition of a "commodity pool operator." The fund, therefore, is not subject to registration or regulation as a pool operator, meaning that the fund may invest in futures contracts without registering with the CFTC. Statement of Additional Information - Sept. 29, 2006 Page 26 Options on Futures Contracts. Options on futures contracts give the holder a right to buy or sell futures contracts in the future. Unlike a futures contract, which requires the parties to the contract to buy and sell a security on a set date (some futures are settled in cash), an option on a futures contract merely entitles its holder to decide on or before a future date (within nine months of the date of issue) whether to enter into a contract. If the holder decides not to enter into the contract, all that is lost is the amount (premium) paid for the option. Further, because the value of the option is fixed at the point of sale, there are no daily payments of cash to reflect the change in the value of the underlying contract. However, since an option gives the buyer the right to enter into a contract at a set price for a fixed period of time, its value does change daily. One of the risks in buying an option on a futures contract is the loss of the premium paid for the option. The risk involved in writing options on futures contracts an investor owns, or on securities held in its portfolio, is that there could be an increase in the market value of these contracts or securities. If that occurred, the option would be exercised and the asset sold at a lower price than the cash market price. To some extent, the risk of not realizing a gain could be reduced by entering into a closing transaction. An investor could enter into a closing transaction by purchasing an option with the same terms as the one previously sold. The cost to close the option and terminate the investor's obligation, however, might still result in a loss. Further, the investor might not be able to close the option because of insufficient activity in the options market. Purchasing options also limits the use of monies that might otherwise be available for long-term investments. Options on Stock Indexes. Options on stock indexes are securities traded on national securities exchanges. An option on a stock index is similar to an option on a futures contract except all settlements are in cash. A fund exercising a put, for example, would receive the difference between the exercise price and the current index level. Tax and Accounting Treatment. As permitted under federal income tax laws and to the extent a fund is allowed to invest in futures contracts, a fund would intend to identify futures contracts as mixed straddles and not mark them to market, that is, not treat them as having been sold at the end of the year at market value. If a fund is using short futures contracts for hedging purposes, the fund may be required to defer recognizing losses incurred on short futures contracts and on underlying securities. Federal income tax treatment of gains or losses from transactions in options on futures contracts and indexes will depend on whether the option is a section 1256 contract. If the option is a non-equity option, a fund would either make a 1256(d) election and treat the option as a mixed straddle or mark to market the option at fiscal year end and treat the gain/loss as 40% short-term and 60% long-term. The IRS has ruled publicly that an exchange-traded call option is a security for purposes of the 50%-of-assets test and that its issuer is the issuer of the underlying security, not the writer of the option, for purposes of the diversification requirements. Accounting for futures contracts will be according to generally accepted accounting principles. Initial margin deposits will be recognized as assets due from a broker (a fund's agent in acquiring the futures position). During the period the futures contract is open, changes in value of the contract will be recognized as unrealized gains or losses by marking to market on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments will be made or received depending upon whether gains or losses are incurred. All contracts and options will be valued at the last-quoted sales price on their primary exchange. 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. Statement of Additional Information - Sept. 29, 2006 Page 27 Another risk is the risk that a loss may be sustained as a result of the failure of a counterparty to comply with the terms of a derivative instrument. The counterparty risk for exchange-traded derivative instruments is generally less than for privately-negotiated or OTC derivative instruments, since generally a clearing agency, which is the issuer or counterparty to each exchange-traded instrument, provides a guarantee of performance. For privately-negotiated instruments, there is no similar clearing agency guarantee. In all transactions, an investor will bear the risk that the counterparty will default, and this could result in a loss of the expected benefit of the derivative transaction and possibly other losses. When a derivative transaction is used to completely hedge another position, changes in the market value of the combined position (the derivative instrument plus the position being hedged) result from an imperfect correlation between the price movements of the two instruments. With a perfect hedge, the value of the combined position remains unchanged for any change in the price of the underlying asset. With an imperfect hedge, the values of the derivative instrument and its hedge are not perfectly correlated. For example, if the value of a derivative instrument used in a short hedge (such as writing a call option, buying a put option, or selling a futures contract) increased by less than the decline in value of the hedged investment, the hedge would not be perfectly correlated. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. Derivatives also are subject to the risk that they cannot be sold, closed out, or replaced quickly at or very close to their fundamental value. Generally, exchange contracts are very liquid because the exchange clearinghouse is the counterparty of every contract. OTC transactions are less liquid than exchange-traded derivatives since they often can only be closed out with the other party to the transaction. Another risk is caused by the legal unenforcibility of a party's obligations under the derivative. A counterparty that has lost money in a derivative transaction may try to avoid payment by exploiting various legal uncertainties about certain derivative products. (See also Foreign Currency Transactions.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with derivative instruments include: Derivatives Risk and Liquidity Risk. EXCHANGE-TRADED FUNDS Exchange-traded funds (ETFs) represent shares of ownership in mutual funds, unit investment trusts or depositary receipts. ETFs hold portfolios of securities that closely track the performance and dividend yield of specific domestic or foreign market indexes. Although one or more of the other risks described in this SAI may apply, the largest risks associated with ETFs include: Market Risk. FLOATING RATE LOANS Most floating rate loans are acquired directly from the agent bank or from another holder of the loan by assignment. Most such loans are secured, and most impose restrictive covenants which must be met by the borrower. These loans are typically made by a syndicate of banks and institutional investors, represented by an agent bank which has negotiated and structured the loan and which is responsible generally for collecting interest, principal, and other amounts from the borrower on its own behalf and on behalf of the other lending institutions in the syndicate, and for enforcing its and their other rights against the borrower. Each of the lending institutions, including the agent bank, lends to the borrower a portion of the total amount of the loan, and retains the corresponding interest in the loan. Statement of Additional Information - Sept. 29, 2006 Page 28 A fund's ability to receive payments of principal and interest and other amounts in connection with loans held by it will depend primarily on the financial condition of the borrower. The failure by the fund to receive scheduled interest or principal payments on a loan would adversely affect the income of the fund and would likely reduce the value of its assets, which would be reflected in a reduction in the fund's net asset value. Banks and other lending institutions generally perform a credit analysis of the borrower before originating a loan or purchasing an assignment in a loan. In selecting the loans in which the fund will invest, however, the investment manager will not rely on that credit analysis of the agent bank, but will perform its own investment analysis of the borrowers. The investment manager's analysis may include consideration of the borrower's financial strength and managerial experience, debt coverage, additional borrowing requirements or debt maturity schedules, changing financial conditions, and responsiveness to changes in business conditions and interest rates. The majority of loans the fund will invest in will be rated by one or more of the nationally recognized rating agencies. Investments in loans may be of any quality, including "distressed" loans, and will be subject to the fund's credit quality policy. Loans may be structured in different forms, including assignments and participations. In an assignment, a fund purchases an assignment of a portion of a lender's interest in a loan. In this case, the fund may be required generally to rely upon the assigning bank to demand payment and enforce its rights against the borrower, but would otherwise be entitled to all of such bank's rights in the loan. The borrower of a loan may, either at its own election or pursuant to terms of the loan documentation, prepay amounts of the loan from time to time. There is no assurance that a fund will be able to reinvest the proceeds of any loan prepayment at the same interest rate or on the same terms as those of the original loan. Corporate loans in which a fund may purchase a loan assignment are made generally to finance internal growth, mergers, acquisitions, recapitalizations, stock repurchases, leveraged buy-outs, dividend payments to sponsors and other corporate activities. Under current market conditions, most of the corporate loans purchased by the fund will represent loans made to highly leveraged corporate borrowers. The highly leveraged capital structure of the borrowers in such transactions may make such loans especially vulnerable to adverse changes in economic or market conditions. The fund may hold investments in loans for a very short period of time when opportunities to resell the investments that the investment manager believes are attractive arise. Certain of the loans acquired by a fund may involve revolving credit facilities under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the fund would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan assignment. To the extent that the fund is committed to make additional loans under such an assignment, it will at all times designate cash or securities in an amount sufficient to meet such commitments. Notwithstanding its intention in certain situations to not receive material, non-public information with respect to its management of investments in floating rate loans, the investment manager may from time to time come into possession of material, non-public information about the issuers of loans that may be held in a fund's portfolio. Possession of such information may in some instances occur despite the investment manager's efforts to avoid such possession, but in other instances the investment manager may choose to receive such information (for example, in connection with participation in a creditors' committee with respect to a financially distressed issuer). As, and to the extent, required by applicable law, the investment manager's ability to trade in these loans for the account of the fund could potentially be limited by its possession of such information. Such limitations on the investment manager's ability to trade could have an adverse effect on the fund by, for example, preventing the fund from selling a loan that is experiencing a material decline in value. In some instances, these trading restrictions could continue in effect for a substantial period of time. Statement of Additional Information - Sept. 29, 2006 Page 29 In some instances, other accounts managed by the investment manager may hold other securities issued by borrowers whose floating rate loans may be held in a fund's portfolio. These other securities may include, for example, debt securities that are subordinate to the floating rate loans held in the fund's portfolio, convertible debt or common or preferred equity securities. In certain circumstances, such as if the credit quality of the issuer deteriorates, the interests of holders of these other securities may conflict with the interests of the holders of the issuer's floating rate loans. In such cases, the investment manager may owe conflicting fiduciary duties to the fund and other client accounts. The investment manager will endeavor to carry out its obligations to all of its clients to the fullest extent possible, recognizing that in some cases certain clients may achieve a lower economic return, as a result of these conflicting client interests, than if the investment manager's client accounts collectively held only a single category of the issuer's securities. Although one or more of the other risks described in this SAI may apply, the largest risks associated with floating rate loans include: Credit Risk and Prepayment and Extension Risk. FOREIGN CURRENCY TRANSACTIONS Investments in foreign countries usually involve currencies of foreign countries. In addition, a fund may hold cash and cash equivalent investments in foreign currencies. As a result, the value of a fund's assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency exchange rates and exchange control regulations. Also, a fund may incur costs in connection with conversions between various currencies. Currency exchange rates may fluctuate significantly over short periods of time causing a fund's NAV (Net Asset Value) to fluctuate. Currency exchange rates are generally determined by the forces of supply and demand in the foreign exchange markets, actual or anticipated changes in interest rates, and other complex factors. Currency exchange rates also can be affected by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments. Spot Rates and Derivative Instruments. A fund may conduct its foreign currency exchange transactions either at the spot (cash) rate prevailing in the foreign currency exchange market or by entering into forward currency exchange contracts (forward contracts). (See also Derivative Instruments.) These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such derivative instruments, a fund could be disadvantaged by having to deal in the odd lot market for the underlying foreign currencies at prices that are less favorable than for round lots. A fund may enter into forward contracts for a variety of reasons, but primarily it will enter into such contracts for risk management (hedging) or for investment purposes. For hedging purposes, a fund may enter into forward contracts to settle a security transaction or handle dividend and interest collection. When a fund enters into a contract for the purchase or sale of a security denominated in a foreign currency or has been notified of a dividend or interest payment, it may desire to lock in the price of the security or the amount of the payment in dollars. By entering into a forward contract, a fund would be able to protect itself against a possible loss resulting from an adverse change in the relationship between different currencies from the date the security is purchased or sold to the date on which payment is made or received or when the dividend or interest is actually received. A fund may also enter into forward contracts when management of the fund believes the currency of a particular foreign country may decline in value relative to another currency. When selling currencies forward in this fashion, a fund may seek to hedge the value of foreign securities it holds against an adverse move in exchange rates. The precise matching of forward contract amounts and the value of securities involved generally will not be possible since the future value of securities in foreign currencies more than likely will change between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movements is extremely difficult and successful execution of a short-term hedging strategy is highly uncertain. A fund would not enter into such forward contracts or maintain a net exposure to such contracts when consummating the contracts would obligate it to deliver an amount of foreign currency in excess of the value of its securities or other assets denominated in that currency. Statement of Additional Information - Sept. 29, 2006 Page 30 This method of protecting the value of the fund's securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange that can be achieved at some point in time. Although forward contracts tend to minimize the risk of loss due to a decline in value of hedged currency, they tend to limit any potential gain that might result should the value of such currency increase. For investment purposes, a fund may invest in a combination of forward currency contracts and U.S. dollar-denominated market instruments in an attempt to obtain an investment result that is substantially the same as a direct investment in a foreign currency-denominated instrument. For example, the combination of U.S. dollar-denominated instruments with long forward currency exchange contracts creates a position economically equivalent to a position in the foreign currency, in anticipation of an increase in the value of the foreign currency against the U.S. dollar. Conversely, the combination of U.S. dollar-denominated instruments with short forward currency exchange contracts is economically equivalent to borrowing the foreign currency for delivery at a specified date in the future, in anticipation of a decrease in the value of the foreign currency against the U.S. dollar. Unanticipated changes in the currency exchange results could result in poorer performance for funds that enter into these types of transactions. A fund may designate cash or securities in an amount equal to the value of the fund's total assets committed to consummating forward contracts entered into under the circumstance set forth immediately above. If the value of the securities declines, additional cash or securities will be designated on a daily basis so that the value of the cash or securities will equal the amount of the fund's commitments on such contracts. At maturity of a forward contract, a fund may either deliver (if a contract to sell) or take delivery of (if a contract to buy) the foreign currency or terminate its contractual obligation by entering into an offsetting contract with the same currency trader, the same maturity date, and covering the same amount of foreign currency. If a fund engages in an offsetting transaction, it would incur a gain or loss to the extent there has been movement in forward contract prices. If a fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to buy or sell the foreign currency. Although a fund values its assets each business day in terms of U.S. dollars, it may not intend to convert its foreign currencies into U.S. dollars on a daily basis. It would do so from time to time, and shareholders should be aware of currency conversion costs. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (spread) between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a fund at one rate, while offering a lesser rate of exchange should a fund desire to resell that currency to the dealer. It is possible, under certain circumstances, including entering into forward currency contracts for investment purposes, that the fund may have to limit or restructure its forward contract currency transactions to qualify as a "regulated investment company" under the Internal Revenue Code. 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 - Sept. 29, 2006 Page 31 A fund may write options on foreign currencies for the same types of purposes. For example, when a fund anticipates a decline in the dollar value of foreign-denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option would most likely not be exercised and the diminution in value of securities would be fully or partially offset by the amount of the premium received. Similarly, instead of purchasing a call option when a foreign currency is expected to appreciate, a fund could write a put option on the relevant currency. If rates move in the manner projected, the put option would expire unexercised and allow the fund to hedge increased cost up to the amount of the premium. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the fund would be required to buy or sell the underlying currency at a loss that may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the fund also may be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements on exchange rates. All options written on foreign currencies will be covered. An option written on foreign currencies is covered if a fund holds currency sufficient to cover the option or has an absolute and immediate right to acquire that currency without additional cash consideration upon conversion of assets denominated in that currency or exchange of other currency held in its portfolio. An option writer could lose amounts substantially in excess of its initial investments, due to the margin and collateral requirements associated with such positions. Options on foreign currencies are traded through financial institutions acting as market-makers, although foreign currency options also are traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In an over-the-counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting a fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in certain foreign countries for that purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise. Foreign Currency Futures and Related Options. A fund may enter into currency futures contracts to buy or sell currencies. It also may buy put and call options and write covered call and cash-secured put options on currency futures. Currency futures contracts are similar to currency forward contracts, except that they are traded on exchanges (and have margin requirements) and are standardized as to contract size and delivery date. Most currency futures call for payment of delivery in U.S. dollars. A fund may use currency futures for the same purposes as currency forward contracts, subject to CFTC limitations. Statement of Additional Information - Sept. 29, 2006 Page 32 Currency futures and options on futures values can be expected to correlate with exchange rates, but will not reflect other factors that may affect the value of the fund's investments. A currency hedge, for example, should protect a Yen-denominated bond against a decline in the Yen, but will not protect a fund against price decline if the issuer's creditworthiness deteriorates. Because the value of a fund's investments denominated in foreign currency will change in response to many factors other than exchange rates, it may not be possible to match the amount of a forward contract to the value of a fund's investments denominated in that currency over time. A fund will hold securities or other options or futures positions whose values are expected to offset its obligations. The fund would not enter into an option or futures position that exposes the fund to an obligation to another party unless it owns either (i) an offsetting position in securities or (ii) cash, receivables and short-term debt securities with a value sufficient to cover its potential obligations. (See also Derivative Instruments and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign currency transactions include: Derivatives Risk, Interest Rate Risk, and Liquidity Risk. FOREIGN SECURITIES Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations involve special risks, including those set forth below, which are not typically associated with investing in U.S. securities. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic companies. Additionally, many foreign stock markets, while growing in volume of trading activity, have substantially less volume than the New York Stock Exchange, and securities of some foreign companies are less liquid and more volatile than securities of domestic companies. Similarly, volume and liquidity in most foreign bond markets are less than the volume and liquidity in the U.S. and, at times, volatility of price can be greater than in the U.S. Further, foreign markets have different clearance, settlement, registration, and communication procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions making it difficult to conduct such transactions. Delays in such procedures could result in temporary periods when assets are uninvested and no return is earned on them. The inability of an investor to make intended security purchases due to such problems could cause the investor to miss attractive investment opportunities. Payment for securities without delivery may be required in certain foreign markets and, when participating in new issues, some foreign countries require payment to be made in advance of issuance (at the time of issuance, the market value of the security may be more or less than the purchase price). Some foreign markets also have compulsory depositories (i.e., an investor does not have a choice as to where the securities are held). Fixed commissions on some foreign stock exchanges are generally higher than negotiated commissions on U.S. exchanges. Further, an investor may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. There is generally less government supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the U.S. It may be more difficult for an investor's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the U.S. and foreign countries may be less reliable than within the U.S., thus increasing the risk of delays or loss of certificates for portfolio securities. In addition, with respect to certain foreign countries, there is the possibility of nationalization, expropriation, the imposition of additional withholding or confiscatory taxes, political, social, or economic instability, diplomatic developments that could affect investments in those countries, or other unforeseen actions by regulatory bodies (such as changes to settlement or custody procedures). The risks of foreign investing may be magnified for investments in emerging markets, which may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. Statement of Additional Information - Sept. 29, 2006 Page 33 The introduction of a single currency, the euro, on Jan. 1, 1999 for participating European nations in the Economic and Monetary Union (EU) presents unique uncertainties, including the legal treatment of certain outstanding financial contracts after Jan. 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates; the fluctuation of the euro relative to non-euro currencies; whether the interest rate, tax or labor regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other EU countries such as the United Kingdom and Denmark into the euro and the admission of other non-EU countries such as Poland, Latvia, and Lithuania as members of the EU may have an impact on the euro. Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign securities include: Foreign/Emerging Markets Risk and Issuer Risk. FUNDING AGREEMENTS A fund may invest in funding agreements issued by domestic insurance companies. Funding agreements are short-term, privately placed, debt obligations of insurance companies that offer a fixed- or floating-rate of interest. These investments are not readily marketable and therefore are considered to be illiquid securities. (See also Illiquid and Restricted Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with funding agreements include: Credit Risk and Liquidity Risk. HIGH-YIELD DEBT SECURITIES (JUNK BONDS) High yield (high-risk) debt securities are sometimes referred to as junk bonds. They are non-investment grade (lower quality) securities that have speculative characteristics. Lower quality securities, while generally offering higher yields than investment grade securities with similar maturities, involve greater risks, including the possibility of default or bankruptcy. They are regarded as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. The special risk considerations in connection with investments in these securities are discussed below. See Appendix A for a discussion of securities ratings. (See also Debt Obligations.) All fixed rate interest-bearing securities typically experience appreciation when interest rates decline and depreciation when interest rates rise. The market values of lower-quality and comparable unrated securities tend to reflect individual corporate developments to a greater extent than do higher rated securities, which react primarily to fluctuations in the general level of interest rates. Lower-quality and comparable unrated securities also tend to be more sensitive to economic conditions than are higher-rated securities. As a result, they generally involve more credit risks than securities in the higher-rated categories. During an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of lower-quality securities may experience financial stress and may not have sufficient revenues to meet their payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific corporate developments, the issuer's inability to meet specific projected business forecasts, or the unavailability of additional financing. The risk of loss due to default by an issuer of these securities is significantly greater than a default by issuers of higher-rated securities because such securities are generally unsecured and are often subordinated to other creditors. Further, if the issuer of a lower quality security defaulted, an investor might incur additional expenses to seek recovery. Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of lower-quality securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the condition of the issuer that affect the market value of the securities. Consequently, credit ratings are used only as a preliminary indicator of investment quality. Statement of Additional Information - Sept. 29, 2006 Page 34 An investor may have difficulty disposing of certain lower-quality and comparable unrated securities because there may be a thin trading market for such securities. Because not all dealers maintain markets in all lower quality and comparable unrated securities, there is no established retail secondary market for many of these securities. To the extent a secondary trading market does exist, it is generally not as liquid as the secondary market for higher-rated securities. The lack of a liquid secondary market may have an adverse impact on the market price of the security. The lack of a liquid secondary market for certain securities also may make it more difficult for an investor to obtain accurate market quotations. Market quotations are generally available on many lower-quality and comparable unrated issues only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. Legislation may be adopted from time to time designed to limit the use of certain lower quality and comparable unrated securities by certain issuers. Although one or more of the other risks described in this SAI may apply, the largest risks associated with high-yield debt securities include: Credit Risk, Interest Rate Risk, and Prepayment and Extension Risk. ILLIQUID AND RESTRICTED SECURITIES Illiquid securities are securities that are not readily marketable. These securities may include, but are not limited to, certain securities that are subject to legal or contractual restrictions on resale, certain repurchase agreements, and derivative instruments. To the extent a fund invests in illiquid or restricted securities, it may encounter difficulty in determining a market value for the securities. Disposing of illiquid or restricted securities may involve time-consuming negotiations and legal expense, and it may be difficult or impossible for a fund to sell the investment promptly and at an acceptable price. In determining the liquidity of all securities and derivatives, such as Rule 144A securities, which are unregistered securities offered to qualified institutional buyers, and interest-only and principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S. government or its agencies and instrumentalities the investment manager, under guidelines established by the Board, will consider any relevant factors including the frequency of trades, the number of dealers willing to purchase or sell the security and the nature of marketplace trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with illiquid and restricted securities include: Liquidity Risk. INDEXED SECURITIES The value of indexed securities is linked to currencies, interest rates, commodities, indexes, or other financial indicators. Most indexed securities are short- to intermediate-term fixed income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be more volatile than the underlying instrument itself and they may be less liquid than the securities represented by the index. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with indexed securities include: Liquidity Risk and Market Risk. INFLATION PROTECTED SECURITIES Inflation is a general rise in prices of goods and services. Inflation erodes the purchasing power of an investor's assets. For example, if an investment provides a total return of 7% in a given year and inflation is 3% during that period, the inflation-adjusted, or real, return is 4%. Inflation-protected securities are debt securities whose principal and/or interest payments are adjusted for inflation, unlike debt securities that make fixed principal and interest payments. One type of inflation-protected 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. Statement of Additional Information - Sept. 29, 2006 Page 35 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: Interest Rate Risk. INVESTMENT COMPANIES Investing in securities issued by registered and unregistered investment companies may involve the duplication of advisory fees and certain other expenses. Although one or more of the other risks described in this SAI may apply, the largest risks associated with the securities of other investment companies include: Market Risk. Statement of Additional Information - Sept. 29, 2006 Page 36 LENDING OF PORTFOLIO SECURITIES A fund may lend certain of its portfolio securities. The current policy of the Board is to make these loans, either long- or short-term, to broker-dealers. In making loans, the lender receives the market price in cash, U.S. government securities, letters of credit, or such other collateral as may be permitted by regulatory agencies and approved by the Board. If the market price of the loaned securities goes up, the lender will get additional collateral on a daily basis. If the market price of the loaned securities goes down, the borrower may request that some collateral be returned. The risks are that the borrower may not provide additional collateral when required or return the securities when due. During the existence of the loan, the lender receives cash payments equivalent to all interest or other distributions paid on the loaned securities. The lender may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or money market instruments held as collateral to the borrower or placing broker. The lender will receive reasonable interest on the loan or a flat fee from the borrower and amounts equivalent to any dividends, interest, or other distributions on the securities loaned. Although one or more of the other risks described in this SAI may apply, the largest risks associated with the lending of portfolio securities include: Credit Risk. LOAN PARTICIPATIONS Loans, loan participations, and interests in securitized loan pools are interests in amounts owed by a corporate, governmental, or other borrower to a lender or consortium of lenders (typically banks, insurance companies, investment banks, government agencies, or international agencies). Loans involve a risk of loss in case of default or insolvency of the borrower and may offer less legal protection to an investor in the event of fraud or misrepresentation. Although one or more of the other risks described in this SAI may apply, the largest risks associated with loan participations include: Credit Risk. MORTGAGE- AND ASSET-BACKED SECURITIES Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and Collateralized Mortgage Obligations (CMOs). These securities may be issued or guaranteed by U.S. government agencies or instrumentalities (see also Agency and Government Securities), or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers, and special purpose entities. Mortgage-backed securities issued by private lenders may be supported by pools of mortgage loans or other mortgage-backed securities that are guaranteed, directly or indirectly, by the U.S. government or one of its agencies or instrumentalities, or they may be issued without any governmental guarantee of the underlying mortgage assets but with some form of non-governmental credit enhancement. Commercial mortgage-backed securities (CMBS) are a specific type of mortgage-backed security collateralized by a pool of mortgages on commercial real estate. Stripped mortgage-backed securities are a type of mortgage-backed security that receive differing proportions of the interest and principal payments from the underlying assets. Generally, there are two classes of stripped mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder to receive distributions consisting of all or a portion of the interest on the underlying pool of mortgage loans or mortgage-backed securities. POs entitle the holder to receive distributions consisting of all or a portion of the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. If prepayments of principal are greater than anticipated, an investor in IOs may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage-backed security. Statement of Additional Information - Sept. 29, 2006 Page 37 CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans or other mortgage-related securities, such as mortgage pass through securities or stripped mortgage-backed securities. CMOs may be structured into multiple classes, often referred to as "tranches," with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than its stated maturity. The yield characteristics of mortgage-backed securities differ from those of other debt securities. Among the differences are that interest and principal payments are made more frequently on mortgage-backed securities, usually monthly, and principal may be repaid at any time. These factors may reduce the expected yield. Asset-backed securities have structural characteristics similar to mortgage-backed securities. Asset-backed debt obligations represent direct or indirect participation in, or secured by and payable from, assets such as motor vehicle installment sales contracts, other installment loan contracts, home equity loans, leases of various types of property, and receivables from credit card or other revolving credit arrangements. The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancement of the securities. Payments or distributions of principal and interest on asset-backed debt obligations may be supported by non-governmental credit enhancements including letters of credit, reserve funds, overcollateralization, and guarantees by third parties. The market for privately issued asset-backed debt obligations is smaller and less liquid than the market for government sponsored mortgage-backed securities. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage and asset-backed securities include: Credit Risk, Interest Rate Risk, Liquidity Risk, and Prepayment and Extension Risk. MORTGAGE DOLLAR ROLLS Mortgage dollar rolls are investments in which an investor sells mortgage-backed securities for delivery in the current month and simultaneously contracts to purchase substantially similar securities on a specified future date. While an investor foregoes principal and interest paid on the mortgage-backed securities during the roll period, the investor is compensated by the difference between the current sales price and the lower price for the future purchase as well as by any interest earned on the proceeds of the initial sale. The investor also could be compensated through the receipt of fee income equivalent to a lower forward price. Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage dollar rolls include: Credit Risk and Interest Rate Risk. MUNICIPAL OBLIGATIONS Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States (including the District of Columbia and Puerto Rico). The interest on these obligations is generally exempt from federal income tax. Municipal obligations are generally classified as either "general obligations" or "revenue obligations." General obligation bonds are secured by the issuer's pledge of its full faith, credit, and taxing power for the payment of interest and principal. Revenue bonds are payable only from the revenues derived from a project or facility or from the proceeds of a specified revenue source. Industrial development bonds are generally revenue bonds secured by payments from and the credit of private users. Municipal notes are issued to meet the short-term funding requirements of state, regional, and local governments. Municipal notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes, tax and revenue anticipation notes, construction loan notes, short-term discount notes, tax-exempt commercial paper, demand notes, and similar instruments. Statement of Additional Information - Sept. 29, 2006 Page 38 Municipal lease obligations may take the form of a lease, an installment purchase, or a conditional sales contract. They are issued by state and local governments and authorities to acquire land, equipment, and facilities. An investor may purchase these obligations directly, or it may purchase participation interests in such obligations. Municipal leases may be subject to greater risks than general obligation or revenue bonds. State constitutions and statutes set forth requirements that states or municipalities must meet in order to issue municipal obligations. Municipal leases may contain a covenant by the state or municipality to budget for and make payments due under the obligation. Certain municipal leases may, however, provide that the issuer is not obligated to make payments on the obligation in future years unless funds have been appropriated for this purpose each year. Yields on municipal bonds and notes depend on a variety of factors, including money market conditions, municipal bond market conditions, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The municipal bond market has a large number of different issuers, many having smaller sized bond issues, and a wide choice of different maturities within each issue. For these reasons, most municipal bonds do not trade on a daily basis and many trade only rarely. Because many of these bonds trade infrequently, the spread between the bid and offer may be wider and the time needed to develop a bid or an offer may be longer than other security markets. See Appendix A for a discussion of securities ratings. (See also Debt Obligations.) Taxable Municipal Obligations. There is another type of municipal obligation that is subject to federal income tax for a variety of reasons. These municipal obligations do not qualify for the federal income exemption because (a) they did not receive necessary authorization for tax-exempt treatment from state or local government authorities, (b) they exceed certain regulatory limitations on the cost of issuance for tax-exempt financing or (c) they finance public or private activities that do not qualify for the federal income tax exemption. These non-qualifying activities might include, for example, certain types of multi-family housing, certain professional and local sports facilities, refinancing of certain municipal debt, and borrowing to replenish a municipality's underfunded pension plan. Although one or more of the other risks described in this SAI may apply, the largest risks associated with municipal obligations include: Credit Risk, Inflation Risk, Interest Rate Risk, and Market Risk. PREFERRED STOCK Preferred stock is a type of stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does not ordinarily carry voting rights. The price of a preferred stock is generally determined by earnings, type of products or services, projected growth rates, experience of management, liquidity, and general market conditions of the markets on which the stock trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with preferred stock include: Issuer Risk and Market Risk. REAL ESTATE INVESTMENT TRUSTS Real estate investment trusts (REITs) are pooled investment vehicles that manage a portfolio of real estate or real estate related loans to earn profits for their shareholders. REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity REITs invest the majority of their assets directly in real property, such as shopping centers, nursing homes, office buildings, apartment complexes, and hotels, and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. REITs can be subject to extreme volatility due to fluctuations in the demand for real estate, changes in interest rates, and adverse economic conditions. Similar to investment companies, REITs are not taxed on income distributed to shareholders provided they comply with certain requirements under the tax law. The failure of a REIT to continue to qualify as a REIT for tax purposes can materially affect its value. A fund will indirectly bear its proportionate share of any expenses paid by a REIT in which it invests. REITs often do not provide complete tax information until after the calendar year-end. Consequently, because of the delay, it may be necessary for a fund investing in REITs to request permission to extend the deadline for issuance of Forms 1099-DIV beyond January 31. Statement of Additional Information - Sept. 29, 2006 Page 39 Although one or more of the other risks described in this SAI may apply, the largest risks associated with REITs include: Interest Rate Risk, Issuer Risk and Market Risk. REPURCHASE AGREEMENTS Repurchase agreements may be entered into with certain banks or non-bank dealers. In a repurchase agreement, the purchaser buys a security at one price, and at the time of sale, the seller agrees to repurchase the obligation at a mutually agreed upon time and price (usually within seven days). The repurchase agreement determines the yield during the purchaser's holding period, while the seller's obligation to repurchase is secured by the value of the underlying security. Repurchase agreements could involve certain risks in the event of a default or insolvency of the other party to the agreement, including possible delays or restrictions upon the purchaser's ability to dispose of the underlying securities. Although one or more of the other risks described in this SAI may apply, the largest risks associated with repurchase agreements include: Credit Risk. REVERSE REPURCHASE AGREEMENTS In a reverse repurchase agreement, an investor sells a security and enters into an agreement to repurchase the security at a specified future date and price. The investor generally retains the right to interest and principal payments on the security. Since the investor receives cash upon entering into a reverse repurchase agreement, it may be considered a borrowing. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with reverse repurchase agreements include: Credit Risk and Interest Rate Risk. SHORT SALES With short sales, an investor sells a security that it does not own in anticipation of a decline in the market value of the security. To complete the transaction, the investor must borrow the security to make delivery to the buyer. The investor is obligated to replace the security that was borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the investor sold the security. A fund that is allowed to engage in short sales will designate cash or liquid securities to cover its open short positions. Those funds also may engage in "short sales against the box," a form of short-selling that involves selling a security that an investor owns (or has an unconditioned right to purchase) for delivery at a specified date in the future. This technique allows an investor to hedge protectively against anticipated declines in the market of its securities. If the value of the securities sold short increased between the date of the short sale and the date on which the borrowed security is replaced, the investor loses the opportunity to participate in the gain. A "short sale against the box" will result in a constructive sale of appreciated securities thereby generating capital gains to a fund. Although one or more of the other risks described in this SAI may apply, the largest risks associated with short sales include: Market Risk. SOVEREIGN DEBT A sovereign debtor's willingness or ability to repay principal and pay interest in a timely manner may be affected by a variety of factors, including its cash flow situation, the extent of its reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor's policy toward international lenders, and the political constraints to which a sovereign debtor may be subject. (See also Foreign Securities.) With respect to sovereign debt of emerging market issuers, investors should be aware that certain emerging market countries are among the largest debtors to commercial banks and foreign governments. At times, certain emerging market countries have declared moratoria on the payment of principal and interest on external debt. Certain emerging market countries have experienced difficulty in servicing their sovereign debt on a timely basis that led to defaults and the restructuring of certain indebtedness. Sovereign debt includes Brady Bonds, which are securities issued under the framework of the Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external commercial bank indebtedness. Statement of Additional Information - Sept. 29, 2006 Page 40 Although one or more of the other risks described in this SAI may apply, the largest risks associated with sovereign debt include: Credit Risk and Foreign/Emerging Markets Risk. STRUCTURED INVESTMENTS A structured investment is a security whose return is tied to an underlying index or to some other security or pool of assets. Structured investments generally are individually negotiated agreements and may be traded over-the-counter. Structured investments are created and operated to restructure the investment characteristics of the underlying security. This restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments, such as commercial bank loans, and the issuance by that entity of one or more classes of debt obligations ("structured securities") backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics, such as varying maturities, payment priorities, and interest rate provisions. The extent of the payments made with respect to structured securities is dependent on the extent of the cash flow on the underlying instruments. Because structured securities typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. Structured securities are often offered in different classes. As a result a given class of a structured security may be either subordinated or unsubordinated to the right of payment of another class. Subordinated structured securities typically have higher yields and present greater risks than unsubordinated structured securities. Structured securities are typically sold in private placement transactions, and at any given time there may be no active trading market for a particular structured security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with structured investments include: Credit Risk and Liquidity Risk. SWAP AGREEMENTS Swap agreements are typically individually negotiated agreements that obligate two parties to exchange payments based on a reference to a specified asset, reference rate or index. Swap agreements will tend to shift a party's investment exposure from one type of investment to another. A swap agreement can increase or decrease the volatility of a fund's investments and its net asset value. Swap agreements are traded in the over-the-counter market and may be considered to be illiquid. Swap agreements entail the risk that a party will default on its payment obligations. A fund will enter into a swap agreement only if the claims-paying ability of the other party or its guarantor is considered to be investment grade by the investment manager. Generally, the unsecured senior debt or the claims-paying ability of the other party or its guarantor must be rated in one of the three highest rating categories of at least one Nationally Recognized Statistical Rating Organization (NRSRO) at the time of entering into the transaction. If there is a default by the other party to such a transaction, a fund will have to rely on its contractual remedies (which may be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements related to the transaction. In certain circumstances, a fund may seek to minimize counterparty risk by requiring the counterparty to post collateral. Swap agreements are usually entered into without an upfront payment because the value of each party's position is the same. The market values of the underlying commitments will change over time resulting in one of the commitments being worth more than the other and the net market value creating a risk exposure for one counterparty or the other. Interest Rate Swaps. Interest rate swap agreements are often used to obtain or preserve a desired return or spread at a lower cost than through a direct investment in an instrument that yields the desired return or spread. They are financial instruments that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future. In a standard interest rate swap transaction, two parties agree to exchange their respective commitments to pay fixed or floating rates on a predetermined specified (notional) amount. The swap agreement notional amount is the predetermined basis for calculating the obligations that the swap counterparties have agreed to exchange. Under most swap agreements, the obligations of the parties are exchanged on a net basis. The two payment streams are netted out, with each party receiving or paying, as the case may be, only the net amount of the two payments. Interest rate swaps can be based on various measures of interest rates, including LIBOR, swap rates, treasury rates and other foreign interest rates. Statement of Additional Information - Sept. 29, 2006 Page 41 Cross Currency Swaps. Cross currency swaps are similar to interest rate swaps, except that they involve multiple currencies. A fund may enter into a currency swap when it has exposure to one currency and desires exposure to a different currency. Typically the interest rates that determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal amounts are exchanged at the beginning of the contract and returned at the end of the contract. In addition to paying and receiving amounts at the beginning and termination of the agreements, both sides will also have to pay in full periodically based upon the currency they have borrowed. Change in foreign exchange rates and changes in interest rates, as described above, may negatively affect currency swaps. Total Return Swaps. Total return swaps are contracts in which one party agrees to make periodic payments based on the change in market value of the underlying assets, which may include a specified security, basket of securities or security indexes during the specified period, in return for periodic payments based on a fixed or variable interest rate of the total return from other underlying assets. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking physical custody of such security or market. For example, CMBS total return swaps are bilateral financial contracts designed to replicate synthetically the total returns of collateralized mortgage-backed securities. In a typical total return equity swap, payments made by the fund or the counterparty are based on the total return of a particular reference asset or assets (such as an equity security, a combination of such securities, or an index). That is, one party agrees to pay another party the return on a stock, basket of stocks, or stock index in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the index of securities without actually purchasing those stocks. Total return swaps involve not only the risk associated with the investment in the underlying securities, but also the risk of the counterparty not fulfilling its obligations under the agreement. Swaption Transaction. A swaption is an option on a swap agreement and a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms, in return for payment of the purchase price (the "premium") of the option. The fund may write (sell) and purchase put and call swaptions to the same extent it may make use of standard options on securities or other instruments. The writer of the contract receives the premium and bears the risk of unfavorable changes in the market value on the underlying swap agreement. Swaptions can be bundled and sold as a package. These are commonly called interest rate caps, floors and collars. In interest rate cap transactions, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or cap. Interest rate floor transactions require one party, in exchange for a premium to agree to make payments to the other to the extent that interest rates fall below a specified level, or floor. In interest rate collar transactions, one party sells a cap and purchases a floor, or vice versa, in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels or collar amounts. Credit Default Swaps. A credit default swap agreement may have as reference obligations one or more securities that are not currently held by the fund. The fund may be either the buyer or seller in the transaction. Credit default swaps may also be structured based on the debt of a basket of issuers, rather than a single issuer, and may be customized with respect to the default event that triggers purchase or other factors. As a seller, the fund generally receives an up front payment or a fixed rate of income throughout the term of the swap, which typically is between six months and three years, provided that there is no credit event. If a credit event occurs, generally the seller must pay the buyer the full face amount of deliverable obligations of the reference obligations that may have little or no value. If the fund is a buyer and no credit event occurs, the fund recovers nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference obligation that may have little or no value. Statement of Additional Information - Sept. 29, 2006 Page 42 The use of swap agreements by a fund entails certain risks, which may be different from, or possibly greater than, the risks associated with investing directly in the securities and other investments that are the referenced asset for the swap agreement. Swaps are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with stocks, bonds, and other traditional investments. The use of a swap requires an understanding not only of the referenced asset, reference rate, or index, but also of the swap itself, without the benefit of observing the performance of the swap under all the possible market conditions. Because some swap agreements have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the swap itself. Certain swaps have the potential for unlimited loss, regardless of the size of the initial investment. Although one or more of the other risks described in this SAI may apply, the largest risks associated with swaps include: Credit Risk, Liquidity Risk and Market Risk. VARIABLE- OR FLOATING-RATE SECURITIES Variable-rate securities provide for automatic establishment of a new interest rate at fixed intervals (daily, monthly, semiannually, etc.). Floating-rate securities generally provide for automatic adjustment of the interest rate whenever some specified interest rate index changes. Variable- or floating-rate securities frequently include a demand feature enabling the holder to sell the securities to the issuer at par. In many cases, the demand feature can be exercised at any time. Some securities that do not have variable or floating interest rates may be accompanied by puts producing similar results and price characteristics. Variable-rate demand notes include master demand notes that are obligations that permit the investor to invest fluctuating amounts, which may change daily without penalty, pursuant to direct arrangements between the investor as lender, and the borrower. The interest rates on these notes fluctuate from time to time. The issuer of such obligations normally has a corresponding right, after a given period, to prepay in its discretion the outstanding principal amount of the obligations plus accrued interest upon a specified number of days' notice to the holders of such obligations. Because these obligations are direct lending arrangements between the lender and borrower, it is not contemplated that such instruments generally will be traded. There generally is not an established secondary market for these obligations. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, the lender's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. Such obligations frequently are not rated by credit rating agencies and may involve heightened risk of default by the issuer. Although one or more of the other risks described in this SAI may apply, the largest risks associated with variable- or floating-rate securities include: Credit Risk. WARRANTS Warrants are securities giving the holder the right, but not the obligation, to buy the stock of an issuer at a given price (generally higher than the value of the stock at the time of issuance) during a specified period or perpetually. Warrants may be acquired separately or in connection with the acquisition of securities. Warrants do not carry with them the right to dividends or voting rights and they do not represent any rights in the assets of the issuer. Warrants may be considered to have more speculative characteristics than certain other types of investments. In addition, the value of a warrant does not necessarily change with the value of the underlying securities, and a warrant ceases to have value if it is not exercised prior to its expiration date. Although one or more of the other risks described in this SAI may apply, the largest risks associated with warrants include: Market Risk. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS When-issued securities and forward commitments involve a commitment to purchase or sell specific securities at a predetermined price or yield in which payment and delivery take place after the customary settlement period for that type of security. Normally, the settlement date occurs within 45 days of the purchase although in some cases settlement may take longer. The investor does not pay for the securities or receive dividends or interest on them until the contractual settlement date. Such instruments involve the risk of loss if the value of the security to be purchased declines prior to the settlement date and the risk that the security will not be issued as anticipated. If the security is not issued as anticipated, a fund may lose the opportunity to obtain a price and yield considered to be advantageous. Statement of Additional Information - Sept. 29, 2006 Page 43 Although one or more of the other risks described in this SAI may apply, the largest risks associated with when-issued securities and forward commitments include: Credit Risk. ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES These securities are debt obligations that do not make regular cash interest payments (see also Debt Obligations). Zero-coupon and step-coupon securities are sold at a deep discount to their face value because they do not pay interest until maturity. Pay-in-kind securities pay interest through the issuance of additional securities. Because these securities do not pay current cash income, the price of these securities can be extremely volatile when interest rates fluctuate. See Appendix A for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with zero-coupon, step-coupon, and pay-in-kind securities include: Credit Risk and Interest Rate Risk. A fund cannot issue senior securities but this does not prohibit certain investment activities for which assets of the fund are set aside, or margin, collateral or escrow arrangements are established, to cover the related obligations. Examples of those activities include borrowing money, delayed-delivery and when-issued securities transactions, and contracts to buy or sell options, derivatives, and hedging instruments. SECURITIES TRANSACTIONS Except as otherwise noted, the description of policies and procedures in this section also applies to any fund subadviser. Subject to policies set by the Board, as well as the terms of the investment management agreements, the investment manager or subadviser for subadvised funds is authorized to determine, consistent with a fund's investment objective and policies, which securities will be purchased, held, or sold. In determining where the buy and sell orders are to be placed, the investment manager has been directed to use its best efforts to obtain the best available price and the most favorable execution except where otherwise authorized by the Board. 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). Statement of Additional Information - Sept. 29, 2006 Page 44 Research provided by brokers supplements the investment manager's own research activities. Such services include economic data on, and analysis of, U.S. and foreign economies; information on specific industries; information about specific companies, including earnings estimates; purchase recommendations; portfolio strategy services; political, economic, business, and industry trend assessments; historical statistical information; market data services providing information on specific issues and prices; and technical analysis of various aspects of the securities markets, including technical charts. Research services may take the form of written reports, computer software, or personal contact by telephone or at seminars or other meetings. The investment manager has obtained, and in the future may obtain, computer hardware from brokers, including but not limited to personal computers that will be used exclusively for investment decision-making purposes, which include the research, portfolio management, and trading functions and other services to the extent permitted under an interpretation by the SEC. When paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge, the investment manager must follow procedures authorized by the Board. To date, three procedures have been authorized. One procedure permits the investment manager to direct an order to buy or sell a security traded on a national securities exchange to a specific broker for research services it has provided. The second procedure permits the investment manager, in order to obtain research, to direct an order on an agency basis to buy or sell a security traded in the over-the-counter market to a firm that does not make a market in that security. The commission paid generally includes compensation for research services. The third procedure permits the investment manager, in order to obtain research and brokerage services, to cause a fund to pay a commission in excess of the amount another broker might have charged. The investment manager has advised the funds that it is necessary to do business with a number of brokerage firms on a continuing basis to obtain such services as the handling of large orders, the willingness of a broker to risk its own money by taking a position in a security, and the specialized handling of a particular group of securities that only certain brokers may be able to offer. As a result of this arrangement, some portfolio transactions may not be effected at the lowest commission, but the investment manager believes it may obtain better overall execution. The investment manager has represented that under all three procedures the amount of commission paid will be reasonable and competitive in relation to the value of the brokerage services performed or research provided. All other transactions will be placed on the basis of obtaining the best available price and the most favorable execution. In so doing, if in the professional opinion of the person responsible for selecting the broker or dealer, several firms can execute the transaction on the same basis, consideration will be given by such person to those firms offering research services. Such services may be used by the investment manager in providing advice to all RiverSource funds (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. Statement of Additional Information - Sept. 29, 2006 Page 45
TABLE 5. TOTAL BROKERAGE COMMISSIONS - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL BROKERAGE COMMISSIONS - ------------------------------------------------------------------------------------------------------------------------------------ FUND 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive $ 0 $ 0 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Conservative 0 0 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 0 0 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive 0 0 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative 0 0 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Total Equity 0 0 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Small Company Index 78,951 37,118 23,893 - ------------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index 22,575 49,048 24,729 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value 721,284 858,846 1,852,684 - ------------------------------------------------------------------------------------------------------------------------------------ Precious Metals 801,550 1,245,421 956,649 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage 481,987 3,294,757 4,102,653 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth 1,410,791 2,105,168 3,334,707 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Aggressive Growth 405,109 181,981 72,985 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Growth 21,815 180,023 46,313 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Value 346,840 314,501 162,856 - ------------------------------------------------------------------------------------------------------------------------------------ High Yield Bond 0 0 876 - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Basic Income 0 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income 0 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Moderate Income 0 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Select Value 445,429 310,913 539,192 - ------------------------------------------------------------------------------------------------------------------------------------ Short Duration U.S. Government 24,483 95,868 407,216 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Equity 239,268 429,969 846,218 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value 198,852 2,439,209 3,185,306 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 6,379 10,708 31,267 - ------------------------------------------------------------------------------------------------------------------------------------ Value 297,507 363,273 389,539 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------------------ Dividend Opportunity 456,446 621,168 3,783,128 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate 152,782 185,877 34,975 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 46
- ------------------------------------------------------------------------------------------------------------------------------------ TOTAL BROKERAGE COMMISSIONS - ------------------------------------------------------------------------------------------------------------------------------------ FUND 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Management 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Core Bond 4,241 3,612 1,451 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Equity 987,624 35,948 5,731 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity 8,916 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 33,110 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Floating Rate 0 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Growth 10,375,981 15,623,111 22,702,374 - ------------------------------------------------------------------------------------------------------------------------------------ Income Opportunities 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Inflation Protected Securities 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Equity 7,940,223 6,832,334 1,306,601 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Value 138,363 189,029 146,077 - ------------------------------------------------------------------------------------------------------------------------------------ Limited Duration Bond 4,006 3,268 839 - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Bond 161,336 160,646 319,860 - ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced 1,135,795 1,314,212 2,778,748 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Equity Income 3,191,513 2,416,265 2,987,610 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value 919,813 365,435 345,711 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Allocation 502,448 279,233 379,561 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined International Equity N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets 2,388,169 2,022,969 2,106,670 - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Bond N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ European Equity 211,729 324,079 783,457 - ------------------------------------------------------------------------------------------------------------------------------------ Global Bond 8,856 7,760 23,297 - ------------------------------------------------------------------------------------------------------------------------------------ Global Equity 1,393,982 1,992,985 1,582,657 - ------------------------------------------------------------------------------------------------------------------------------------ Global Technology 1,170,244 4,193,021 5,595,324 - ------------------------------------------------------------------------------------------------------------------------------------ International Aggressive Growth 673,010 598,644 495,189 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity 556,407 315,047 144,417 - ------------------------------------------------------------------------------------------------------------------------------------ International Opportunity 1,320,088 1,303,677 2,047,954 - ------------------------------------------------------------------------------------------------------------------------------------ International Select Value 1,027,065 839,270 411,763 - ------------------------------------------------------------------------------------------------------------------------------------ International Small Cap 241,558 179,076 66,511 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 47
- ------------------------------------------------------------------------------------------------------------------------------------ TOTAL BROKERAGE COMMISSIONS - ------------------------------------------------------------------------------------------------------------------------------------ FUND 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Growth 1,764,250 1,630,670 1,597,573 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ For the period from March 4, 2004 (when shares became publicly available) to Jan. 31, 2005. For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. For the period from March 4, 2004 (when shares became publicly available) to June 30, 2004. For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. For the period from March 4, 2004 (when shares became publicly available) to July 31, 2004.
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 - ------------------------------------------------------------------------------------------------------------------------------------ BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- FUND AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS -------------------------- TRANSACTIONS IMPUTED OR PAID 2006 2005 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive $ 0 $ 0 24% 38% - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Conservative 0 0 23% 51 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 0 0 15% 28 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive 0 0 20% 31 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative 0 0 19% 28 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Total Equity 0 0 17% 39 - ------------------------------------------------------------------------------------------------------------------------------------ Small Company Index 0 0 14% 12 - ------------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index 0 0 7% 6 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value 0 0 28 25 - ------------------------------------------------------------------------------------------------------------------------------------ Precious Metals 0 0 111 196 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage 0 0 110 101 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth 5,025,869,109 6,710,559 152 153 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 48
- ------------------------------------------------------------------------------------------------------------------------------------ BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- FUND AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS -------------------------- TRANSACTIONS IMPUTED OR PAID 2006 2005 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Aggressive Growth 26,399,071 28,782 202 218 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Growth 6,049,129 4,132 62 122 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Value 0 0 20 2 - ------------------------------------------------------------------------------------------------------------------------------------ High Yield Bond 0 0 93 105 - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Basic Income 0 0 1 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income 0 0 0 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Moderate Income 0 0 0 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Select Value 257,457,395 382,710 7 12 - ------------------------------------------------------------------------------------------------------------------------------------ Short Duration U.S. Government 0 0 194 169 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Equity 6,198,451 11,523 88 88 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value 136,377,105 124,583 77 70 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 0 0 178 137 - ------------------------------------------------------------------------------------------------------------------------------------ Value 0 0 46 40 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------------------ Dividend Opportunity 52,050,046 26,001 19 24 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate 9,671,160 8,060 47 63 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Management 0 0 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Core Bond 0 0 301 313 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Equity 0 0 137 64 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity 0 0 14 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 0 0 40 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Floating Rate 0 0 49 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Growth 885,759,208 1,596,985 134 136 - ------------------------------------------------------------------------------------------------------------------------------------ Income Opportunities 0 0 130 124 - ------------------------------------------------------------------------------------------------------------------------------------ Inflation Protected Securities 0 0 58 43 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Equity 904,595,395 1,271,910 116 128 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Value 12,197,207 13,702 46 57 - ------------------------------------------------------------------------------------------------------------------------------------ Limited Duration Bond 0 0 328 316 - ------------------------------------------------------------------------------------------------------------------------------------ 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt 0 0 28 30 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Bond 0 0 300 279 - ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced 132,024,106 14,004 130 131 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Equity Income 12,690,978 14,045 24 18 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value 0 0 26 9 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Allocation 0 0 134 127 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 49
- ------------------------------------------------------------------------------------------------------------------------------------ BROKERAGE DIRECTED FOR RESEARCH* ------------------------------------- FUND AMOUNT OF TURNOVER RATES AMOUNT OF COMMISSIONS -------------------------- TRANSACTIONS IMPUTED OR PAID 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined International Equity N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets 0 0 124 128 - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Bond N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ European Equity 0 0 56 73 - ------------------------------------------------------------------------------------------------------------------------------------ Global Bond 0 0 73 92 - ------------------------------------------------------------------------------------------------------------------------------------ Global Equity 0 0 93 104 - ------------------------------------------------------------------------------------------------------------------------------------ Global Technology 3,005,998 6,521 115 349 - ------------------------------------------------------------------------------------------------------------------------------------ International Aggressive Growth 86,243,642 210,111 67 87 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity 77,046,229 143,276 110 111 - ------------------------------------------------------------------------------------------------------------------------------------ International Opportunity 0 0 93 98 - ------------------------------------------------------------------------------------------------------------------------------------ International Select Value 55,832,306 77,471 22 23 - ------------------------------------------------------------------------------------------------------------------------------------ International Small Cap 34,092,349 70,621 80 66 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt 0 0 16 25 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Growth 0 0 27 26 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 0 0 29 21 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 0 0 30 22 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 0 0 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Reported numbers include third party soft dollar commissions and portfolio manager directed commissions directed for research. RiverSource also receives proprietary research from brokers, but because these are bundled commissions for which the research portion is not distinguishable from the execution portion, their amounts have not been included in the table. For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. For the period from March 4, 2004 (when shares became publicly available) to Jan. 31, 2005. For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. A significant portion of the turnover was the result of "roll" transactions in the liquid derivatives and Treasury securities. In the derivative transactions, positions in expiring contracts are liquidated and simultaneously replaced with positions in new contracts with equivalent characteristics. In the Treasury transactions, existing holdings are sold to purchase newly issued securities with slightly longer maturity dates. Although these transactions affect the turnover rate of the portfolio, they do not change the risk exposure or result in material transaction costs. The remaining turnover resulted from strategic reallocations and relative value trading. After transaction costs, we expect this activity to enhance the returns on the overall fund. The variation in turnover rate can be attributed to several factors. During this year, there were opportunities to get into positions at very good risk/reward levels and due to this and due to the fact that the technology market has been essentially flat and stocks have not been appreciating significantly during the period there is less need for turnover in the portfolio. The turnover in the fund will fluctuate where we would expect to see larger turnover when we see more volatility in the overall index and lower turnover with lower volatility in the index.
Statement of Additional Information - Sept. 29, 2006 Page 50 As of the end of the most recent fiscal period, the fund held securities of its regular brokers or dealers or of the parent of those brokers or dealers that derived more than 15% of gross revenue from securities-related activities as presented below. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
TABLE 7. SECURITIES OF REGULAR BROKERS OR DEALERS - --------------------------------------------------------------------------------------------------------------------------------- VALUE OF SECURITIES OWNED FUND ISSUER 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 $4,072,039 LaBranche & Co. 1,488,214 Piper Jaffray Companies 1,902,361 - --------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index Ameriprise Financial 240,681 Bear Stearns Companies 344,730 Citigroup 5,662,684 E*Trade Financial 233,856 Freedom Investments 351,153 Goldman Sachs Group 1,529,879 Lehman Brothers Holdings 904,077 JPMorgan Chase & Co. 3,342,220 Merrill Lynch & Co. 1,657,920 Morgan Stanley 1,591,616 PNC Financial Services Group 455,512 Schwab (Charles) 366,674 - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - --------------------------------------------------------------------------------------------------------------------------------- Equity Value Citigroup 34,337,764 Goldman Sachs Group 14,163,913 Lehman Brothers Holdings 21,255,594 Merrill Lynch & Co. 20,612,831 Morgan Stanley 5,066,056 - --------------------------------------------------------------------------------------------------------------------------------- Precious Metals None N/A - --------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Investment Technology Group 3,947,596 Knight Capital Group CI A 1,815,957 LaBranche & Co. 329,607 - --------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth GFI Group 300,663 Investment Technology Group 354,078 optionsXpress Holdings 892,611 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 51
- --------------------------------------------------------------------------------------------------------------------------------- VALUE OF SECURITIES OWNED FUND ISSUER AT END OF FISCAL PERIOD - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - --------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - --------------------------------------------------------------------------------------------------------------------------------- Aggressive Growth Affiliated Managers Group 3,273,358 Piper Jaffray Companies 2,252,808 - --------------------------------------------------------------------------------------------------------------------------------- Fundamental Growth Charles Schwab 1,902,739 - --------------------------------------------------------------------------------------------------------------------------------- Fundamental Value Citigroup 26,188,160 JPMorgan Chase & Co. 48,231,810 Morgan Stanley 7,017,274 - --------------------------------------------------------------------------------------------------------------------------------- High Yield Bond None N/A - --------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income None N/A - --------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income None N/A - --------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income None N/A - --------------------------------------------------------------------------------------------------------------------------------- Select Value Bear Stearns Companies 802,500 Merrill Lynch & Co. 2,896,400 PNC Financial Services Group 1,722,750 - --------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government CS First Boston Mtge Securities 5,417,306 - --------------------------------------------------------------------------------------------------------------------------------- Small Cap Equity Affiliated Managers Group 1,294,370 Morgan Stanley & Co. 2,997,066 optionsXpress Holdings 720,250 - --------------------------------------------------------------------------------------------------------------------------------- Small Cap Value Affiliated Managers Group 902,631 Morgan Stanley & Co. 9,990,219 Piper Jaffray and Companies 860,744 - --------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage ChaseFlex Trust 735,638 CS First Boston Mtge Securities 2,541,444 - --------------------------------------------------------------------------------------------------------------------------------- Value Citigroup 6,921,720 JPMorgan Chase & Co. 8,148,333 Morgan Stanley 398,262 Morgan Stanley & Co. 2,997,066 PNC Financial Services Group 2,023,956 - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - --------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity Citigroup 35,880,912 JPMorgan Chase & Co. 21,474,600 - --------------------------------------------------------------------------------------------------------------------------------- Real Estate None N/A - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 52
- --------------------------------------------------------------------------------------------------------------------------------- VALUE OF SECURITIES OWNED FUND ISSUER AT END OF FISCAL PERIOD - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - --------------------------------------------------------------------------------------------------------------------------------- Cash Management Bear Stearns Companies 139,000,000 Citigroup Funding 37,000,000 Credit Suisse First Boston NY 87,000,000 Goldman Sachs Group 25,000,000 Lehman Brothers Holdings 67,000,000 Merrill Lynch & Co. 55,000,000 - --------------------------------------------------------------------------------------------------------------------------------- Core Bond Bear Stearns Commercial Mtg Securities 1,205,900 Citigroup Commercial Mtge Trust 376,951 Citigroup/Deutsche Bank Commercial Mtge Trust 171,657 Credit Suisse Mtge Capital Ctfs 375,131 CS First Boston Mtge Securities 1,476,403 GS Mtge Securities II 614,978 JP Morgan Chase Commercial Mtge Securities 3,003,789 LB-UBS Commercial Mtge Trust 3,661,014 Merrill Lynch Mtge Trust 1,919,148 Morgan Stanley Capital I 4,104,900 Morgan Stanley, Dean Witter Capital I 407,446 - --------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity Bear Stearns Companies 8,407,500 Citigroup 47,237,131 E*TRADE Financial 7,228,361 Franklin Resources 11,103,585 Goldman Sachs Group 23,908,429 JP Morgan Chase & Co. 9,134,128 Lehman Brothers Holdings 21,340,297 Merrill Lynch & Co. 31,053,578 Morgan Stanley 12,346,058 PNC Financial Services Group 8,408,425 Charles Schwab 3,637,235 - --------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Knight Capital Group CI A 44,327 LaBranche & Co. 51,169 Piper Jaffray Companies 74,993 - --------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity AG Edwards 19,264 Investment Technology Group 45,123 Jefferies Group 26,500 Knight Capital Group CI A 18,756 LaBranche & Co. 13,308 Piper Jaffray Companies 21,807 Raymond James Financial 36,906 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 53
- --------------------------------------------------------------------------------------------------------------------------------- VALUE OF SECURITIES OWNED FUND ISSUER AT END OF FISCAL PERIOD - --------------------------------------------------------------------------------------------------------------------------------- Floating Rate Ameritrade Holding 994,637 - --------------------------------------------------------------------------------------------------------------------------------- Growth Citigroup 6,806,154 - --------------------------------------------------------------------------------------------------------------------------------- Income Opportunities LaBranche & Co. 3,418,650 - --------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities None N/A - --------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity Bear Stearns Companies 1,891,269 Citigroup 142,425,465 Franklin Resources 31,692,638 Goldman Sachs Group 7,437,856 JP Morgan Chase & Co. 75,668,662 Legg Mason 9,290,962 Lehman Brothers Holdings 36,896,275 Merrill Lynch & Co. 28,517,987 Morgan Stanley 45,346,948 PNC Financial Services Group 24,116,699 - --------------------------------------------------------------------------------------------------------------------------------- Large Cap Value American Express 361,453 Citigroup 3,318,607 Franklin Resources 284,135 JP Morgan Chase & Co. 1,711,617 Legg Mason 83,053 Lehman Brothers Holdings 908,585 Merrill Lynch & Co. 780,558 Morgan Stanley 983,069 PNC Financial Services Group 449,976 - --------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond Bear Stearns Commercial Mtg Securities 866,675 ChaseFlex Trust 357,336 Citigroup Commercial Mtge Trust 424,070 Citigroup/Deutsche Bank Commercial Mtge Trust 171,657 Credit Suisse Mtge Capital Ctfs 350,123 CS First Boston Mtge Securities 998,880 GS Mtge Securities II 663,808 JP Morgan Chase Commercial Mtge Securities 2,983,942 LB-UBS Commercial Mtge Trust 2,307,345 Merrill Lynch Mtge Trust 552,125 Morgan Stanley Capital 1 1,466,918 Morgan Stanley, Dean Witter Capital 1 458,376 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 54
- --------------------------------------------------------------------------------------------------------------------------------- VALUE OF SECURITIES OWNED FUND ISSUER AT END OF FISCAL PERIOD - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - --------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt None N/A - --------------------------------------------------------------------------------------------------------------------------------- Diversified Bond Bear Stearns Adjustable Rate Mortgage Trust 7,536,103 Bear Stearns Commercial Mtge Securities 10,586,732 Citigroup 35,535,196 Citigroup Commercial Mortgage Trust 12,098,072 CS First Boston Mtge Securities 7,871,786 GS Mtg Securities 10,184,890 JPMorgan Chase Commercial Mtge Securities 40,751,675 LB-UBS Commercial Mtge Trust 67,268,305 Merrill Lynch Mtge Trust 4,557,707 Morgan Stanley & Co. 2,899,712 Morgan Stanley Capital 1 13,604,693 Morgan Stanley, Dean Witter Capital 1 11,768,644 - --------------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - --------------------------------------------------------------------------------------------------------------------------------- Balanced Bear Stearns Commercial Mtge Securities 2,691,282 Bear Stearns Adjustable Rate Mortgage Trust 1,285,883 Citigroup 26,730,801 Citigroup Commercial Mortgage Trust 1,894,303 CS First Boston Mtge Securities 4,216,015 Franklin Resources 3,152,026 GS Mtg Securities II 1,802,859 JPMorgan Chase 2,046,404 JPMorgan Chase & Co. 14,331,286 JPMorgan Chase Commercial Mtge Securities 5,957,081 Legg Mason 1,957,637 Lehman Brothers Holdings 6,048,108 LB-UBS Commercial Mtge Trust 11,371,831 Merrill Lynch & Co. 5,287,634 Merrill Lynch Mtge Trust 859,511 Morgan Stanley 9,935,101 Morgan Stanley Capital I 3,509,890 Morgan Stanley, Dean Witter Capital I 2,004,670 PNC Financial Services Group 4,544,533 - --------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income Citigroup 173,731,632 Lehman Brothers Holdings 17,530,240 Merrill Lynch & Co. 29,834,505 Morgan Stanley 14,828,106 Morgan Stanley & Co. 34,827,111 - --------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Morgan Stanley & Co. 18,876,087 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 55
- --------------------------------------------------------------------------------------------------------------------------------- VALUE OF SECURITIES OWNED FUND ISSUER AT END OF FISCAL PERIOD - --------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation Bear Stearns Adjustable Rate Mortgage Trust 653,482 Bear Stearns Commercial Mtge Securities 1,497,234 Bear Stearns Companies 2,412,415 Citigroup 17,045,203 Citigroup Commercial Mortgage Trust 1,571,411 Credit Suisse Group 530,415 CS First Boston Mtge Securities 1,348,098 Franklin Resources 4,447,781 GS Mtg Securities II 799,349 Investment Technology Group 560,269 JPMorgan Chase 715,248 JPMorgan Chase Commercial Mtge Securities 2,449,180 Knight Capital Group 97,227 LaBranche & Co. 104,975 LB-UBS Commercial Mtge Trust 3,739,983 Lehman Brothers Holdings 3,769,642 Merrill Lynch & Co. 753,439 Merrill Lynch Mtge Trust 429,755 Morgan Stanley 1,795,878 Morgan Stanley & Co. 19,193,760 Morgan Stanley Capital 1 295,290 Morgan Stanley, Dean Witter Capital 1 476,043 PNC Financial Services Group 3,027,600 - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - --------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Emerging Markets None N/A - --------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- European Equity Credit Suisse Group 1,040,311 - --------------------------------------------------------------------------------------------------------------------------------- Global Bond Bear Stearns Commercial Mtge Securities 3,157,553 Citigroup 3,212,945 Citigroup Commercial Mortgage Trust 2,230,723 CS First Boston Mtge Securities 3,728,501 GS Mtg Securities II 3,782,438 JPMorgan Chase & Co. 1,734,247 JPMorgan Chase Commercial Mtge Securities 2,818,685 LB-UBS Commercial Mtge Trust 8,553,595 Merrill Lynch Mtge Trust 1,077,793 Morgan Stanley Group 2,571,730 Morgan Stanley Capital 1 1,797,284 Morgan Stanley, Dean Witter Capital 1 1,456,417 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 56
- --------------------------------------------------------------------------------------------------------------------------------- VALUE OF SECURITIES OWNED FUND ISSUER AT END OF FISCAL PERIOD - --------------------------------------------------------------------------------------------------------------------------------- Global Equity Bear Stearns Companies 3,979,879 Citigroup 11,276,850 E*TRADE Financial 3,541,918 Goldman Sachs Group 2,938,103 Lehman Brothers Holdings 4,408,283 - --------------------------------------------------------------------------------------------------------------------------------- Global Technology None N/A - --------------------------------------------------------------------------------------------------------------------------------- International Aggressive Growth Credit Suisse Group 1,235,527 Pargesa Holding 748,742 - --------------------------------------------------------------------------------------------------------------------------------- International Equity None N/A - --------------------------------------------------------------------------------------------------------------------------------- International Opportunity None N/A - --------------------------------------------------------------------------------------------------------------------------------- International Select Value Credit Suisse Group 15,615,508 - --------------------------------------------------------------------------------------------------------------------------------- International Small Cap None N/A - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - --------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt None N/A - --------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth Legg Mason 59,395,102 - --------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE INVESTMENT MANAGER Affiliates of the investment manager may engage in brokerage and other securities transactions on behalf of a fund according to procedures adopted by the Board and to the extent consistent with applicable provisions of the federal securities laws. Subject to approval by the Board, the same conditions apply to transactions with broker-dealer affiliates of any subadviser. The investment manager will use an affiliate only if (i) the investment manager determines that the fund will receive prices and executions at least as favorable as those offered by qualified independent brokers performing similar brokerage and other services for the fund and (ii) the affiliate charges the fund commission rates consistent with those the affiliate charges comparable unaffiliated customers in similar transactions and if such use is consistent with terms of the Investment Management Services Agreement. Information about any brokerage commissions paid by a fund in the last three fiscal periods to brokers affiliated with the fund's investment manager is contained in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Statement of Additional Information - Sept. 29, 2006 Page 57
TABLE 8. BROKERAGE COMMISSIONS PAID TO INVESTMENT MANAGER OR AFFILIATES - ------------------------------------------------------------------------------------------------------------------------------------ PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID PAID FUND BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS TO BROKER TO BROKER ------------------------------------------------------------------------------------------------------ 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder None $ 0 N/A Aggressive - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder None 0 N/A Conservative - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate None 0 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate None 0 N/A Aggressive - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate None 0 N/A Conservative - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Total None 0 N/A Equity - ------------------------------------------------------------------------------------------------------------------------------------ Small Company Index None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value None 10,142 14,787 - ------------------------------------------------------------------------------------------------------------------------------------ Precious Metals None 3,614 24,650 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage None 0 360 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth None 0 757 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Aggressive Growth JPMorgan 4 $ 57 0.04% 0.02% 27 103 Securities, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Value None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Growth Goldman Sachs & 5 0 38 0 Co. ------------------------------------------------------------------------------------------------------ Raymond James 6 0 0 15 Financial - ------------------------------------------------------------------------------------------------------------------------------------ High Yield Bond None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder None N/A N/A Basic Income - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder None N/A N/A Enhanced Income - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder None N/A N/A Moderate Income - ------------------------------------------------------------------------------------------------------------------------------------ Select Value Gabelli & Co. 7 14,216 3.19 2.96 143,463 464,895 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 58
- ------------------------------------------------------------------------------------------------------------------------------------ PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID PAID FUND BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS TO BROKER TO BROKER ------------------------------------------------------------------------------------------------------ 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------------ Short Duration None 0 0 U.S. Government - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Equity None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value Goldman Sachs & 5 1,821 0.07 0.04 1,943 46,047 Co. ------------------------------------------------------------------------------------------------------ Janney 8 0 0 5,130 Montgomery Scott ------------------------------------------------------------------------------------------------------ Legg Mason Wood 8 0 2,700 0 Walker, Inc. ------------------------------------------------------------------------------------------------------ M.J. Whitman 9 0 0 425,573 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Gov't Mortgage None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Value None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------------------ Dividend Opportunity AEIS 1 0 20,898 217,347 - ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Small and None N/A N/A Mid Cap Equity - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Small None N/A N/A Cap Value - ------------------------------------------------------------------------------------------------------------------------------------ Floating Rate None N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Growth AEIS 1 0 13,720 336,098 - ------------------------------------------------------------------------------------------------------------------------------------ Income Opportunities None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Inflation Protected None 0 0 Securities - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Equity AEIS 1 0 10,214 6,644 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Value AEIS 1 0 276 595 - ------------------------------------------------------------------------------------------------------------------------------------ Limited Duration Bond None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Bond None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Massachusetts Tax-Exempt None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced AEIS 1 0 0 0 8,440 82,086 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Equity Income AEIS 1 1,716 0.05 0.15 73,448 73,410 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 59
- ------------------------------------------------------------------------------------------------------------------------------------ PERCENT OF AGGREGATE AGGREGATE DOLLAR AGGREGATE AGGREGATE DOLLAR AMOUNT OF DOLLAR DOLLAR AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS NATURE OF PAID TO BROKERAGE PAYMENT OF PAID PAID FUND BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS TO BROKER TO BROKER ------------------------------------------------------------------------------------------------------ 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value AEIS 1 0 0 0 39,552 23,417 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Allocation None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Absolute Return N/A N/A N/A Currency and Income - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined International Equity N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Bond N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ European Equity None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Global Bond None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Global Equity None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Global Technology AEIS 1 0 0 0 97,718 495,249 - ------------------------------------------------------------------------------------------------------------------------------------ International JPMorgan 4 9,426 1.40 1.26 22,343 0 Aggressive Growth Securities, Inc. ------------------------------------------------------------------------------------------------------ Cazenove, Inc. 4 339 0.05 0.01 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ International Opportunity None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ International Select Value Sanford C. 10 8,829 0.86 0.30 20,637 0 Bernstein & Co. LLC - ------------------------------------------------------------------------------------------------------------------------------------ International Small Cap None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Growth AEIS 1 0 0 0 17,994 48,993 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market None 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Represents brokerage clearing fees. American Enterprise Investment Services, Inc., a wholly-owned subsidiary of Ameriprise Financial. Affiliate of UBS, a subadviser. Affiliate of Neuberger Berman Management, Inc., a former subadviser, terminated July 24, 2003. Affiliate of American Century, a subadviser. Affiliate of Goldman Sachs Asset Management, L.P., a subadviser. Affiliate of Eagle Asset Management, Inc., a former subadviser, terminated April 2005. Affiliate of GAMCO Investors, Inc. Affiliate of Royce & Associates, LLC., a subadviser. Affiliate of Third Avenue Management, LLC., a former subadviser, terminated March 15, 2004. Affiliate of Alliance Capital, a subadviser. For the period from March 4, 2004 (when shares became publicly available) to Jan. 31, 2005. For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. For the period from March 4, 2004 (when shares became publicly available) to June 30, 2004. For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006.
Statement of Additional Information - Sept. 29, 2006 Page 60 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 $274,554,183 23,539,942 $11.66 Class B 78,677,290 6,790,053 11.59 Class C 6,625,802 572,204 11.58 Class Y 73,598 6,299 11.68 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative Class A 72,779,845 7,025,811 10.36 Class B 35,941,069 3,479,541 10.33 Class C 6,358,679 615,227 10.34 Class Y 22,917 2,231 10.27 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Class A 410,452,525 37,117,589 11.06 Class B 153,324,616 13,916,348 11.02 Class C 18,297,163 1,659,289 11.03 Class Y 35,121 3,180 11.04 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive Class A 550,462,749 48,536,983 11.34 Class B 153,725,117 13,603,884 11.30 Class C 15,333,283 1,357,122 11.30 Class Y 74,196 6,535 11.35 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative Class A 149,387,431 13,993,001 10.68 Class B 65,616,719 6,163,302 10.65 Class C 10,535,671 989,022 10.65 Class Y 26,817 2,521 10.64 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity Class A 230,985,409 19,267,462 11.99 Class B 68,038,975 5,712,460 11.91 Class C 6,085,364 511,295 11.90 Class Y 185,531 15,446 12.01 - ---------------------------------------------------------------------------------------------------------------------------------- Small Company Index Class A 884,035,092 98,598,963 8.97 Class B 353,079,374 43,211,522 8.17 Class Y 11,338,641 1,242,843 9.12 - ---------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index Class D 62,797,432 12,752,055 4.92 Class E 218,282,185 44,141,362 4.95 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 61
- ---------------------------------------------------------------------------------------------------------------------------------- FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ---------------------------------------------------------------------------------------------------------------------------------- Equity Value Class A 927,894,821 76,298,569 12.16 Class B 225,717,690 18,518,112 12.19 Class C 3,752,762 310,331 12.09 Class I 13,028 1,070 12.18 Class Y 12,817,996 1,053,127 12.17 - ---------------------------------------------------------------------------------------------------------------------------------- Precious Metals Class A 87,002,631 5,904,662 14.73 Class B 20,298,893 1,456,935 13.93 Class C 1,914,924 138,680 13.81 Class I 14,701 989 14.86 Class Y 77,459 5,212 14.86 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Class A 603,322,076 83,470,357 7.23 Class B 200,000,182 29,548,837 6.77 Class C 12,052,669 1,780,485 6.77 Class I 13,079,545 1,769,704 7.39 Class Y 862,334 117,713 7.33 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Class A 148,638,914 27,402,154 5.42 Class B 63,046,718 12,094,723 5.21 Class C 6,026,458 1,155,756 5.21 Class I 18,742,088 3,403,180 5.51 Class Y 293,170 53,658 5.46 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Aggressive Growth Class A 417,938,522 50,038,917 8.35 Class B 119,066,739 14,580,903 8.17 Class C 1,962,794 240,391 8.17 Class I 74,482,579 8,841,560 8.42 Class Y 111,863 13,331 8.39 - ---------------------------------------------------------------------------------------------------------------------------------- Fundamental Growth Class A 20,450,998 3,360,217 6.09 Class B 7,294,807 1,228,621 5.94 Class C 612,756 103,093 5.94 Class I 136,879,180 22,283,868 6.14 Class Y 41,335 6,741 6.13 - ---------------------------------------------------------------------------------------------------------------------------------- Fundamental Value Class A 740,994,065 122,459,397 6.05 Class B 281,336,084 47,798,821 5.89 Class C 18,027,515 3,051,330 5.91 Class I 85,711,567 14,037,723 6.11 Class Y 773,060 127,109 6.08 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 62
- ---------------------------------------------------------------------------------------------------------------------------------- FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ---------------------------------------------------------------------------------------------------------------------------------- High Yield Bond Class A 1,535,483,470 530,995,227 2.89 Class B 432,579,549 149,692,333 2.89 Class C 27,857,618 9,696,262 2.87 Class I 24,008,981 8,308,786 2.89 Class Y 715,095 247,523 2.89 - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income Class A 19,244,987 1,927,394 9.98 Class B 4,751,862 476,470 9.97 Class C 698,459 69,950 9.99 Class Y 44,896 4,495 9.99 - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income Class A 49,638,491 4,981,799 9.96 Class B 9,581,422 962,358 9.96 Class C 2,082,761 209,114 9.96 Class Y 32,268 3,238 9.97 - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income Class A 56,738,487 5,686,176 9.98 Class B 10,243,754 1,028,294 9.96 Class C 1,913,540 191,872 9.97 Class Y 39,605 3,967 9.98 - ---------------------------------------------------------------------------------------------------------------------------------- Select Value Class A 462,618,574 63,621,494 7.27 Class B 151,084,709 21,400,655 7.06 Class C 9,685,589 1,371,804 7.06 Class I 13,011,082 1,767,912 7.36 Class Y 81,330 11,117 7.32 - ---------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government Class A 640,796,129 136,877,022 4.68 Class B 338,374,051 72,270,651 4.68 Class C 14,524,073 3,102,467 4.68 Class I 62,447,956 13,322,741 4.69 Class Y 18,582,745 3,968,098 4.68 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Equity Class A 301,740,278 50,185,615 6.01 Class B 60,305,938 10,418,435 5.79 Class C 4,028,030 696,761 5.78 Class I 13,723,448 2,252,911 6.09 Class Y 3,785,809 623,527 6.07 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Value Class A 684,925,134 102,738,724 6.67 Class B 295,732,446 45,754,001 6.46 Class C 19,259,021 2,974,187 6.48 Class I 12,568,001 1,860,614 6.75 Class Y 243,580 36,297 6.71 - ---------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage Class A 126,321,891 25,654,153 4.92 Class B 64,490,312 13,091,553 4.93 Class C 6,740,180 1,368,131 4.93 Class I 6,171,017 1,254,745 4.92 Class Y 34,633,492 7,037,905 4.92 - ---------------------------------------------------------------------------------------------------------------------------------- Value Class A 221,591,869 41,066,770 5.40 Class B 106,232,019 20,212,427 5.26 Class C 7,160,611 1,358,478 5.27 Class I 87,436,522 16,078,349 5.44 Class Y 118,717 21,893 5.42 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 63
- ---------------------------------------------------------------------------------------------------------------------------------- FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity Class A 906,971,478 115,786,940 7.83 Class B 274,504,819 35,285,690 7.78 Class C 14,574,762 1,874,964 7.77 Class I 45,885,824 5,846,870 7.85 Class Y 904,278 115,208 7.85 - ---------------------------------------------------------------------------------------------------------------------------------- Real Estate Class A 106,759,679 6,978,620 15.30 Class B 26,621,803 1,751,718 15.20 Class C 1,607,303 105,752 15.20 Class I 57,039,643 3,721,231 15.33 Class Y 235,492 15,433 15.26 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Cash Management Class A 3,692,186,974 3,690,335,608 1.00 Class B 102,977,657 103,122,495 1.00 Class C 2,505,203 2,504,691 1.00 Class I 63,330,870 63,304,092 1.00 Class Y 83,702,809 83,724,233 1.00 - ---------------------------------------------------------------------------------------------------------------------------------- Core Bond Class A 36,444,626 3,852,039 9.46 Class B 10,873,923 1,148,606 9.47 Class C 571,721 60,377 9.47 Class I 174,472,816 18,462,593 9.45 Class Y 101,354 10,714 9.46 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity Class A 1,367,875,719 203,067,775 6.74 Class B 73,443,835 11,039,576 6.65 Class C 2,713,393 408,104 6.65 Class I 252,289,749 37,225,107 6.78 Class Y 224,143,502 33,166,659 6.76 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Class A 9,296,475 1,039,096 8.95 Class B 37,166 4,160 8.93 Class C 8,931 1,000 8.93 Class I 60,937 6,809 8.95 Class Y 10,415 1,164 8.95 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Class A 11,292,945 1,156,138 9.77 Class B 232,254 23,871 9.73 Class C 28,867 2,966 9.73 Class I 3,192,276 326,326 9.78 Class Y 9,774 1,000 9.77 - ---------------------------------------------------------------------------------------------------------------------------------- Floating Rate Class A 188,670,468 18,775,287 10.05 Class B 22,712,533 2,260,218 10.05 Class C 6,246,038 621,541 10.05 Class I 58,941,954 5,867,379 10.05 Class Y 39,240 3,906 10.05 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 64
- ---------------------------------------------------------------------------------------------------------------------------------- FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ---------------------------------------------------------------------------------------------------------------------------------- Growth Class A 2,350,963,254 82,166,864 28.61 Class B 462,284,256 17,737,114 26.06 Class C 18,728,947 718,480 26.07 Class I 255,882,653 8,730,515 29.31 Class Y 265,173,004 9,103,369 29.13 - ---------------------------------------------------------------------------------------------------------------------------------- Income Opportunities Class A 193,826,099 19,193,076 10.10 Class B 56,859,933 5,632,539 10.09 Class C 5,758,331 570,511 10.09 Class I 92,818,603 9,178,858 10.11 Class Y 330,981 32,755 10.10 - ---------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities Class A 93,669,588 9,649,345 9.71 Class B 34,339,164 3,539,225 9.70 Class C 2,904,301 299,314 9.70 Class I 147,737,154 15,221,186 9.71 Class Y 2,043,173 210,530 9.70 - ---------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity Class A 5,460,885,070 1,010,532,146 5.40 Class B 1,169,108,420 220,862,389 5.29 Class C 34,951,011 6,589,829 5.30 Class I 105,402,088 19,384,483 5.44 Class Y 1,068,831,758 195,574,986 5.47 - ---------------------------------------------------------------------------------------------------------------------------------- Large Cap Value Class A 62,855,365 10,692,320 5.88 Class B 18,984,583 3,261,457 5.82 Class C 1,108,078 190,515 5.82 Class I 13,208,587 2,234,787 5.91 Class Y 33,938 5,753 5.90 - ---------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond Class A 71,486,220 7,469,159 9.57 Class B 15,185,460 1,587,239 9.57 Class C 1,635,940 171,057 9.56 Class I 65,611,060 6,852,982 9.57 Class Y 9,570 1,000 9.57 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------- Diversified Bond Class A 1,774,392,052 362,799,390 4.89 Class B 484,320,317 99,003,330 4.89 Class C 18,092,300 3,693,765 4.90 Class I 9,963 2,037 4.89 Class Y 202,310,332 41,351,259 4.89 - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 65
- ---------------------------------------------------------------------------------------------------------------------------------- FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------------------------------------------- Balanced Class A 989,855,377 100,563,086 9.84 Class B 81,235,914 8,306,982 9.78 Class C 3,167,458 324,045 9.77 Class Y 164,005,099 16,664,056 9.84 - ---------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income Class A 3,750,608,952 309,712,571 12.11 Class B 1,141,027,745 94,507,900 12.07 Class C 58,192,787 4,825,899 12.06 Class I 95,655,178 7,887,479 12.13 Class Y 57,832,165 4,771,115 12.12 - ---------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Class A 781,926,580 91,332,628 8.56 Class B 242,239,643 28,890,614 8.38 Class C 13,765,933 1,641,443 8.39 Class I 11,962,819 1,382,578 8.65 Class Y 817,961 94,943 8.62 - ---------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation Class A 937,598,891 94,157,621 9.96 Class B 96,316,098 9,745,469 9.88 Class C 6,951,641 705,134 9.86 Class Y 4,286,744 430,514 9.96 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Class A 294,798,922 35,826,550 8.23 Class B 73,863,781 9,501,233 7.77 Class C 2,661,530 341,553 7.79 Class I 19,381,418 2,322,319 8.35 Class Y 2,447,909 293,926 8.33 - ---------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 66
- ---------------------------------------------------------------------------------------------------------------------------------- FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ---------------------------------------------------------------------------------------------------------------------------------- European Equity Class A 78,423,112 18,715,930 4.19 Class B 30,637,252 7,429,954 4.12 Class C 1,384,438 335,753 4.12 Class I 12,031 2,865 4.20 Class Y 15,392 3,668 4.20 - ---------------------------------------------------------------------------------------------------------------------------------- Global Bond Class A 353,306,100 53,604,049 6.59 Class B 110,636,065 16,777,180 6.59 Class C 4,262,484 649,122 6.57 Class I 88,550,052 13,406,394 6.61 Class Y 84,162 12,737 6.61 - ---------------------------------------------------------------------------------------------------------------------------------- Global Equity Class A 446,193,352 71,576,192 6.23 Class B 101,828,582 17,316,751 5.88 Class C 2,334,217 399,315 5.85 Class Y 6,374,512 1,013,563 6.29 - ---------------------------------------------------------------------------------------------------------------------------------- Global Technology Class A 119,620,235 60,027,181 1.99 Class B 46,433,081 26,742,918 1.74 Class C 3,185,209 1,829,272 1.74 Class I 11,844 5,882 2.01 Class Y 326,124 162,930 2.00 - ---------------------------------------------------------------------------------------------------------------------------------- International Aggressive Growth Class A 215,872,577 26,820,498 8.05 Class B 57,819,694 7,397,837 7.82 Class C 3,261,563 417,375 7.81 Class I 82,548,346 10,155,034 8.13 Class Y 515,894 63,737 8.09 - ---------------------------------------------------------------------------------------------------------------------------------- International Equity Class A 91,200,721 12,421,110 7.34 Class B 24,016,557 3,318,677 7.24 Class C 1,455,722 201,064 7.24 Class I 45,221,005 6,123,641 7.38 Class Y 94,215 12,808 7.36 - ---------------------------------------------------------------------------------------------------------------------------------- International Opportunity Class A 407,578,897 53,203,222 7.66 Class B 81,360,280 10,929,544 7.44 Class C 2,726,160 368,649 7.40 Class I 49,993,704 6,452,691 7.75 Class Y 366,531 47,574 7.70 - ---------------------------------------------------------------------------------------------------------------------------------- International Select Value Class A 998,861,154 111,046,133 9.00 Class B 307,576,476 35,286,756 8.72 Class C 17,029,395 1,954,898 8.71 Class I 61,144,808 6,727,163 9.09 Class Y 915,632 101,103 9.06 - ---------------------------------------------------------------------------------------------------------------------------------- International Small Cap Class A 65,510,944 7,438,951 8.81 Class B 16,955,452 1,972,160 8.60 Class C 839,377 97,387 8.62 Class I 10,298,228 1,158,140 8.89 Class Y 86,855 9,817 8.85 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 67
- ---------------------------------------------------------------------------------------------------------------------------------- FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Class A 102,085,224 19,306,431 5.29 Class B 16,816,090 3,182,725 5.28 Class C 6,130,727 1,160,263 5.28 Class Y 1,277 243 5.26 - ---------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth Class A 1,376,047,279 94,971,809 14.49 Class B 328,834,586 24,758,767 13.28 Class C 12,425,207 935,688 13.28 Class I 43,239,318 2,931,586 14.75 Class Y 202,816,215 13,821,344 14.67 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond Class A 601,070,861 156,411,350 3.84 Class B 28,874,300 7,513,770 3.84 Class C 3,814,428 992,278 3.84 Class Y 1,871 487 3.84 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income Class A 3,459,967,688 788,294,542 4.39 Class B 190,108,346 43,318,158 4.39 Class C 23,087,288 5,258,196 4.39 Class Y 1,979 451 4.39 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 119,798,091 119,826,052 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 utilizing spot exchange rates at the close of regular trading on the NYSE. o Occasionally, events affecting the value of securities occur between the time the primary market on which the securities are traded closes and the close of the Exchange. If events materially affect the value of securities, the securities will be valued at their fair value according to procedures decided upon in good faith by the Board. This occurs most commonly with foreign securities, but may occur in other cases. The fair value of a security is likely to be different from the quoted or published price. Statement of Additional Information - Sept. 29, 2006 Page 68 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 securities for which the price quotations or valuations received from other sources are deemed unreliable or not reflective of market value are valued at fair value as determined in good faith by the Board. The Board is responsible for selecting methods it believes provide fair value. o When possible, bonds are valued by a pricing service independent from the funds. If a valuation of a bond is not available from a pricing service, the bond will be valued by a dealer knowledgeable about the bond if such a dealer is available. The assets of funds-of-funds consist primarily of shares of the underlying funds, which are valued at their NAVs. Other securities held by funds-of-funds are valued as described above. FOR MONEY MARKET FUNDS. In accordance with Rule 2a-7 of the 1940 Act, all of the securities in the fund's portfolio are valued at amortized cost. The amortized cost method of valuation is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. Amortized cost does not take into consideration unrealized capital gains or losses. The Board has established procedures designed to stabilize the fund's price per share for purposes of sales and redemptions at $1, to the extent that it is reasonably possible to do so. These procedures include review of the fund's securities by the Board, at intervals deemed appropriate by it, to determine whether the fund's net asset value per share computed by using available market quotations deviates from a share value of $1 as computed using the amortized cost method. The Board must consider any deviation that appears and, if it exceeds 0.5%, it must determine what action, if any, needs to be taken. If the Board determines a deviation exists that may result in a material dilution of the holdings of current shareholders or investors, or in any other unfair consequences for shareholders, it must undertake remedial action that it deems necessary and appropriate. Such action may include withholding dividends, calculating net asset value per share for purposes of sales and redemptions using available market quotations, making redemptions in kind, and selling securities before maturity in order to realize capital gains or losses or to shorten average portfolio maturity. While the amortized cost method provides certainty and consistency in portfolio valuation, it may result in valuations of securities that are either somewhat higher or lower than the prices at which the securities could be sold. This means that during times of declining interest rates the yield on the fund's shares may be higher than if valuations of securities were made based on actual market prices and estimates of market prices. Accordingly, if using the amortized cost method were to result in a lower portfolio value, a prospective investor in the fund would be able to obtain a somewhat higher yield than the investor would get if portfolio valuations were based on actual market values. Existing shareholders, on the other hand, would receive a somewhat lower yield than they would otherwise receive. The opposite would happen during a period of rising interest rates. Statement of Additional Information - Sept. 29, 2006 Page 69 PORTFOLIO HOLDINGS DISCLOSURE Each fund's Board and the investment manager believe that the investment ideas of the investment manager with respect to management of a fund should benefit the fund and its shareholders, and do not want to afford speculators an opportunity to profit by anticipating fund trading strategies or by using fund portfolio holdings information for stock picking. However, each fund's Board also believes that knowledge of the fund's portfolio holdings can assist shareholders in monitoring their investments, making asset allocation decisions, and evaluating portfolio management techniques. Each fund's Board has therefore adopted the investment manager's policies and approved the investment manager's procedures, including the investment manager's oversight of subadviser practices, relating to disclosure of the fund's portfolio securities. These policies and procedures are intended to protect the confidentiality of fund portfolio holdings information and generally prohibit the release of such information until such information is made public, unless such persons have been authorized to receive such information on a selective basis, as described below. It is the policy of the fund not to provide or permit others to provide holdings information on a selective basis, and the investment manager does not intend to selectively disclose holdings information or expect that such holdings information will be selectively disclosed, except where necessary for the fund's operation or where there are legitimate business purposes for doing so and, in any case, where conditions are met that are designed to protect the interests of the fund and its shareholders. Although the investment manager seeks to limit the selective disclosure of portfolio holdings information and such selective disclosure is monitored under the fund's compliance program for conformity with the policies and procedures, there can be no assurance that these policies will protect the fund from the potential misuse of holdings information by individuals or firms in possession of that information. Under no circumstances may the investment manager, its affiliates or any employee thereof receive any consideration or compensation for disclosing such holdings information. A complete schedule of each fund's portfolio holdings is available semi-annually and annually in shareholder reports filed on Form N-CSR and, after the first and third fiscal quarters, in regulatory filings on Form N-Q. These shareholder reports and regulatory filings are filed with the SEC in accordance with federal securities laws and are generally available within sixty (60) days of the end of a fund's fiscal quarter, on the SEC's website. Once holdings information is filed with the SEC, it will also be posted on the funds' website (riversource.com/funds), and it may be mailed, e-mailed or otherwise transmitted to any person. In addition, the investment manager makes publicly available, 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 thirty (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 Factset Research Systems, Bloomberg, L.P.), (2) to facilitate the review and/or rating of the fund by ratings and rankings agencies (including Morningstar, Inc., Thomson Financial and Lipper Inc.), and (3) other entities that provide trading, research or other investment related services (including Citigroup, Lehman Brothers Holdings, Merrill Lynch & Co., and Morgan Stanley). In such situations, the information is released subject to confidentiality agreements, duties imposed under applicable policies and procedures (for example, applicable codes of ethics) designed to prevent the misuse of confidential information, general duties under applicable laws and regulations, or other such duties of confidentiality. In addition, the fund discloses holdings information as required by federal or state securities laws, and may disclose holdings information in response to requests by governmental authorities. Statement of Additional Information - Sept. 29, 2006 Page 70 Each fund's Board has adopted the policies of the investment manager and approved the procedures Ameriprise Financial has established to ensure that the fund's holdings information is only disclosed in accordance with these policies. Before any selective disclosure of holdings information is permitted, the person seeking to disclose such holdings information must submit a written request to the Portfolio Holdings Committee ("PHC"). The PHC is comprised of members from the investment manager's General Counsel's Office, Compliance, and Communications. The PHC has been authorized by the fund's Board to perform an initial review of requests for disclosure of holdings information to evaluate whether there is a legitimate business purpose for selective disclosure, whether selective disclosure is in the best interests of a fund and its shareholders, to consider any potential conflicts of interest between the fund, the investment manager, and its affiliates, and to safeguard against improper use of holdings information. Factors considered in this analysis are whether the recipient has agreed to or has a duty to keep the holdings information confidential and whether risks have been mitigated such that the recipient has agreed or has a duty to use the holdings information only as necessary to effectuate the purpose for which selective disclosure was authorized, including a duty not to trade on such information. Before portfolio holdings may be selectively disclosed, requests approved by the PHC must also be authorized by a fund's Chief Compliance Officer or the fund's General Counsel. On at least an annual basis the PHC reviews the approved recipients of selective disclosure and, where appropriate, requires a resubmission of the request, in order to re-authorize any ongoing arrangements. These procedures are intended to be reasonably designed to protect the confidentiality of fund holdings information and to prohibit their release to individual investors, institutional investors, intermediaries that distribute the fund's shares, and other parties, until such holdings information is made public or unless such persons have been authorized to receive such holdings information on a selective basis, as set forth above. Although the investment manager has set up these procedures to monitor and control selective disclosure of holdings information, there can be no assurance that these procedures will protect a fund from the potential misuse of holdings information by individuals or firms in possession of that information. PROXY VOTING GENERAL GUIDELINES The funds uphold a long tradition of sound and principled corporate governance. For approximately thirty (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. Statement of Additional Information - Sept. 29, 2006 Page 71 POLICY AND PROCEDURES The policy of the Board is to vote all proxies of the companies in which a fund holds investments. The Board has implemented policies and procedures reasonably designed to ensure that there are no conflicts between interests of a fund's shareholders and those of the funds' investment manager, RiverSource Investments, or other affiliated entities. The recommendation of the management of a company as set out in the company's proxy statement is considered. In each instance in which a fund votes against the recommendation, the Board sends a letter to senior management of the company explaining the basis for its vote. This has permitted both the company's management and the fund's Board to gain better insight into issues presented by proxy proposals. In the case of foreign corporations, proxies of companies located in some countries may not be voted due to requirements of locking up the voting shares and when time constraints prohibit the processing of proxies. From time to time a proxy proposal is presented that has not been previously considered by the Board or that the investment manager recommends be voted different from the votes cast for similar proposals. In making recommendations to the Board about voting on a proposal, the investment manager relies on its own investment personnel (or the investment personnel of a fund's subadviser(s)) and information obtained from outside resources, including Glass Lewis & Co. The investment manager makes the recommendation in writing. The process established by the Board to vote proxies requires that either Board members or officers who are independent from the investment manager consider the recommendation and decide how to vote the proxy proposal. 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 12-month period ended June 30, 2006 is available without charge through riversource.com/funds, or searching the website of the SEC at www.sec.gov. Statement of Additional Information - Sept. 29, 2006 Page 72 INVESTING IN A FUND Absolute Return Currency and Income Fund is currently only available to certain limited institutional investors through the sale of Class I shares. Class A, B, C and Y are currently not offered. 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 OF FUNDS - FIXED INCOME, STATE TAX-EXEMPT FIXED INCOME, TAXABLE FIXED INCOME, FUND CATEGORY BALANCED, EQUITY, FUND OF FUNDS - EQUITY TAX-EXEMPT FIXED INCOME ---------------------------------------------------------------------------------------------------- SALES CHARGE AS A PERCENTAGE OF: - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL MARKET VALUE PUBLIC OFFERING PRICE NET AMOUNT INVESTED PUBLIC OFFERING PRICE NET AMOUNT INVESTED - ----------------------------------------------------------------------------------------------------------------------------------- Up to $49,999 5.75% 6.10% 4.75% 4.99% - ----------------------------------------------------------------------------------------------------------------------------------- $50,000-$99,999 4.75% 4.99% 4.25% 4.44% - ----------------------------------------------------------------------------------------------------------------------------------- $100,000-$249,999 3.50% 3.63% 3.50% 3.63% - ----------------------------------------------------------------------------------------------------------------------------------- $250,000-$499,999 2.50% 2.56% 2.50% 2.56% - ----------------------------------------------------------------------------------------------------------------------------------- $500,000-$999,999 2.00% 2.04% 2.00% 2.04% - ----------------------------------------------------------------------------------------------------------------------------------- $1,000,000 or more 0.00% 0.00% 0.00% 0.00% - ----------------------------------------------------------------------------------------------------------------------------------- Because of rounding in the calculation of purchase price, the portion of the sales charge retained by the distributor may vary and the actual sales charge you pay may be more or less than the sales charge calculated using these percentages. Purchase price includes the sales charge. Although there is no sales charge for purchases with a total market value over $1,000,000, and therefore no re-allowance, the distributor may pay a financial intermediary making such a sale. 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 - Sept. 29, 2006 Page 73
TABLE 11. PUBLIC OFFERING PRICE - ------------------------------------------------------------------------------------------------------------------------------ 1.0 MINUS MAXIMUM FUND NET ASSET VALUE SALES CHARGE PUBLIC OFFERING PRICE - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive $11.66 0.9425 $12.37 - ------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Conservative 10.36 0.9525 10.88 - ------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 11.06 0.9425 11.73 - ------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive 11.34 0.9425 12.03 - ------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative 10.68 0.9525 11.21 - ------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Total Equity 11.99 0.9425 12.72 - ------------------------------------------------------------------------------------------------------------------------------ Small Company Index 8.97 0.9425 9.52 - ------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index (for Class D) 4.92 No sales charge 4.92 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------ Equity Value 12.16 0.9425 12.90 - ------------------------------------------------------------------------------------------------------------------------------ Precious Metals 14.73 0.9425 15.63 - ------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage 7.23 0.9425 7.67 - ------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth 5.42 0.9425 5.75 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------ Aggressive Growth 8.35 0.9425 8.86 - ------------------------------------------------------------------------------------------------------------------------------ Fundamental Growth 6.09 0.9425 6.46 - ------------------------------------------------------------------------------------------------------------------------------ Fundamental Value 6.05 0.9425 6.42 - ------------------------------------------------------------------------------------------------------------------------------ High Yield Bond 2.89 0.9525 3.03 - ------------------------------------------------------------------------------------------------------------------------------ Income Builder Basic Income 9.98 0.9525 10.48 - ------------------------------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income 9.96 0.9525 10.46 - ------------------------------------------------------------------------------------------------------------------------------ Income Builder Moderate Income 9.98 0.9525 10.48 - ------------------------------------------------------------------------------------------------------------------------------ Select Value 7.27 0.9425 7.71 - ------------------------------------------------------------------------------------------------------------------------------ Short Duration U.S. Government 4.68 0.9525 4.91 - ------------------------------------------------------------------------------------------------------------------------------ Small Cap Equity 6.01 0.9425 6.38 - ------------------------------------------------------------------------------------------------------------------------------ Small Cap Value 6.67 0.9425 7.08 - ------------------------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 4.92 0.9525 5.17 - ------------------------------------------------------------------------------------------------------------------------------ Value 5.40 0.9425 5.73 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------------ Dividend Opportunity 7.83 0.9425 8.31 - ------------------------------------------------------------------------------------------------------------------------------ Real Estate 15.30 0.9425 16.23 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------------------ Cash Management 1.00 No sales charge 1.00 - ------------------------------------------------------------------------------------------------------------------------------ Core Bond 9.46 0.9525 9.93 - ------------------------------------------------------------------------------------------------------------------------------ Disciplined Equity 6.74 0.9425 7.15 - ------------------------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity 8.95 0.9425 9.50 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 74
- ------------------------------------------------------------------------------------------------------------------------------ 1.0 MINUS MAXIMUM FUND NET ASSET VALUE SALES CHARGE PUBLIC OFFERING PRICE - ------------------------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 9.77 0.9425 10.37 - ------------------------------------------------------------------------------------------------------------------------------ Floating Rate 10.05 0.9525 10.55 - ------------------------------------------------------------------------------------------------------------------------------ Growth 28.61 0.9425 30.36 - ------------------------------------------------------------------------------------------------------------------------------ Income Opportunities 10.10 0.9525 10.60 - ------------------------------------------------------------------------------------------------------------------------------ Inflation Protected Securities 9.71 0.9525 10.19 - ------------------------------------------------------------------------------------------------------------------------------ Large Cap Equity 5.40 0.9425 5.73 - ------------------------------------------------------------------------------------------------------------------------------ Large Cap Value 5.88 0.9425 6.24 - ------------------------------------------------------------------------------------------------------------------------------ Limited Duration Bond 9.57 0.9525 10.05 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt 5.27 0.9525 5.53 - ------------------------------------------------------------------------------------------------------------------------------ Diversified Bond 4.89 0.9525 5.13 - ------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------ Balanced 9.84 0.9425 10.44 - ------------------------------------------------------------------------------------------------------------------------------ Diversified Equity Income 12.11 0.9425 12.85 - ------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value 8.56 0.9425 9.08 - ------------------------------------------------------------------------------------------------------------------------------ Strategic Allocation 9.96 0.9425 10.57 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ Disciplined International Equity N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ Emerging Markets 8.23 0.9425 8.73 - ------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Bond N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ European Equity 4.19 0.9425 4.45 - ------------------------------------------------------------------------------------------------------------------------------ Global Bond 6.59 0.9525 6.92 - ------------------------------------------------------------------------------------------------------------------------------ Global Equity 6.23 0.9425 6.61 - ------------------------------------------------------------------------------------------------------------------------------ Global Technology 1.99 0.9425 2.11 - ------------------------------------------------------------------------------------------------------------------------------ International Aggressive Growth 8.05 0.9425 8.54 - ------------------------------------------------------------------------------------------------------------------------------ International Equity 7.34 0.9425 7.79 - ------------------------------------------------------------------------------------------------------------------------------ International Opportunity 7.66 0.9425 8.13 - ------------------------------------------------------------------------------------------------------------------------------ International Select Value 9.00 0.9425 9.55 - ------------------------------------------------------------------------------------------------------------------------------ International Small Cap 8.81 0.9425 9.35 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt 5.29 0.9525 5.55 - ------------------------------------------------------------------------------------------------------------------------------ Mid Cap Growth 14.49 0.9425 15.37 - ------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 3.84 0.9525 4.03 - ------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 4.39 0.9525 4.61 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 1.00 No sales charge 1.00 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 75 CLASS A -- LETTER OF INTENT (LOI) If you intend to invest $50,000 or more over a period of time, you may be able to reduce the sales charge for investments in Class A by completing a LOI form and committing to invest a certain amount. The LOI must be filed with and accepted in good order by the distributor. The LOI can start at any time and you will have up to 13 months to fulfill your commitment. The LOI start date can be backdated by up to 90 days, but backdating the LOI will shorten the going forward window by the length of the backdating. Your holdings in RiverSource funds acquired more than 90 days before your financial institution receives your signed LOI will not be counted towards the LOI commitment amount and cannot be used as the starting point for the LOI. While these purchases cannot be included within an LOI, you may still be able to take advantage of a reduced sales charge on future purchases because the historic purchases may count toward the combined market value for Rights of Accumulation. For example, if you made an investment more than 90 days ago, and that investment's current market value is $75,000, the sales charge you would pay on additional investment is 4.5% until the market value of your accounts is $100,000, at which point your sales charge will be reduced to 3.5%. If you plan to invest another $50,000 over the next 13 month period, you may not rely on a letter of intent to 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 a RiverSource fund within the 13 month period. A LOI is not an option (absolute right) to buy shares. If you purchase shares through different channels, for example, in a brokerage account or through a third party, you must inform your financial institution in writing about the LOI when placing any purchase orders during the period of the LOI. If you do not complete and file the LOI form, or do not request the reduced sales charge at the time of purchase, you will not be eligible for the reduced sales charge. CLASS B SHARES Class B shares have a CDSC for six years. For Class B shares purchased prior to May 21, 2005, those shares will convert to Class A shares in the ninth calendar year of ownership. For Class B shares purchased beginning May 21, 2005, those shares will convert to Class A shares one month after the eighth year of ownership. CLASS 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. Statement of Additional Information - Sept. 29, 2006 Page 76 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. 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. REJECTION OF BUSINESS Each fund and RiverSource Service Corporation reserve the right to reject any business, in its sole discretion. SELLING SHARES You have a right to sell your shares at any time. For an explanation of sales procedures, please see the applicable prospectus. During an emergency, the Board can suspend the computation of NAV, stop accepting payments for purchase of shares, or suspend the duty of a fund to redeem shares for more than seven days. Such emergency situations would occur if: o The Exchange closes for reasons other than the usual weekend and holiday closings or trading on the Exchange is restricted, or o Disposal of a fund's securities is not reasonably practicable or it is not reasonably practicable for the fund to determine the fair value of its net assets, or o The SEC, under the provisions of the 1940 Act, declares a period of emergency to exist. Should a fund stop selling shares, the Board may make a deduction from the value of the assets held by the fund to cover the cost of future liquidations of the assets so as to distribute these costs fairly among all shareholders. Each fund has elected to be governed by Rule 18f-1 under the 1940 Act, which obligates the fund to redeem shares in cash, with respect to any one shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the net assets of the fund at the beginning of the period. Although redemptions in excess of this limitation would normally be paid in cash, the fund reserves the right to make these payments in whole or in part in securities or other assets in case of an emergency, or if the payment of a redemption in cash would be detrimental to the existing shareholders of the fund as determined by the Board. In these circumstances, the securities distributed would be valued as set forth in this SAI. Should a fund distribute securities, a shareholder may incur brokerage fees or other transaction costs in converting the securities to cash. Statement of Additional Information - Sept. 29, 2006 Page 77 PAY-OUT PLANS You can use any of several pay-out plans to redeem your investment in regular installments. If you redeem shares, you may be subject to a contingent deferred sales charge as discussed in the prospectus. While the plans differ on how the pay-out is figured, they all are based on the redemption of your investment. Net investment income dividends and any capital gain distributions will automatically be reinvested, unless you elect to receive them in cash. If you redeem an IRA or a qualified retirement account, certain restrictions, federal tax penalties, and special federal income tax reporting requirements may apply. You should consult your tax advisor about this complex area of the tax law. Applications for a systematic investment in a class of a fund subject to a sales charge normally will not be accepted while a pay-out plan for any of those funds is in effect. Occasional investments, however, may be accepted. To start any of these plans, please consult your financial institution. Your authorization must be received at least five days before the date you want your payments to begin. Payments will be made on a monthly, bimonthly, quarterly, semiannual, or annual basis. Your choice is effective until you change or cancel it. The following pay-out plans are designed to take care of the needs of most shareholders in a way that can be handled efficiently and at a reasonable cost. If you need a more irregular schedule of payments, it may be necessary for you to make a series of individual redemptions, in which case you will have to send in a separate redemption request for each pay-out. Each fund reserves the right to change or stop any pay-out plan and to stop making such plans available. PLAN #1: PAY-OUT FOR A FIXED PERIOD OF TIME If you choose this plan, a varying number of shares will be redeemed at regular intervals during the time period you choose. This plan is designed to end in complete redemption of all shares in your account by the end of the fixed period. PLAN #2: REDEMPTION OF A FIXED NUMBER OF SHARES If you choose this plan, a fixed number of shares will be redeemed for each payment and that amount will be sent to you. The length of time these payments continue is based on the number of shares in your account. PLAN #3: REDEMPTION OF A FIXED DOLLAR AMOUNT If you decide on a fixed dollar amount, whatever number of shares is necessary to make the payment will be redeemed in regular installments until the account is closed. PLAN #4: REDEMPTION OF A PERCENTAGE OF NET ASSET VALUE Payments are made based on a fixed percentage of the net asset value of the shares in the account computed on the day of each payment. Percentages range from 0.25% to 0.75%. For example, if you are on this plan and arrange to take 0.5% each month, you will get $100 if the value of your account is $20,000 on the payment date. Statement of Additional Information - Sept. 29, 2006 Page 78 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 FUND CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING CARRYOVERS IN 2007 IN 2008 IN 2009 IN 2010 IN 2011 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder 0 Aggressive - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder 0 Conservative - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder 0 Moderate - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder 0 Moderate Aggressive - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder 0 Moderate Conservative - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder 0 Total Equity - ------------------------------------------------------------------------------------------------------------------------------------ Small Company Index 0 - ------------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index 32,236,725 0 0 2,387,603 5,416,211 0 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value 110,768,162 0 0 0 0 68,592,915 - ------------------------------------------------------------------------------------------------------------------------------------ Precious Metals 1,549,744 0 0 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage 0 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth 0 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 N/A - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT FUND EXPIRING EXPIRING EXPIRING EXPIRING IN 2012 IN 2013 IN 2014 IN 2015 - ------------------------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------------------- S&P 500 Index 14,802,476 9,630,435 0 0 - ------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------- Equity Value 42,175,247 0 0 0 - ------------------------------------------------------------------------------------------------- Precious Metals 0 1,549,744 0 0 - ------------------------------------------------------------------------------------------------- Small Cap Advantage - ------------------------------------------------------------------------------------------------- Small Cap Growth - ------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------- Retirement Plus 2010 - ------------------------------------------------------------------------------------------------- Retirement Plus 2015 - ------------------------------------------------------------------------------------------------- Retirement Plus 2020 - ------------------------------------------------------------------------------------------------- Retirement Plus 2025 - -------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 79
- ------------------------------------------------------------------------------------------------------------------------------------ TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT FUND CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING CARRYOVERS IN 2007 IN 2008 IN 2009 IN 2010 IN 2011 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 N/A - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Aggressive Growth 1,227,447,858 0 20,090,427 841,156,325 315,348,051 23,741,111 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Growth 0 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Value 0 - ------------------------------------------------------------------------------------------------------------------------------------ High Yield Bond 1,406,515,123 0 80,574,095 226,001,198 517,121,802 552,664,309 - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Basic Income 48 0 0 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Enhanced 6 0 0 0 0 0 Income - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Moderate 17 0 0 0 0 0 Income - ------------------------------------------------------------------------------------------------------------------------------------ Select Value 17,611,971 0 0 0 0 15,103,541 - ------------------------------------------------------------------------------------------------------------------------------------ Short Duration U.S. 216,881,168 0 35,174,077 117,356,906 0 0 Government - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Equity 46,312,769 0 0 4,182,470 42,130,299 0 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value 0 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 1,999,586 0 0 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Value 0 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------------------ Dividend Opportunity 462,203,460 0 0 0 0 462,203,460 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate 0 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT FUND EXPIRING EXPIRING EXPIRING EXPIRING IN 2012 IN 2013 IN 2014 IN 2015 - ------------------------------------------------------------------------------------------------- Retirement Plus 2030 - ------------------------------------------------------------------------------------------------- Retirement Plus 2035 - ------------------------------------------------------------------------------------------------- Retirement Plus 2040 - ------------------------------------------------------------------------------------------------- Retirement Plus 2045 - ------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------- Aggressive Growth 27,111,944 0 0 0 - ------------------------------------------------------------------------------------------------- Fundamental Growth - ------------------------------------------------------------------------------------------------- Fundamental Value - ------------------------------------------------------------------------------------------------- High Yield Bond 0 0 19,048,600 11,105,119 - ------------------------------------------------------------------------------------------------- Income Builder Basic Income 0 0 48 0 - ------------------------------------------------------------------------------------------------- Income Builder Enhanced 0 0 6 0 Income - ------------------------------------------------------------------------------------------------- Income Builder Moderate 0 0 17 0 Income - ------------------------------------------------------------------------------------------------- Select Value 2,508,430 0 0 0 - ------------------------------------------------------------------------------------------------- Short Duration U.S. 0 36,267,962 20,469,230 7,612,993 Government - ------------------------------------------------------------------------------------------------- Small Cap Equity 0 0 0 0 - ------------------------------------------------------------------------------------------------- Small Cap Value - ------------------------------------------------------------------------------------------------- U.S. Government Mortgage 0 0 545,026 1,454,560 - ------------------------------------------------------------------------------------------------- Value - ------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------- Dividend Opportunity 0 0 0 0 - ------------------------------------------------------------------------------------------------- Real Estate - -------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 80
- ------------------------------------------------------------------------------------------------------------------------------------ TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2007 IN 2008 IN 2009 IN 2010 IN 2011 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Management 0 - ------------------------------------------------------------------------------------------------------------------------------------ Core Bond 3,154,192 0 0 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Equity 0 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined 93,125 0 0 0 0 0 Small and Mid Cap Equity - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined 0 Small Cap Value - ------------------------------------------------------------------------------------------------------------------------------------ Floating Rate 0 - ------------------------------------------------------------------------------------------------------------------------------------ Growth 535,377,023 0 0 0 166,602,696 368,774,327 - ------------------------------------------------------------------------------------------------------------------------------------ Income 1,475,572 0 0 0 0 0 Opportunities - ------------------------------------------------------------------------------------------------------------------------------------ Inflation 1,946,291 0 0 0 0 0 Protected Securities - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Equity 241,864,902 132,187,540 76,012,213 19,803,207 13,861,942 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Value 0 - ------------------------------------------------------------------------------------------------------------------------------------ Limited 3,814,855 0 0 0 0 0 Duration Bond - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ California 0 Tax-Exempt - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Bond 104,817,787 0 0 78,698,873 26,118,914 0 - ------------------------------------------------------------------------------------------------------------------------------------ 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 Tax-Exempt - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced 836,509,970 0 0 0 442,946,112 368,676,980 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified 0 Equity Income - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value 0 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic 112,166,989 0 0 0 9,602,040 102,564,949 Allocation - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2012 IN 2013 IN 2014 IN 2015 - ------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------- Cash Management - ------------------------------------------------------------------------------------------------- Core Bond 0 0 526,700 2,627,492 - ------------------------------------------------------------------------------------------------- Disciplined Equity - ------------------------------------------------------------------------------------------------- Disciplined 0 0 93,125 0 Small and Mid Cap Equity - ------------------------------------------------------------------------------------------------- Disciplined Small Cap Value - ------------------------------------------------------------------------------------------------- Floating Rate - ------------------------------------------------------------------------------------------------- Growth 0 0 0 0 - ------------------------------------------------------------------------------------------------- Income 0 0 0 1,475,572 Opportunities - ------------------------------------------------------------------------------------------------- Inflation 0 0 0 1,946,291 Protected Securities - ------------------------------------------------------------------------------------------------- Large Cap Equity 0 0 0 0 - ------------------------------------------------------------------------------------------------- Large Cap Value - ------------------------------------------------------------------------------------------------- Limited 0 0 388,116 3,426,739 Duration Bond - ------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------- California Tax-Exempt - ------------------------------------------------------------------------------------------------- Diversified Bond 0 0 0 0 - ------------------------------------------------------------------------------------------------- Massachusetts Tax-Exempt - ------------------------------------------------------------------------------------------------- Michigan Tax-Exempt - ------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt - ------------------------------------------------------------------------------------------------- New York Tax-Exempt - ------------------------------------------------------------------------------------------------- Ohio 0 87,465 0 0 Tax-Exempt - ------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------- Balanced 24,886,878 0 0 0 - ------------------------------------------------------------------------------------------------- Diversified Equity Income - ------------------------------------------------------------------------------------------------- Mid Cap Value - ------------------------------------------------------------------------------------------------- Strategic 0 0 0 0 Allocation - -------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 81
- ------------------------------------------------------------------------------------------------------------------------------------ TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING FUND CARRYOVERS IN 2007 IN 2008 IN 2009 IN 2010 IN 2011 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Absolute Return N/A Currency and Income - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined N/A International Equity - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets 898,826 0 0 898,826 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Emerging N/A Markets Bond - ------------------------------------------------------------------------------------------------------------------------------------ European Equity 88,587,807 0 0 67,052,074 16,514,518 5,021,215 - ------------------------------------------------------------------------------------------------------------------------------------ Global Bond 6,100,374 0 0 0 6,100,374 0 - ------------------------------------------------------------------------------------------------------------------------------------ Global Equity 565,449,466 0 0 391,304,630 143,634,885 30,509,951 - ------------------------------------------------------------------------------------------------------------------------------------ Global 386,068,821 0 0 304,769,594 81,299,227 0 Technology - ------------------------------------------------------------------------------------------------------------------------------------ International 0 Aggressive Growth - ------------------------------------------------------------------------------------------------------------------------------------ International 0 Equity - ------------------------------------------------------------------------------------------------------------------------------------ International 419,302,462 0 0 321,807,492 59,231,998 38,262,972 Opportunity - ------------------------------------------------------------------------------------------------------------------------------------ International 0 Select Value - ------------------------------------------------------------------------------------------------------------------------------------ International 0 Small Cap - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate 0 Tax-Exempt - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Growth 0 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 0 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt 0 High Income - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt 22,784 0 166 0 18,331 0 Money Market - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------- AMOUNT AMOUNT AMOUNT AMOUNT EXPIRING EXPIRING EXPIRING EXPIRING FUND IN 2012 IN 2013 IN 2014 IN 2015 - ------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------- Absolute Return Currency and Income - ------------------------------------------------------------------------------------------------- Disciplined International Equity - ------------------------------------------------------------------------------------------------- Emerging Markets 0 0 0 0 - ------------------------------------------------------------------------------------------------- Emerging Markets Bond - ------------------------------------------------------------------------------------------------- European Equity 0 0 0 0 - ------------------------------------------------------------------------------------------------- Global Bond 0 0 0 0 - ------------------------------------------------------------------------------------------------- Global Equity 0 0 0 0 - ------------------------------------------------------------------------------------------------- Global 0 0 0 0 Technology - ------------------------------------------------------------------------------------------------- International Aggressive Growth - ------------------------------------------------------------------------------------------------- International Equity - ------------------------------------------------------------------------------------------------- International 0 0 0 0 Opportunity - ------------------------------------------------------------------------------------------------- International Select Value - ------------------------------------------------------------------------------------------------- International 0 Small Cap - ------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt - ------------------------------------------------------------------------------------------------- Mid Cap Growth - ------------------------------------------------------------------------------------------------- Tax-Exempt Bond - ------------------------------------------------------------------------------------------------- Tax-Exempt High Income - ------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------- Tax-Exempt 0 4,287 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. Statement of Additional Information - Sept. 29, 2006 Page 82 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 FIXED INCOME AND TAX-EXEMPT FIXED INCOME 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. FOR BALANCED, EQUITY, FUNDS-OF-FUNDS, TAXABLE MONEY MARKET AND TAXABLE FIXED INCOME FUNDS, if you have a nonqualified investment in a fund and you wish to move part or all of those shares to an IRA or qualified retirement account in the fund, you can do so without paying a sales charge. However, this type of exchange is considered a redemption of shares and may result in a gain or loss for tax purposes. 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 current tax law, the maximum tax paid on dividends by individuals is 15% (5% for taxpayers in the 10% and 15% brackets) for tax years through 2010. The maximum capital gain rate for securities sold on or after May 6, 2003 through 2010 is 15% (5% for taxpayers in the 10% and 15% brackets). Only certain qualified dividend income (QDI) will be subject to the 15% and 5% tax rates. QDI is dividends earned from domestic corporations and qualified foreign corporations. Qualified foreign corporations are corporations incorporated in a U.S. possession, corporations whose stock is readily tradable on an established U.S. securities market (ADRs), and certain other corporations eligible for relief under an income tax treaty with the U.S. that includes an exchange of information agreement (except Barbados). Excluded are passive foreign investment companies (PFICs), foreign investment companies and foreign personal holding companies. Holding periods for shares must also be met to be eligible for QDI treatment (60 days for common stock and 90 days for preferreds). 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. Statement of Additional Information - Sept. 29, 2006 Page 83
TABLE 13. CORPORATE DEDUCTION AND QUALIFIED DIVIDEND INCOME - ------------------------------------------------------------------------------------------------------------------------ PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive 24.01% 44.44% - ------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Conservative 5.29 10.05 - ------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 11.64 21.59 - ------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive 16.98 31.55 - ------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative 8.29 15.39 - ------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Total Equity 34.10 63.40 - ------------------------------------------------------------------------------------------------------------------------ Small Company Index 100.00 100.00 - ------------------------------------------------------------------------------------------------------------------------ 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 0 - ------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage 35.64 36.35 - ------------------------------------------------------------------------------------------------------------------------ Small Cap Growth 0 0 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 N/A N/A - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 N/A N/A - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 N/A N/A - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 N/A N/A - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 N/A N/A - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 N/A N/A - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 N/A N/A - ------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 N/A N/A - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------ Aggressive Growth 20.84 24.02 - ------------------------------------------------------------------------------------------------------------------------ Fundamental Growth 100.00 100.00 - ------------------------------------------------------------------------------------------------------------------------ Fundamental Value 100.00 100.00 - ------------------------------------------------------------------------------------------------------------------------ High Yield Bond 0.03 0.03 - ------------------------------------------------------------------------------------------------------------------------ Income Builder Basic Income 24.20 24.07 - ------------------------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income 17.85 17.58 - ------------------------------------------------------------------------------------------------------------------------ Income Builder Moderate Income 21.16 20.97 - ------------------------------------------------------------------------------------------------------------------------ Select Value 100.00 100.00 - ------------------------------------------------------------------------------------------------------------------------ Short Duration U.S. Government 0 0 - ------------------------------------------------------------------------------------------------------------------------ Small Cap Equity 38.41 39.74 - ------------------------------------------------------------------------------------------------------------------------ Small Cap Value 23.75 25.87 - ------------------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 0 0 - ------------------------------------------------------------------------------------------------------------------------ Value 100.00 100.00 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------ Dividend Opportunity 100.00 100.00 - ------------------------------------------------------------------------------------------------------------------------ Real Estate 0.40 2.86 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------------ Cash Management 0 0 - ------------------------------------------------------------------------------------------------------------------------ Core Bond 0 0 - ------------------------------------------------------------------------------------------------------------------------ Disciplined Equity 29.23 29.46 - ------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 84
- ------------------------------------------------------------------------------------------------------------------------ PERCENT OF DIVIDENDS QUALIFYING QUALIFIED DIVIDEND INCOME FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS - ------------------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity 0 0 - ------------------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 0 0 - ------------------------------------------------------------------------------------------------------------------------ Floating Rate 0 0 - ------------------------------------------------------------------------------------------------------------------------ Growth 100 100 - ------------------------------------------------------------------------------------------------------------------------ Income Opportunities 0 0 - ------------------------------------------------------------------------------------------------------------------------ Inflation Protected Securities 0 0 - ------------------------------------------------------------------------------------------------------------------------ Large Cap Equity 100 100 - ------------------------------------------------------------------------------------------------------------------------ Large Cap Value 73.41 80.91 - ------------------------------------------------------------------------------------------------------------------------ Limited Duration Bond 0 0 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt 0 0 - ------------------------------------------------------------------------------------------------------------------------ Diversified Bond 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 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------------ Balanced 61.50 68.42 - ------------------------------------------------------------------------------------------------------------------------ Diversified Equity Income 100.00 100.00 - ------------------------------------------------------------------------------------------------------------------------ Mid Cap Value 78.07 83.61 - ------------------------------------------------------------------------------------------------------------------------ Strategic Allocation 78.92 99.76 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income N/A N/A - ------------------------------------------------------------------------------------------------------------------------ Disciplined International Equity N/A N/A - ------------------------------------------------------------------------------------------------------------------------ Emerging Markets 0 100.00 - ------------------------------------------------------------------------------------------------------------------------ Emerging Markets Bond N/A N/A - ------------------------------------------------------------------------------------------------------------------------ European Equity 0 100.00 - ------------------------------------------------------------------------------------------------------------------------ Global Bond 0 0 - ------------------------------------------------------------------------------------------------------------------------ Global Equity 100.00 100.00 - ------------------------------------------------------------------------------------------------------------------------ Global Technology 0 0 - ------------------------------------------------------------------------------------------------------------------------ International Aggressive Growth 1.48 99.98 - ------------------------------------------------------------------------------------------------------------------------ International Equity 0.19 47.51 - ------------------------------------------------------------------------------------------------------------------------ International Opportunity 0 100.00 - ------------------------------------------------------------------------------------------------------------------------ International Select Value 0 0 - ------------------------------------------------------------------------------------------------------------------------ International Small Cap 0 36.78 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt 0 0 - ------------------------------------------------------------------------------------------------------------------------ Mid Cap Growth 0 0 - ------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 0 0 - ------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 0 0 - ------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 0 0 - ------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 85 A fund may be subject to U.S. taxes resulting from holdings in a PFIC. To avoid taxation, a fund may make an election to mark to market. A foreign corporation is a PFIC when 75% or more of its gross income for the taxable year is passive income or 50% or more of the average value of its assets consists of assets that produce or could produce passive income. Income earned by a fund may have had foreign taxes imposed and withheld on it in foreign countries. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. If more than 50% of a fund's total assets at the close of its fiscal year consists of securities of foreign corporations, the fund will be eligible to file an election with the Internal Revenue Service under which shareholders of the fund would be required to include their pro rata portions of foreign taxes withheld by foreign countries as gross income in their federal income tax returns. These pro rata portions of foreign taxes withheld may be taken as a credit or deduction in computing the shareholders' federal income taxes. If the election is filed, the fund will report to its shareholders the per share amount of such foreign taxes withheld and the amount of foreign tax credit or deduction available for federal income tax purposes. Capital gain distributions, if any, received by shareholders should be treated as long-term capital gains regardless of how long shareholders owned their shares. Short-term capital gains earned by a fund are paid to shareholders as part of their ordinary income dividend and are taxable. Special rates on capital gains may apply to sales of precious metals, if any, owned directly by a fund and to investments in REITs. Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable to fluctuations in exchange rates that occur between the time a fund accrues interest or other receivables, or accrues expenses or other liabilities denominated in a foreign currency and the time the fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, gains or losses on disposition of debt securities denominated in a foreign currency attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security and the date of disposition also are treated as ordinary gains or losses. These gains or losses, referred to under the Code as "section 988" gains or losses, may increase or decrease the amount of a fund's investment company taxable income to be distributed to its shareholders as ordinary income. Under federal tax law, by the end of a calendar year a fund must declare and pay dividends representing 98% of ordinary income for that calendar year and 98% of net capital gains (both long-term and short-term) 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 - Sept. 29, 2006 Page 86 AGREEMENTS INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments is the investment manager for each fund. Under the Investment Management Services Agreement, the investment manager, subject to the policies set by the Board, provides investment management services. For its services, the investment manager is paid a fee based on the following schedule. Each class of a fund pays its proportionate share of the fee. The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding day.
TABLE 14. INVESTMENT MANAGEMENT SERVICES AGREEMENT FEE SCHEDULE - ------------------------------------------------------------------------------------------------------------------------------------ ANNUAL RATE AT EACH DAILY RATE ON LAST DAY OF MOST FUND ASSETS (BILLIONS) ASSET LEVEL RECENT FISCAL PERIOD - ------------------------------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income First $1.0 0.890% N/A Next 1.0 0.865 Next 1.0 0.840 Next 3.0 0.815 Next 1.5 0.790 Next 1.5 0.775 Next 1.0 0.770 Next 5.0 0.760 Next 5.0 0.750 Next 4.0 0.740 Next 26.0 0.720 Over 50.0 0.700 - ------------------------------------------------------------------------------------------------------------------------------------ Aggressive Growth First $0.50 0.890 0.885 Next 0.50 0.865 Next 1.0 0.840 Next 1.0 0.815 Next 3.0 0.790 Over 6.0 0.765 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced First $1.0 0.530 0.525 Next 1.0 0.505 Next 1.0 0.480 Next 3.0 0.455 Next 1.5 0.430 Next 2.5 0.410 Next 5.0 0.390 Next 9.0 0.370 Over 24.0 0.350 - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt First $0.25 0.410 California - 0.470 Massachusetts Tax-Exempt Next 0.25 0.385 Massachusetts - 0.470 Michigan Tax-Exempt Next 0.25 0.360 Michigan - 0.470 Minnesota Tax-Exempt Next 0.25 0.345 Minnesota - 0.461 New York Tax-Exempt Next 6.5 0.320 New York - 0.470 Ohio Tax-Exempt Next 2.5 0.310 Ohio - 0.470 Next 5.0 0.300 Next 9.0 0.290 Next 26.0 0.270 Over 50.0 0.250 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 87
- -------------------------------------------------------------------------------------------------------------------------------- ANNUAL RATE AT EACH DAILY RATE ON LAST DAY OF MOST FUND ASSETS (BILLIONS) ASSET LEVEL RECENT FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------------------- Cash Management First $1.0 0.330 0.291 Next 0.5 0.313 Next 0.5 0.295 Next 0.5 0.278 Next 2.5 0.260 Next 1.0 0.240 Next 1.5 0.220 Next 1.5 0.215 Next 1.0 0.190 Next 5.0 0.180 Next 5.0 0.170 Next 4.0 0.160 Over 24.0 0.150 - -------------------------------------------------------------------------------------------------------------------------------- Core Bond First $1.0 0.480 Core Bond - 0.480 Diversified Bond Next 1.0 0.455 Diversified Bond - 0.500 Limited Duration Bond Next 1.0 0.430 Limited Duration Bond - 0.480 Next 3.0 0.405 Next 1.5 0.380 Next 1.5 0.365 Next 1.0 0.360 Next 5.0 0.350 Next 5.0 0.340 Next 4.0 0.330 Next 26.0 0.310 Over 50.0 0.290 - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity First $1.0 0.600 Disciplined Equity - 0.588 Diversified Equity Income Next 1.0 0.575 Diversified Equity Income - 0.462 Growth Next 1.0 0.550 Growth - 0.570 Large Cap Equity Next 3.0 0.525 Large Cap Equity - 0.538 Large Cap Value Next 1.5 0.500 Large Cap Value - 0.600 Next 2.5 0.485 Next 5.0 0.470 Next 5.0 0.450 Next 4.0 0.425 Next 26.0 0.400 Over 50.0 0.375 - -------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity First $0.25 0.800 Disciplined International Equity - N/A European Equity Next 0.25 0.775 European Equity - 0.800 Global Equity Next 0.25 0.750 Global Equity - 0.784 International Opportunity Next 0.25 0.725 International Opportunity - 0.785 Next 1.0 0.700 Next 5.5 0.675 Next 2.5 0.660 Next 5.0 0.645 Next 5.0 0.635 Next 4.0 0.610 Next 26.0 0.600 Over 50.0 0.570 - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 88
- -------------------------------------------------------------------------------------------------------------------------------- ANNUAL RATE AT EACH DAILY RATE ON LAST DAY OF MOST FUND ASSETS (BILLIONS) ASSET LEVEL RECENT FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity First $1.0 0.700 Disciplined Small and Mid Cap Mid Cap Growth Next 1.0 0.675 Equity - 0.700 Next 1.0 0.650 Mid Cap Growth - 0.588 Next 3.0 0.625 Next 1.5 0.600 Next 2.5 0.575 Next 5.0 0.550 Next 9.0 0.525 Next 26.0 0.500 Over 50.0 0.475 - -------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value First $0.25 0.850 0.850 Next 0.25 0.825 Next 0.25 0.800 Next 0.25 0.775 Next 1.0 0.750 Over 2.0 0.725 - -------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity First $0.50 0.610 0.590 Next 0.50 0.585 Next 1.0 0.560 Next 1.0 0.535 Next 3.0 0.510 Next 4.0 0.480 Next 5.0 0.470 Next 5.0 0.450 Next 4.0 0.425 Next 26.0 0.400 Over 50.0 0.375 - -------------------------------------------------------------------------------------------------------------------------------- Emerging Markets First $0.25 1.100 1.093 Next 0.25 1.080 Next 0.25 1.060 Next 0.25 1.040 Next 1.0 1.020 Next 5.5 1.000 Next 2.5 0.985 Next 5.0 0.970 Net 5.0 0.960 Next 4.0 0.935 Next 26.0 0.920 Over 50.0 0.900 - -------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond First $0.25 0.720 Emerging Markets Bond - N/A Global Bond Next 0.25 0.695 Global Bond - 0.754 Next 0.25 0.670 Next 0.25 0.645 Next 6.5 0.620 Next 2.5 0.605 Next 5.0 0.590 Next 5.0 0.580 Next 4.0 0.560 Next 26.0 0.540 Over 50.0 0.520 - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 89
- -------------------------------------------------------------------------------------------------------------------------------- ANNUAL RATE AT EACH DAILY RATE ON LAST DAY OF MOST FUND ASSETS (BILLIONS) ASSET LEVEL RECENT FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------------------- Equity Value First $0.50 0.530 0.512 Next 0.50 0.505 Next 1.0 0.480 Next 1.0 0.455 Next 3.0 0.430 Over 6.0 0.400 - -------------------------------------------------------------------------------------------------------------------------------- Floating Rate First $1.0 0.610 Floating Rate - 0.610 Income Opportunities Next 1.0 0.585 Income Opportunities - 0.610 Next 1.0 0.560 Next 3.0 0.535 Next 1.5 0.510 Next 1.5 0.495 Next 1.0 0.470 Next 5.0 0.455 Next 5.0 0.445 Next 4.0 0.420 Next 26.0 0.405 Over 50.0 0.380 - -------------------------------------------------------------------------------------------------------------------------------- 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 - 0.713 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 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 0.577 Next 1.0 0.565 Next 1.0 0.540 Next 3.0 0.515 Next 1.5 0.490 Next 1.5 0.475 Next 1.0 0.450 Next 5.0 0.435 Next 5.0 0.425 Next 4.0 0.400 Next 26.0 0.385 Over 50.0 0.360 - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 90
- -------------------------------------------------------------------------------------------------------------------------------- ANNUAL RATE AT EACH DAILY RATE ON LAST DAY OF MOST FUND ASSETS (BILLIONS) ASSET LEVEL RECENT FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income N/A N/A Income Builder Funds - N/A Income Builder Enhanced Income Portfolio Builder Funds - 0.080 Income Builder Moderate Income Retirement Plus Funds - N/A Portfolio Builder Aggressive Portfolio Builder Conservative Portfolio Builder Moderate Portfolio Builder Moderate Aggressive Portfolio Builder Moderate Conservative Portfolio Builder Total Equity Retirement Plus 2010 Retirement Plus 2015 Retirement Plus 2020 Retirement Plus 2025 Retirement Plus 2030 Retirement Plus 2035 Retirement Plus 2040 Retirement Plus 2045 - -------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities First $1.0 0.440 0.440 Next 1.0 0.415 Next 1.0 0.390 Next 3.0 0.365 Next 1.5 0.340 Next 1.5 0.325 Next 1.0 0.320 Next 5.0 0.310 Next 5.0 0.300 Next 4.0 0.290 Next 26.0 0.270 Over 50.0 0.250 - -------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt First $1.0 0.390 0.450 Next 1.0 0.365 Next 1.0 0.340 Next 3.0 0.315 Next 1.5 0.290 Next 2.5 0.280 Next 5.0 0.270 Next 35.0 0.260 Over 50.0 0.250 - -------------------------------------------------------------------------------------------------------------------------------- International Aggressive Growth First $0.25 1.000 0.992 Next 0.25 0.975 Next 0.25 0.950 Next 0.25 0.925 Next 1.0 0.900 Over 2.0 0.875 - -------------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 91
- -------------------------------------------------------------------------------------------------------------------------------- ANNUAL RATE AT EACH DAILY RATE ON LAST DAY OF MOST FUND ASSETS (BILLIONS) ASSET LEVEL RECENT FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------------------- International Select Value First $0.25 0.900 0.845 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 0.699 Next 1.0 0.675 Next 1.0 0.650 Next 3.0 0.625 Next 1.5 0.600 Next 2.5 0.575 Next 5.0 0.550 Next 9.0 0.525 Next 26.0 0.500 Over 50.0 0.475 - -------------------------------------------------------------------------------------------------------------------------------- Precious Metals First $0.25 0.800 0.800 Next 0.25 0.775 Next 0.25 0.750 Next 0.25 0.725 Next 1.0 0.700 Over 2.0 0.675 - -------------------------------------------------------------------------------------------------------------------------------- Real Estate First $1.0 0.840 0.840 Next 1.0 0.815 Next 1.0 0.790 Next 3.0 0.765 Next 6.0 0.740 Next 12.0 0.730 Over 24.0 0.720 - -------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index First $1.0 0.220 0.220 Next 1.0 0.210 Next 1.0 0.200 Next 4.5 0.190 Next 2.5 0.180 Next 5.0 0.170 Next 9.0 0.160 Next 26.0 0.140 Over 50.0 0.120 - -------------------------------------------------------------------------------------------------------------------------------- Select Value First $0.50 0.780 0.775 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 - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 92
- -------------------------------------------------------------------------------------------------------------------------------- ANNUAL RATE AT EACH DAILY RATE ON LAST DAY OF MOST FUND ASSETS (BILLIONS) ASSET LEVEL RECENT FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government First $1.0 0.480 0.478 Next 1.0 0.455 Next 1.0 0.430 Next 3.0 0.405 Next 1.5 0.380 Next 1.5 0.365 Next 1.0 0.340 Next 5.0 0.325 Next 5.0 0.315 Next 4.0 0.290 Next 26.0 0.275 Over 50.0 0.250 - -------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage First $0.25 0.790 0.760 Next 0.25 0.765 Next 0.25 0.740 Next 0.25 0.715 Next 1.0 0.690 Over 2.0 0.665 - -------------------------------------------------------------------------------------------------------------------------------- Small Cap Equity First $0.25 0.970 0.961 Next 0.25 0.945 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 Cap Value First $0.25 0.970 0.932 Next 0.25 0.945 Next 0.25 0.920 Next 0.25 0.895 Over 1.0 0.870 - -------------------------------------------------------------------------------------------------------------------------------- Small Company Index First $0.25 0.360 0.340 Next 0.25 0.350 Next 0.25 0.340 Next 0.25 0.330 Next 6.5 0.320 Next 7.5 0.300 Next 9.0 0.280 Next 26.0 0.260 Over 50.0 0.240 - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 93
- -------------------------------------------------------------------------------------------------------------------------------- ANNUAL RATE AT EACH DAILY RATE ON LAST DAY OF MOST FUND ASSETS (BILLIONS) ASSET LEVEL RECENT FISCAL PERIOD - -------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation First $1.0 0.570 0.516 Next 1.0 0.545 Next 1.0 0.520 Next 3.0 0.495 Next 1.5 0.470 Next 2.5 0.450 Next 5.0 0.430 Next 9.0 0.410 Over 24.0 0.390 - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond First $1.0 0.410 0.450 Next 1.0 0.385 Next 1.0 0.360 Next 3.0 0.335 Next 1.5 0.310 Next 2.5 0.300 Next 5.0 0.290 Next 9.0 0.280 Next 26.0 0.260 Over 50.0 0.250 - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income First $1.0 0.470 0.456 Next 1.0 0.445 Next 1.0 0.420 Next 3.0 0.395 Next 1.5 0.370 Next 2.5 0.360 Next 5.0 0.350 Next 9.0 0.340 Next 26.0 0.320 Over 50.0 0.300 - -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market First $1.0 0.330 0.360 Next 0.5 0.313 Next 0.5 0.295 Next 0.5 0.278 Next 2.5 0.260 Next 1.0 0.240 Next 1.5 0.220 Next 1.5 0.215 Next 1.0 0.190 Next 5.0 0.180 Next 5.0 0.170 Next 4.0 0.160 Over 24.0 0.150 - --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 94
- ---------------------------------------------------------------------------------------------------------------------- ANNUAL RATE AT EACH DAILY RATE ON LAST DAY OF MOST FUND ASSETS (BILLIONS) ASSET LEVEL RECENT FISCAL PERIOD - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage First $1.0 0.480 0.480 Next 1.0 0.455 Next 1.0 0.430 Next 3.0 0.405 Next 1.5 0.380 Next 1.5 0.365 Next 1.0 0.360 Next 5.0 0.350 Next 5.0 0.340 Next 4.0 0.330 Next 26.0 0.310 Over 50.0 0.290 - ---------------------------------------------------------------------------------------------------------------------- Effective March 1, 2006, the funds' shareholders approved a change to the Investment Management fee schedule under the Investment Management Services Agreement between RiverSource Investments, LLC and the funds.
For Equity and Balanced Funds, except for S&P 500 Index and Small Company Index, before the fee based on the asset charge is paid, it is adjusted for the fund's investment performance relative to a Lipper Index (Index) as shown in the table below. The adjustment increased or decreased the fee for the last fiscal period as shown in the following table. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
TABLE 15. LIPPER INDEXES - ------------------------------------------------------------------------------------------------------------- FUND LIPPER INDEX FEE INCREASE OR (DECREASE) - ------------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------- Equity Value Lipper Large-Cap Value Funds $1,268,814 - ------------------------------------------------------------------------------------------------------------- Precious Metals Lipper Gold Funds (94,844) - ------------------------------------------------------------------------------------------------------------- Small Cap Advantage Lipper Small-Cap Core Funds (72,920) - ------------------------------------------------------------------------------------------------------------- Small Cap Growth Lipper Small-Cap Growth Funds (142,912) - ------------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------- Aggressive Growth Lipper Mid-Cap Growth Funds (10,780) - ------------------------------------------------------------------------------------------------------------- Fundamental Growth Lipper Large-Cap Growth Funds (76,111) - ------------------------------------------------------------------------------------------------------------- Fundamental Value Lipper Large-Cap Value Funds 56,343 - ------------------------------------------------------------------------------------------------------------- Select Value Lipper Multi-Cap Value Funds (358,864) - ------------------------------------------------------------------------------------------------------------- Small Cap Equity Lipper Small-Cap Core Funds 110,839 - ------------------------------------------------------------------------------------------------------------- Small Cap Value Lipper Small-Cap Value Funds (890,341) - ------------------------------------------------------------------------------------------------------------- Value Lipper Large-Cap Value Funds (282,436) - ------------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------- Dividend Opportunity Lipper Equity Income Funds 545,369 - ------------------------------------------------------------------------------------------------------------- Real Estate Lipper Real Estate Funds 95,523 - ------------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------- Disciplined Equity Lipper Large-Cap Core Funds 77,739 - ------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Lipper Mid-Cap Core Funds 0 - ------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Lipper Small-Cap Value Funds 0 - ------------------------------------------------------------------------------------------------------------- Growth Lipper Large-Cap Growth Funds 135,722 - ------------------------------------------------------------------------------------------------------------- Large Cap Equity Lipper Large-Cap Core Funds (2,273,700) - ------------------------------------------------------------------------------------------------------------- Large Cap Value Lipper Large-Cap Value Funds (65,158) - -------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 95
- ------------------------------------------------------------------------------------------------------------- FUND LIPPER INDEX FEE INCREASE OR (DECREASE) - ------------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------- Balanced Lipper Balanced Funds 188,433 - ------------------------------------------------------------------------------------------------------------- Diversified Equity Income Lipper Equity Income Funds 4,016,026 - ------------------------------------------------------------------------------------------------------------- Mid Cap Value Lipper Mid-Cap Value Funds 573,945 - ------------------------------------------------------------------------------------------------------------- Strategic Allocation Lipper Flexible Portfolio Funds 722,849 - ------------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------- Disciplined International Equity Lipper International Large-Cap Core Funds N/A - ------------------------------------------------------------------------------------------------------------- Emerging Markets Lipper Emerging Markets Funds (251,371) - ------------------------------------------------------------------------------------------------------------- European Equity Lipper European Funds (150,680) - ------------------------------------------------------------------------------------------------------------- Global Equity Lipper Global Funds 417,773 - ------------------------------------------------------------------------------------------------------------- Global Technology Lipper Science and Technology Funds 197,924 - ------------------------------------------------------------------------------------------------------------- International Aggressive Growth Lipper International Multi-Cap Growth Funds 122,027 - ------------------------------------------------------------------------------------------------------------- International Equity Lipper International Funds (117,424) - ------------------------------------------------------------------------------------------------------------- International Opportunity Lipper International Large-Cap Core Funds (312,535) - ------------------------------------------------------------------------------------------------------------- International Select Value Lipper International Multi-Cap Value Funds 303,325 - ------------------------------------------------------------------------------------------------------------- International Small Cap Lipper International Small-Cap Funds (91,346) - ------------------------------------------------------------------------------------------------------------- FISCAL YEAR ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------- Mid Cap Growth Lipper Mid-Cap Growth Funds (1,315,340) - ------------------------------------------------------------------------------------------------------------- The index against which the Fund's performance was measured prior to Jan. 1, 2005 was the Lipper International Funds Index. The index against which the Fund's performance was measured prior to July 1, 2004 was the Lipper International Funds Index.
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.
TABLE 16. PERFORMANCE INCENTIVE ADJUSTMENT CALCULATION - ---------------------------------------------------------------------------------------------------------------------------------- EQUITY FUNDS BALANCED FUNDS - ---------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE PERFORMANCE DIFFERENCE ADJUSTMENT RATE DIFFERENCE ADJUSTMENT RATE - ---------------------------------------------------------------------------------------------------------------------------------- 0.00%-0.50% 0 0.00%-0.50% 0 - ---------------------------------------------------------------------------------------------------------------------------------- 0.50%-1.00% 6 basis points times the performance 0.50%-1.00% 6 basis points times the performance difference over 0.50%, times 100 (maximum difference over 0.50%, times 100 (maximum of 3 basis points if a 1% performance of 3 basis points if a 1% performance difference) difference) - ---------------------------------------------------------------------------------------------------------------------------------- 1.00%-2.00% 3 basis points, plus 3 basis points times 1.00%-2.00% 3 basis points, plus 3 basis points times the performance difference over 1.00%, the performance difference over 1.00%, times 100 (maximum 6 basis points if a 2% times 100 (maximum 6 basis points if a 2% performance difference) performance difference) - ---------------------------------------------------------------------------------------------------------------------------------- 2.00%-4.00% 6 basis points, plus 2 basis points times 2.00%-3.00% 6 basis points, plus 2 basis points times the performance difference over 2.00%, the performance difference over 2.00%, times 100 (maximum 10 basis points if a times 100 (maximum 8 basis points if a 3% 4% performance difference) performance difference) - ---------------------------------------------------------------------------------------------------------------------------------- 4.00%-6.00% 10 basis points, plus 1 basis point times 3.00% or more 8 basis points the performance difference over 4.00%, times 100 (maximum 12 basis points if a 6% performance difference) - ---------------------------------------------------------------------------------------------------------------------------------- 6.00% or more 12 basis points - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 96 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. If an Index ceases to be published for a period of more than 90 days, changes in any material respect, otherwise becomes impracticable or, at the discretion of the Board, is no longer appropriate to use for purposes of a performance incentive adjustment, for example, if Lipper reclassifies the fund from one peer group to another, the Board may take action it deems appropriate and in the best interests of shareholders, including: (1) discontinuance of the performance incentive adjustment until such time as it approves a substitute index; or (2) adoption of a methodology to transition to a substitute index it has approved. Transitions. In the case of a change in index, a fund's performance will be compared to a 12 month blended index return that reflects the performance of the current index for the portion of the 12 month performance measurement period beginning the effective date of the current index and the performance of the prior index for the remainder of the measurement period. At the conclusion of the transition period, the performance of the prior index will be eliminated from the performance incentive adjustment calculation, and the calculation will include only the performance of the current index. The management fee is paid monthly. Under the agreement, a fund also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees and charges; fidelity bond premiums; certain legal fees; registration fees for shares; consultants' fees; compensation of Board members, officers and employees not employed by the investment manager or its affiliates; corporate filing fees; organizational expenses; expenses incurred in connection with lending securities; and expenses properly payable by a fund, approved by the Board. The table below shows the total management fees paid by each fund for the last three fiscal periods as well as nonadvisory expenses, net of earnings credits, waivers and expenses reimbursed by the investment manager and its affiliates. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1.
TABLE 17. MANAGEMENT FEES AND NONADVISORY EXPENSES - --------------------------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES FUND --------------------------------------------------------------------------------------- 2006 2005 2004 2006 2005 2004 - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - --------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive $ 204,941 $ 55,141(a) N/A $ 154,484 $ 34,746(a) N/A - --------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 71,579 23,875(a) N/A 117,318 43,296(a) N/A - --------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 342,180 93,838(a) N/A 251,538 142,907(a) N/A - --------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 418,633 112,009(a) N/A 269,480 116,480(a) N/A - --------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 137,483 43,118(a) N/A 144,243 75,264(a) N/A - --------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 165,740 43,835(a) N/A 122,935 27,696(a) N/A - --------------------------------------------------------------------------------------------------------------------------------- Small Company Index 4,419,815 4,547,058 3,962,556 471,768 536,282 604,079 - --------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index 706,270 933,587 954,894 (357,906) (402,204) (24,079) - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - --------------------------------------------------------------------------------------------------------------------------------- Equity Value 7,043,854 6,836,800 6,126,938 400,520 465,953 493,392 - --------------------------------------------------------------------------------------------------------------------------------- Precious Metals 579,779 659,595 724,228 207,159 176,012 175,964 - --------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 5,845,601 6,341,134 5,102,126 510,707 533,489 227,451 - --------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth 1,878,991 2,276,290 2,359,429 343,335 421,008 360,064 - ---------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 97
- ---------------------------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES FUND ---------------------------------------------------------------------------------------- 2006 2005 2004 2006 2005 2004 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Aggressive Growth 1,950,153 399,501 117,564 (167,264) 82,999 18,117 - ---------------------------------------------------------------------------------------------------------------------------------- Fundamental Growth 987,877 410,475 79,513 191,085 177,899 24,370 - ---------------------------------------------------------------------------------------------------------------------------------- Fundamental Value 7,971,622 5,556,219 3,377,169 501,862 488,580 210,468 - ---------------------------------------------------------------------------------------------------------------------------------- High Yield Bond 12,713,321 14,973,845 15,136,003 688,374 817,018 1,035,459 - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income N/A N/A N/A 3,184 N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income N/A N/A N/A 6,657 N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income N/A N/A N/A 7,419 N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Select Value 5,211,061 5,256,934 2,995,527 330,794 423,030 283,570 - ---------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 6,683,201 10,141,504 14,303,395 (1,688,300) (958,143) 1,172,005 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Equity 2,525,974 1,560,155 1,108,923 (134,739) 6,490 (76,600) - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Value 9,285,758 9,857,858 7,749,795 735,477 788,885 675,289 - ---------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 1,327,433 1,532,464 2,063,726 (549,885) (188,134) 18,299 - ---------------------------------------------------------------------------------------------------------------------------------- Value 3,018,867 3,311,867 2,926,194 275,068 285,856 202,871 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity 7,688,134 6,201,403 5,081,258 480,473 453,329 596,965 - ---------------------------------------------------------------------------------------------------------------------------------- Real Estate 1,398,778 725,491 37,549(c) 153,244 133,564 8,198 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Cash Management 10,801,723 12,052,160 14,155,568 (1,747,535) 1,220,672 2,243,652 - ---------------------------------------------------------------------------------------------------------------------------------- Core Bond 991,804 846,872 417,836 (58,636) 99,940 69,699 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity 5,175,451 408,720 83,580 (83,131) 130,016 8,110 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 13,335 N/A N/A 4,577(d) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 49,035 N/A N/A 9,684(e) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Floating Rate 412,667 N/A N/A 19,402(e) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Growth 19,922,079 18,968,320 16,372,054 1,214,759 1,217,404 1,219,778 - ---------------------------------------------------------------------------------------------------------------------------------- Income Opportunities 2,229,460 1,954,757 985,862 198,512 214,865 133,277 - ---------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 1,078,635 552,220 66,055 (45,905) 28,432 5,260 - ---------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity 20,724,477 9,680,873 2,441,621 682,652 161,534 391,817 - ---------------------------------------------------------------------------------------------------------------------------------- Large Cap Value 715,200 803,736 446,686 186,504 293,194 129,014 - ---------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 990,881 960,788 571,688 (96,959) 57,170 61,331 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 98
- --------------------------------------------------------------------------------------------------------------------------------- MANAGEMENT FEES NONADVISORY EXPENSES FUND --------------------------------------------------------------------------------------- 2005 2004 2003 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - --------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 1,010,591 1,129,991 1,273,942 116,440 139,264 126,709 - --------------------------------------------------------------------------------------------------------------------------------- Diversified Bond 13,003,467 15,409,504 18,159,757 (1,032,114) 575,900 1,058,347 - --------------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - --------------------------------------------------------------------------------------------------------------------------------- Balanced 7,169,932 7,736,525 7,434,993 651,610 707,529 567,687 - --------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 24,183,415 17,374,369 9,509,660 1,530,714 993,686 701,496 - --------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 5,816,781 2,537,342 755,866 531,095 271,072 63,479 - --------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation 5,960,581 5,004,559 5,083,754 642,432 629,876 498,156 - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - --------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income N/A N/A N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity N/A N/A N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Emerging Markets 3,801,760 2,770,886 2,181,279 636,569 519,598 477,412 - --------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond N/A N/A N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- European Equity 837,577 872,149 959,764 224,833 236,203 143,588 - --------------------------------------------------------------------------------------------------------------------------------- Global Bond 4,359,713 4,143,713 4,084,088 408,133 427,277 450,208 - --------------------------------------------------------------------------------------------------------------------------------- Global Equity 4,471,632 3,302,062 3,763,415 485,178 506,708 476,898 - --------------------------------------------------------------------------------------------------------------------------------- Global Technology 1,574,791 1,812,789 1,185,180 282,889 304,625 235,797 - --------------------------------------------------------------------------------------------------------------------------------- International Aggressive Growth 3,119,859 1,878,346 1,114,731 384,996 250,484 69,337 - --------------------------------------------------------------------------------------------------------------------------------- International Equity 1,431,433 1,015,577 439,777 323,432 316,320 131,195 - --------------------------------------------------------------------------------------------------------------------------------- International Opportunity 3,988,205 2,926,933 2,672,683 566,027 442,832 451,756 - --------------------------------------------------------------------------------------------------------------------------------- International Select Value 10,340,380 6,467,621 3,341,744 812,998 473,274 152,203 - --------------------------------------------------------------------------------------------------------------------------------- International Small Cap 933,818 600,389 183,744 333,478 208,586 63,029 - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - --------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 10,413,718 10,550,526 10,432,639 901,194 744,839 600,194 - --------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 17,998,361 20,079,644 21,646,724 308,271 976,647 892,351 - --------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 644,499 752,882 704,089 67,781 136,017 101,093 - --------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 3,066,023 3,457,986 3,967,418 136,155 248,267 270,404 - --------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - --------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market 423,253 515,265 678,981 116,613 177,477 218,380 - --------------------------------------------------------------------------------------------------------------------------------- For the period from March 4, 2004 (when shares became publicly available) to Jan. 31, 2005. For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. For the period from March 4, 2004 (when shares became publicly available) to June 30, 2004. For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. For the period from March 4, 2004 (when shares became publicly available) to July 31, 2004.
Statement of Additional Information - Sept. 29, 2006 Page 99 BASIS FOR BOARD APPROVAL OF THE INVESTMENT MANAGEMENT SERVICES AGREEMENT For funds that have not yet issued their first shareholder report: FOR ABSOLUTE RETURN CURRENCY AND INCOME FUND: RiverSource Investments, LLC (RiverSource Investments), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial), serves as the investment manager to the fund. Under an investment management services agreement (the IMS Agreement), the investment manager provides investment advice and other services to the fund. The fund's Board of Directors (the Board) and the Board's Investment Review and Contracts Committees monitor these services. The independent Board members determined to approve the IMS Agreement based on the following factors: In addition to portfolio management and investment research, RiverSource Investments and its affiliates provide portfolio trading, daily net asset value calculation, management of cash flows, product development, administration of its compliance and legal departments, access to distribution, accounting and recordkeeping, and reporting to the Board and shareholders. The Board also noted RiverSource Investments commitment to a culture that adheres to ethical business practice, assigns accountability to senior management and seeks to identify conflicts and propose appropriate action to minimize the risks posed by the conflicts. The Board concluded that the services to be provided are consistent with services provided by investment managers to comparable mutual funds (as compiled by Lipper Analytical Services). The Board also evaluated the price for the services to be provided by RiverSource Investments, noting the existence of a pricing philosophy, established by the Board and RiverSource Investments, that seeks to maintain total fund expenses within a range of the median expenses charged to comparable funds sold through financial advisers. It also noted that RiverSource Investments has agreed to voluntarily impose expense caps, if necessary, to achieve this pricing objective. The Board considered the economies of scale that might be realized by RiverSource Investments as the fund grows and took note of the extent to which fund shareholders also might benefit from such growth. The Board considered that the IMS Agreement provides for lower fees as assets increase at pre-established breakpoints and concluded that the IMS Agreement satisfactorily provided for sharing these economies of scale. The Board took into account the Contracts Committee's discussion comparing the fees RiverSource Investments will charge to the fund with those it charges to institutional clients, noting that the relatively higher fees to be paid by the fund are principally attributable to the additional services required to manage a regulated mutual fund such as the fund, and the operation of a large mutual fund family. The Board also considered the profitability of RiverSource Investments and its affiliates. The Board concluded that RiverSource Investments' overall costs and profitability were appropriate. The Board considered that the fees paid by the fund should help permit RiverSource Investments to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. Based on the foregoing, the Board concluded that the fees paid to RiverSource Investments under the IMS Agreement were fair and reasonable and determined to approve the IMS Agreement. Statement of Additional Information - Sept. 29, 2006 Page 100 FOR RETIREMENT PLUS FUNDS: RiverSource Investments, LLC (RiverSource), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial), serves as the investment manager to the fund. Under an investment management services agreement (the IMS Agreement), the investment manager provides investment advice and other services to the fund. The fund's Board of Trustees (the Board) and the Board's Investment Review and Contracts Committee monitor these services. The independent Board members determined to approve the IMS Agreement based on the following factors: In addition to portfolio management and investment research, RiverSource Investments and its affiliates provide portfolio trading, daily net asset value calculation, management of cash flows, product development, administration of its compliance and legal departments, access to distribution, accounting and recordkeeping, and reporting to the Board and shareholders. The Board also noted RiverSource Investments commitment to a culture that adheres to ethical business practice, assigns accountability to senior management and seeks to identify conflicts and propose appropriate action to minimize the risks posed by the conflicts. The Board concluded that the services to be provided are consistent with services provided by investment managers to comparable mutual funds (as compiled by Lipper Analytical Services). The Board noted that RiverSource Investments will provide services to the fund without payment of a management fee. Based on the foregoing, the Board determined to approve the IMS Agreement. MANAGER OF MANAGERS EXEMPTION. The RiverSource funds have received an order from the SEC that permits RiverSource Investments, subject to the approval of the Board, to appoint a subadviser or change the terms of a subadvisory agreement for a fund without first obtaining shareholder approval. The order permits the fund to add or change unaffiliated subadvisers or the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. For California Tax-Exempt, Cash Management, Diversified Bond, Global Bond, High Yield Bond, Intermediate Tax-Exempt, Massachusetts Tax-Exempt, Michigan Tax-Exempt, Minnesota Tax-Exempt, New York Tax-Exempt, Ohio Tax-Exempt, Short Duration U.S. Government, Tax-Exempt Bond, Tax-Exempt High Income, Tax-Exempt Money Market and U.S. Government Mortgage funds: before the fund may rely on the order, holders of a majority of the fund's outstanding voting securities will need to approve operating the fund in this manner. There is no assurance shareholder approval will be received, and no changes will be made without shareholder approval until that time. SUBADVISORY AGREEMENTS The assets of certain funds are managed by subadvisers that have been selected by the investment manager, subject to the review and approval of the Board. The investment manager has recommended the subadvisers to the Board based upon its assessment of the skills of the subadvisers in managing other assets with objectives and investment strategies substantially similar to those of the applicable fund. Short-term investment performance is not the only factor in selecting or terminating a subadviser, and the investment manager does not expect to make frequent changes of subadvisers. Certain subadvisers, affiliated with the investment manager, have been directly approved by shareholders. These subadvisers are noted in Table 18. The investment manager allocates the assets of a fund with multiple subadvisers among the subadvisers. Each subadviser has discretion, subject to oversight by the Board and the investment manager, to purchase and sell portfolio assets, consistent with the fund's investment objectives, policies, and restrictions. Generally, the services that a subadviser provides to the fund are limited to asset management and related recordkeeping services. The investment manager has entered into an advisory agreement with each subadviser under which the subadviser provides investment advisory assistance and day-to-day management of some or all of the fund's portfolio, as well as investment 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. Statement of Additional Information - Sept. 29, 2006 Page 101 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 COMPANY, FUND SUBADVISER NAME IF ANY FEE SCHEDULE - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage Kenwood Capital Management LLC (Kenwood), 0.60% on the first $100 million, (effective May 4, 1999) reducing to 0.45% as assets increase, and subject to a performance incentive adjustment(b) - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth Essex Investment Management Company, LLC (Essex) 0.70% on the first $20 million, (effective Sept. 23, 2005) reducing to 0.60% as assets increase ------------------------------------------------------------------------------------------------------------- MDT Advisers (MDTA) 0.60% on all assets (effective Sept. 23, 2005) ------------------------------------------------------------------------------------------------------------- Turner Investment Partners, Inc. (Turner) N/A 0.60% on the first $50 million, (effective Aug. 18, 2003) reducing to 0.50% as assets increase ------------------------------------------------------------------------------------------------------------- UBS Global Asset Management (Americas) (UBS) N/A 0.55% on the first $150 million, (effective Aug. 18, 2003) reducing to 0.50% as assets increase - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Aggressive Growth American Century 0.50% on the first $100 million, (effective April 24, 2003) reducing to 0.38% as assets increase ------------------------------------------------------------------------------------------------------------- Turner N/A 0.55% on the first $100 million, (effective April 24, 2003) reducing to 0.38% as assets increase - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Growth Goldman Sachs Asset Management, L.P. (Goldman) 0.50% on the first $50 million, (effective April 24, 2003) reducing to 0.30% as assets increase ------------------------------------------------------------------------------------------------------------- Wellington Management Company, LLP (Wellington N/A 0.50% on the first $50 million, Management) (effective April 26, 2005) reducing to 0.40% as assets increase - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Value Davis Selected Advisers, LP (Davis), N/A 0.45% on the first $100 million, (effective June 18, 2001) reducing to 0.25% as assets increase - ------------------------------------------------------------------------------------------------------------------------------------ Select Value Systematic Financial Management, L.P. (Systematic) 0.50% on the first $50 million, (effective Sept. 29, 2006) reducing to 0.30% as assets increase ------------------------------------------------------------------------------------------------------------- WEDGE Capital Management L.L.P. (WEDGE) (effective N/A 0.75% on the first $10 million, Sept. 29, 2006) reducing to 0.30% as assets increase - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Equity American Century 0.65% on the first $25 million, (effective Dec. 12, 2003) reducing to 0.55% as assets increase ------------------------------------------------------------------------------------------------------------- Lord, Abbett & Co. (Lord, Abbett) N/A 0.65% on the first $100 million, (effective Dec. 12, 2003) reducing to 0.55% as assets increase ------------------------------------------------------------------------------------------------------------- Wellington Management N/A 0.60%, subject to possible adjustment (effective March 8, 2002) under a performance incentive adjustment(d) - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 102
- ------------------------------------------------------------------------------------------------------------------------------------ PARENT COMPANY, FUND SUBADVISER NAME IF ANY FEE SCHEDULE - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value Barrow, Hanley, Mewhinney & Strauss (BHMS) 1.00% on the first $ 10 million (effective March 12, 2004) reducing to 0.30% as assets increase ------------------------------------------------------------------------------------------------------------- Donald Smith & Co., Inc. (Donald Smith) N/A 0.60% on the first $175 million, (effective March 12, 2004) reducing to 0.55% as assets increase ------------------------------------------------------------------------------------------------------------- Franklin Portfolio Associates LLC (Franklin Portfolio 0.60% on the first $100 million, Associates) (effective March 12, 2004) reducing to 0.55% as assets increase ------------------------------------------------------------------------------------------------------------- Metropolitan West Capital Management, LLC (MetWest) N/A 0.50% on all assets (effective April 24, 2006) - ------------------------------------------------------------------------------------------------------------------------------------ Value Lord, Abbett N/A 0.35% on the first $200 million, (effective June 18, 2001) reducing to 0.25% as assets increase - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Threadneedle International Limited (Threadneedle) 0.45% of the first $150 million, (effective July 9, 2004) reducing to 0.30% as assets increase, and subject to a performance incentive adjustment - ------------------------------------------------------------------------------------------------------------------------------------ European Equity Threadneedle 0.35% of the first $150 million, (effective July 9, 2004) reducing to 0.20% as assets increase, and subject to a performance incentive adjustment - ------------------------------------------------------------------------------------------------------------------------------------ Global Equity Threadneedle 0.35% of the first $150 million, (effective July 9, 2004) reducing to 0.20% as assets increase, and subject to a performance incentive adjustment - ------------------------------------------------------------------------------------------------------------------------------------ International Columbia Wanger Asset Management L.P. 0.70% on the first $100 million, Aggressive Growth (Columbia WAM) (effective Sept. 5, 2001) reducing to 0.50% as assets increase ------------------------------------------------------------------------------------------------------------- Principal Global Investors, LLC (Principal) (effective N/A 0.55% on the first $100 million, April 24, 2006) reducing to 0.42% as assets increase - ------------------------------------------------------------------------------------------------------------------------------------ International Equity The Boston Company Asset Management, LLC (Boston 0.50% on the first $150 million, Company) (effective Sept. 25, 2002) reducing to 0.35% as assets increase ------------------------------------------------------------------------------------------------------------- Marsico Capital Management, LLC (Marsico) 0.55% on the first $100 million, (effective Oct. 1, 2004) reducing to 0.45% as assets increase - ------------------------------------------------------------------------------------------------------------------------------------ International Threadneedle(a) 0.35% of the first $150 million, Opportunity (effective July 9, 2004) reducing to 0.20% as assets increase, and subject to a performance incentive adjustment - ------------------------------------------------------------------------------------------------------------------------------------ International Select Alliance Capital Management L.P. N/A 0.65% on the first $75 million, Value (Alliance Capital) (effective Sept. 17, 2001) reducing to 0.30% as assets increase - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 103
- ------------------------------------------------------------------------------------------------------------------------------------ PARENT COMPANY, FUND SUBADVISER NAME IF ANY FEE SCHEDULE - ------------------------------------------------------------------------------------------------------------------------------------ International Small AIG Global Investment Corp. (AIGGIC) 0.75% on the first $100 million, Cap (effective April 24, 2006) reducing to 0.70% as assets increase ------------------------------------------------------------------------------------------------------------- Batterymarch Financial Management, Inc. (Batterymarch) 0.75% on the first $100 million, (effective April 24, 2006) reducing to 0.70% 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 an indirect wholly-owned subsidiary of Ameriprise Financial. The adjustment will increase or decrease based on the performance of the subadviser's allocated portion of the fund compared to the performance of the Russell 2000 Index, up to a maximum adjustment of 12 basis points (0.12%). Based on the combined net assets subject to the subadviser's investment management. The adjustment will increase or decrease based on the performance of the subadviser's allocated portion of the fund compared to the performance of the Russell 2000 Index, up to a maximum adjustment of 10 basis points (0.10%). 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. These rates are retroactive. When average daily net assets fall within this range, the corresponding rate applies to all the assets in the fund, e.g., if average daily net assets are $200 million, the fee rate of 0.60% applies to the entire $200 million balance. - Kenwood is an indirect partially-owned subsidiary of Ameriprise Financial. - Essex is majority owned by Affiliated Managers Group. - MDT Advisers, a division of Federated MDTA LLC, is an indirect subsidiary of Federated Investors, Inc. - American Century Investment Management, Inc. is a direct, wholly-owned subsidiary of American Century Companies, Inc. - Goldman is an affiliate of Goldman Sachs & Co. - Systematic is an affiliate of Affiliated Managers Group. - BHMS is an independent-operating subsidiary of Old Mutual Asset Management. - Franklin Portfolio Associates is an indirect wholly-owned subsidiary of Mellon Financial Corporation. - Threadneedle is an indirect wholly-owned subsidiary of Ameriprise Financial. - 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. - Boston Company is a subsidiary of Mellon Financial Corporation and an affiliate of The Dreyfus Corporation. - Marsico is an indirect wholly-owned subsidiary of Bank of America Corporation. - AIGGIC is an indirect wholly-owned subsidiary of American International Group, Inc. (AIG). - Batterymarch is a wholly-owned, independent subsidiary of Legg Mason, Inc.
Statement of Additional Information - Sept. 29, 2006 Page 104 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 - ------------------------------------------------------------------------------------------------------------------------------ SUBADVISORY FEES PAID FUND SUBADVISER ------------------------------------------- 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage Kenwood $2,856,138 $3,089,403 $2,282,191 - ------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth Essex 120,556 N/A N/A --------------------------------------------------------------------------------------------------- MDTA 165,110 N/A N/A --------------------------------------------------------------------------------------------------- Turner 321,406 371,758 241,927 --------------------------------------------------------------------------------------------------- UBS 371,341 342,815 224,007 --------------------------------------------------------------------------------------------------- Former Subadviser: Bjurman, Barry & Associates 175,818 366,178 274,992 (from Aug. 18, 2003 to Sept. 23, 2005) --------------------------------------------------------------------------------------------------- Former Subadviser: RS Investment Management, L.P. 257,675 581,602 565,391 (from Jan. 24, 2001 to Sept. 23, 2005) - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------ Aggressive Growth American Century 512,880 114,981 32,431 --------------------------------------------------------------------------------------------------- Turner 525,422 119,529 36,468 - ------------------------------------------------------------------------------------------------------------------------------ Fundamental Growth Goldman 322,470 143,448 28,129 --------------------------------------------------------------------------------------------------- Wellington Management 323,866 21,015 N/A -------------------------------------------------------------------------------------------------- Former subadviser: Eagle Asset Management, Inc., a N/A 139,312 28,655 subsidiary of Raymond James Financial, Inc. (from inception to April 26, 2005) - ------------------------------------------------------------------------------------------------------------------------------ Fundamental Value Davis 3,787,565 2,834,365 1,946,906 - ------------------------------------------------------------------------------------------------------------------------------ Select Value Systematic N/A N/A N/A --------------------------------------------------------------------------------------------------- WEDGE N/A N/A N/A -------------------------------------------------------------------------------------------------- Former subadviser: GAMCO Asset Management Inc. 2,763,925 2,709,039 1,642,235 (from inception to September 28, 2006) - ------------------------------------------------------------------------------------------------------------------------------ Small Cap Equity American Century 457,181 302,079 90,891 --------------------------------------------------------------------------------------------------- Lord, Abbett 433,241 278,497 93,666 --------------------------------------------------------------------------------------------------- Wellington Management 614,053 388,922 339,459 - ------------------------------------------------------------------------------------------------------------------------------ Small Cap Value Franklin Portfolio Associates 1,289,120 957,263 134,324 --------------------------------------------------------------------------------------------------- BHMS 1,008,072 823,441 126,801 --------------------------------------------------------------------------------------------------- Donald Smith 1,242,221 992,659 130,862 -------------------------------------------------------------------------------------------------- MetWest 225,545 N/A N/A --------------------------------------------------------------------------------------------------- Former subadviser: Third Avenue Management LLC N/A N/A 1,087,918 (from inception to March 2004) --------------------------------------------------------------------------------------------------- Former subadviser: Royce & Associates, LLC (from 1,395,487 2,287,184 3,103,451 inception to April 24, 2006) --------------------------------------------------------------------------------------------------- Former subadviser: Goldman Sachs Asset Management, 1,312,424 1,599,715 883,316 L.P. (from Aug. 2002 to April 24, 2006) - ------------------------------------------------------------------------------------------------------------------------------ Value Lord, Abbett 1,369,949 1,389,323 1,251,762 - ------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 105
- ------------------------------------------------------------------------------------------------------------------------------ SUBADVISORY FEES PAID FUND SUBADVISER ------------------------------------------- 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Threadneedle 1,556,386 361,626 N/A -------------------------------------------------------------------------------------------------- Former subadviser: American Express Asset Management N/A 942,983 1,033,684 International Inc. (AEAMI) (from inception until July 8, 2004) - ----------------------------------------------------------------------------------------------------------------------------- European Equity Threadneedle 432,362 131,177 N/A -------------------------------------------------------------------------------------------------- Former subadviser: AEAMI N/A 316,031 448,432 (from inception until July 8, 2004) - ----------------------------------------------------------------------------------------------------------------------------- Global Equity Threadneedle 1,621,159 449,149 N/A -------------------------------------------------------------------------------------------------- Former subadviser: AEAMI N/A 484,676 1,841,195 (from inception until July 8, 2004) - ----------------------------------------------------------------------------------------------------------------------------- International Aggressive Columbia WAM 985,095 709,378 422,056 Growth -------------------------------------------------------------------------------------------------- Principal N/A N/A N/A -------------------------------------------------------------------------------------------------- Former subadviser: American Century Global 959,879 542,561 394,806 Investment Management (from Jan. 2005 to April 24, 2006) - ----------------------------------------------------------------------------------------------------------------------------- International Equity Boston Company 412,238 288,191 118,846 -------------------------------------------------------------------------------------------------- Marsico 410,005 30,840 N/A -------------------------------------------------------------------------------------------------- Former subadviser: Putnam Investment Management, N/A 308,350 142,969 LLC (from inception until Sept. 30, 2004) - ----------------------------------------------------------------------------------------------------------------------------- International Opportunity Threadneedle 1,720,351 434,968 N/A -------------------------------------------------------------------------------------------------- Former subadviser: AEAMI N/A 1,000,707 1,407,484 (from inception until July 8, 2004) - ----------------------------------------------------------------------------------------------------------------------------- International Select Value Alliance Capital 4,126,134 2,869,277 1,604,035 - ----------------------------------------------------------------------------------------------------------------------------- International Small Cap AIGGIC N/A N/A N/A -------------------------------------------------------------------------------------------------- Batterymarch N/A N/A N/A -------------------------------------------------------------------------------------------------- Former subadviser: Templeton Investment Counsel, 317,358 200,710 56,399 LLC (Franklin Templeton) (from Oct. 3, 2002 to April 24, 2006) -------------------------------------------------------------------------------------------------- Former subadviser: Wellington Management Company, 331,593 215,256 62,802 LLP together with its affiliate Wellington Management International Ltd (from Oct. 3, 2002 to April 24, 2006) - ----------------------------------------------------------------------------------------------------------------------------- Effective March 1, 2006, the fund's shareholders approved a change to the subadviser fee schedule for fees paid to the subadviser by the investment manager. Beginning on July 1, 2006, under the Subadvisory Agreement, RiverSource Investments is subject to a minimum annual fee of $350,000, payable to Wellington Management. American Century Global Investment Management manages the portion of the Fund's portfolio previously managed by American Century since Sept. 2001. The change of subadviser is the result of corporate restructuring of American Century and did not result in any modifications to the investment objective, principal investment strategies, portfolio managers, of the fees paid by the Fund. For fiscal period from Sept. 23, 2005 to March 31, 2006. For fiscal period from April 1, 2005 to Sept. 23, 2005. For fiscal period from April 26, 2005 to May 31, 2005. For fiscal period from June 1, 2004 to April 26, 2005. For fiscal period from April 24, 2006 to May 31, 2006. For fiscal period from June 1, 2005 to April 24, 2006. For fiscal period from July 9, 2004 to Oct. 31, 2004. For fiscal period from Nov. 1, 2003 to July 8, 2004. For fiscal period from Oct. 1, 2004 to Oct. 31, 2004. For fiscal period from Nov. 1, 2003 to Sept. 30, 2004.
Statement of Additional Information - Sept. 29, 2006 Page 106 PORTFOLIO MANAGERS. For funds other than money market funds, 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 - ------------------------------------------------------------------------------------------------------------------------------------ OTHER ACCOUNTS MANAGED (excluding the fund) ---------------------------------------------------- OWNERSHIP POTENTIAL FUND PORTFOLIO MANAGER NUMBER AND TYPE APPROXIMATE PERFORMANCE BASED OF FUND CONFLICTS STRUCTURE OF OF ACCOUNT TOTAL NET ASSETS ACCOUNTS SHARES OF INTEREST COMPENSATION - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene $10,001 - Builder $50,000 Aggressive ---------------------- --------- David M. Joy None ---------------------- 5 RICs $1.95 billion --------- (1) (30) Michelle M. Keeley None ---------------------- --------- William F. Truscott None - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene $10,001 - Builder $50,000 Conservative ---------------------- --------- David M. Joy None ---------------------- 5 RICs $2.2 billion --------- (1) (30) Michelle M. Keeley None ---------------------- --------- William F. Truscott None - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene $10,001 - Builder Moderate $50,000 ---------------------- --------- David M. Joy None ---------------------- 5 RICs $1.73 billion --------- (1) (30) Michelle M. Keeley $100,001 - $500,000 ---------------------- --------- William F. Truscott None - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene $10,001 - Builder Moderate $50,000 Aggressive ---------------------- --------- David M. Joy $100,001 - $500,000 ---------------------- 5 RICs $1.59 billion --------- (1) (30) Michelle M. Keeley None ---------------------- --------- William F. Truscott $100,001 - $500,000 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene $10,001 - Builder Moderate $50,000 Conservative ---------------------- --------- David M. Joy None ---------------------- 5 RICs $2.08 billion --------- (1) (30) Michelle M. Keeley None ---------------------- --------- William F. Truscott None - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Kent M. Bergene $10,001 - Builder Total $50,000 Equity ---------------------- ---------- David M. Joy None ---------------------- 5 RICs $2.0 billion --------- (1) (30) Michelle M. Keeley None ---------------------- --------- William F. Truscott None - ------------------------------------------------------------------------------------------------------------------------------------ Small Company David Factor 2 RICs $0.7 billion None (2) (31) Index 2 PIVs $2.5 billion - ------------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index David Factor 2 RICs $1.6 billion None (2) (31) 2 PIVs $2.5 billion - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 107
- ------------------------------------------------------------------------------------------------------------------------------------ OTHER ACCOUNTS MANAGED (excluding the fund) ---------------------------------------------------- OWNERSHIP POTENTIAL FUND PORTFOLIO MANAGER NUMBER AND TYPE APPROXIMATE PERFORMANCE BASED OF FUND CONFLICTS STRUCTURE OF OF ACCOUNT TOTAL NET ASSETS ACCOUNTS SHARES OF INTEREST COMPENSATION - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value Warren Spitz $50,001 - (2) (31) $100,000 ---------------------- 5 RICs $11.63 billion ---------- Steve Schroll 1 PIV $153.6 million $50,001 - 1 other $12.4 million $100,000 ---------------------- account ---------- Laton Spahr $50,001 - $100,000 ------------------------------------------------------------- ---------- Paul Stocking - ------------------------------------------------------------------------------------------------------------------------------------ Precious Metals Clay Hoes 1 PIV $91.8 million $1 - (2), (3) (31) $10,000 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap UBS: 5 RICs $1.03 billion Growth Paul A. Graham 2 PIVs $314.0 million 4 other $266.0 million accounts -------------------------------------------------------------1 other account None (4) (32) UBS: 5 RICs $1.03 billion ($62 M) David N. Wabnik 2 PIVs $314.0 million 21 other $266.0 million accounts ------------------------------------------------------------------------------------------------------------------- Turner: 20 RICs $4.5 billion 1 RIC ($41 M); None William C. McVail 16 PIVs $251 million 2 other 68 other $4.2 billion accounts accounts ($20 M) ---------------------------------------------------------------------------------------- Turner: 22 RICs $4.7 billion 4 RICs ($905 M); None Christopher K. McHugh 28 PIVs $562 million 2 other 76 other $5.1 billion accounts accounts ($20 M) ---------------------------------------------------------------------------------------- (5) (33) Turner: 6 RICs $1.2 billion 1 RIC ($71 M); Frank L. Sustersic 6 PIVs $10 million 2 other None 46 other $2.4 billion accounts accounts ($20 M) ---------------------------------------------------------------------------------------- Turner: 5 RICs $535 million 1 RIC ($29 M); Jason D. Schrotberger 10 PIVs $176 million 2 other None 36 other $1.9 billion accounts accounts ($20 M) ------------------------------------------------------------------------------------------------------------------- Essex: Nancy B. Prial 1 RIC $10.0 million None (6) (34) 2 PIVs $72.2 million 16 other $29.3 million accounts ------------------------------------------------------------------------------------------------------------------- MDTA: David Goldsmith ---------------------- MDTA: Frederick L. Konopka ---------------------- MDTA: Sarah A. Stahl ---------------------- MDTA: 8 RICs $194.52 million 1 other Stephen R. Griscom 6 PIVs $15.51 million account None (7) (35) ---------------------- 20,989 other $6.161 billion ($8.584 M) MDTA: Daniel J. Mahr accounts ---------------------- MDTA: Douglas K. Thunen ---------------------- MDTA: Brian M. Greenberg ---------------------- MDTA: David N. Esch - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Jake Hurwitz 1 RIC $198.92 million 1 other $100,001 - (8) (36) Advantage 1 PIV $66.94 million account $500,000 ---------------------- 22 other $763.83 million ($71.65 M) ---------- Kent Kelley accounts $500,001 - $1,000,000 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 108
- ------------------------------------------------------------------------------------------------------------------------------------ OTHER ACCOUNTS MANAGED (excluding the fund) ---------------------------------------------------- OWNERSHIP POTENTIAL FUND PORTFOLIO MANAGER NUMBER AND TYPE APPROXIMATE PERFORMANCE BASED OF FUND CONFLICTS STRUCTURE OF OF ACCOUNT TOTAL NET ASSETS ACCOUNTS(a) SHARES OF INTEREST COMPENSATION - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 8 RICs $3.2 billion 2010 7 PIVs $0.246 billion 10 other $0.223 billion accounts ------------------------------------------------------------- Jonathan Calvert 3 RICs $1.09 billion None (9) (31) 6 PIVs $0.131 billion ------------------------------------------------------------- Colin Lundgren ---------------------- 4 RICs $0.109 billion Erol Sonderegger - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 8 RICs $3.2 billion 2015 7 PIVs $0.246 billion 10 other $0.223 billion accounts ------------------------------------------------------------- Jonathan Calvert 3 RICs $1.09 billion None (9) (31) 6 PIVs $0.131 billion ------------------------------------------------------------- Colin Lundgren ---------------------- 4 RICs $0.109 billion Erol Sonderegger - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 8 RICs $3.2 billion 2020 7 PIVs $0.246 billion 10 other $0.223 billion accounts ------------------------------------------------------------- None (9) (31) Jonathan Calvert 3 RICs $1.09 billion 6 PIVs $0.131 billion ------------------------------------------------------------- Colin Lundgren ---------------------- 4 RICs $0.109 billion Erol Sonderegger - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 8 RICs $3.2 billion 2025 7 PIVs $0.246 billion 10 other $0.223 billion accounts ------------------------------------------------------------- None (9) (31) Jonathan Calvert 3 RICs $1.09 billion 6 PIVs $0.131 billion ------------------------------------------------------------- Colin Lundgren ---------------------- 4 RICs $0.109 billion Erol Sonderegger - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 8 RICs $3.2 billion 2030 7 PIVs $0.246 billion 10 other $0.223 billion accounts ------------------------------------------------------------- None (9) (31) Jonathan Calvert 3 RICs $1.09 billion 6 PIVs $0.131 billion ------------------------------------------------------------- Colin Lundgren ---------------------- 4 RICs $0.109 billion Erol Sonderegger - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 8 RICs $3.2 billion 2035 7 PIVs $0.246 billion 10 other $0.223 billion accounts ------------------------------------------------------------- None (9) (31) Jonathan Calvert 3 RICs $1.09 billion 6 PIVs $0.131 billion ------------------------------------------------------------- Colin Lundgren ---------------------- 4 RICs $0.109 billion Erol Sonderegger - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 8 RICs $3.2 billion 2040 7 PIVs $0.246 billion 10 other $0.223 billion accounts ------------------------------------------------------------- None (9) (31) Jonathan Calvert 3 RICs $1.09 billion 6 PIVs $0.131 billion ------------------------------------------------------------- Colin Lundgren ---------------------- 4 RICs $0.109 billion Erol Sonderegger - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 109
- ------------------------------------------------------------------------------------------------------------------------------------ OTHER ACCOUNTS MANAGED (excluding the fund) ---------------------------------------------------- OWNERSHIP POTENTIAL FUND PORTFOLIO MANAGER NUMBER AND TYPE APPROXIMATE PERFORMANCE BASED OF FUND CONFLICTS STRUCTURE OF OF ACCOUNT TOTAL NET ASSETS ACCOUNTS SHARES OF INTEREST COMPENSATION - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus Dimitris Bertsimas 8 RICs $3.2 billion 2045 7 PIVs $0.246 billion 10 other $0.223 billion accounts ------------------------------------------------------------- None (9) (31) Jonathan Calvert 3 RICs $1.09 billion 6 PIVs $0.131 billion ------------------------------------------------------------- Colin Lundgren --------------------- 4 RICs $0.109 billion Erol Sonderegger - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Aggressive Turner: 22 RICs $4.2 billion 4 RICs ($851 M); Growth Christopher K. McHugh 28 PIVs $542.0 million 2 other accounts 76 other $4.7 billion ($19 M) accounts ------------------------------------------------------------------------------ Turner: William C. 20 RICs $4.0 billion 1 RIC ($38 M); McVail 16 PIVs $229.0 million 2 other accounts 68 other $3.9 billion ($19 M) None (5) (33) accounts ------------------------------------------------------------------------------ Turner: Robert E 29 RICs $5.0 billion Turner 32 PIVs $718.0 million 3 RICs ($824 M) 93 other $7.8 billion accounts ------------------------------------------------------------------------------------------------------------------- American Century: Glenn A. Fogle ---------------------- 8 RICs $6.85 billion None (10) (37) American Century: 1 other $119.9 million David M. Holland account - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Goldman: Growth Steven M. Barry ---------------------- Goldman: 29 RICs $9.72 billion 4 other accounts None (11) (38) David G. Shell 450 other $17.42 billion ($2.07 B) ---------------------- accounts Goldman: Gregory H. Ekizian ------------------------------------------------------------------------------------------------------------------- Wellington Management: 7 RICs $2.62 billion John A. Boselli 9 PIVs $1.44 billion 42 other $6.62 billion accounts ------------------------------------------------------------ 1 other account None (12) (39) Wellington Management: 7 RICs $2.7 billion ($311.6 M) Andrew J. Schilling 9 PIVs $1.6 billion 57 other $7.92 billion accounts - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Christopher C. Davis Value 26 RICs $64.80 billion ---------------------- 11 PIVs $1.40 billion None(h) (13) (40) Kenneth C. Feinberg 41,000 other $12.30 billion accounts - ------------------------------------------------------------------------------------------------------------------------------------ High Yield Bond Scott Schroepfer 1 RIC $1.15 billion $100,001 - $500,000 ------------------------------------------------------------ --------- Jennifer Ponce de Leon 5 RICs $6.61 billion 2 PIVs $25.98 million None (2) (31) 11 other $2.05 billion accounts - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Dimitris Bertsimas 17 RICs $3.26 billion Basic Income 7 PIVs $240.49 million None 10 other $212.46 billion accounts ------------------------------------------------------------- ---------- (9) (31) Colin Lundgren $10,001- ---------------------- 11 RICs $314.22 million $50,000 Erol Sonderegger - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 110
- ------------------------------------------------------------------------------------------------------------------------------------ OTHER ACCOUNTS MANAGED (excluding the fund) ---------------------------------------------------- OWNERSHIP POTENTIAL FUND PORTFOLIO MANAGER NUMBER AND TYPE APPROXIMATE PERFORMANCE BASED OF FUND CONFLICTS STRUCTURE OF OF ACCOUNT TOTAL NET ASSETS ACCOUNTS SHARES OF INTEREST COMPENSATION - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Dimitris Bertsimas 17 RICs $3.23 billion Enhanced Income 7 PIVs $240.49 million 10 other $212.46 million accounts None (9) (31) ------------------------------------------------------------- Colin Lundgren 11 RICs $277.63 million ---------------------- Erol Sonderegger - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Dimitris Bertsimas 17 RICs $3.22 billion Moderate Income 7 PIVs $240.49 million 10 other $212.46 million None accounts ------------------------------------------------------------- ---------- Colin Lundgren 11 RICs $270.03 million $100,001- (9) (31) $500,000 ---------------------- ---------- Erol Sonderegger $10,001- $50,000 - ------------------------------------------------------------------------------------------------------------------------------------ Select Value GAMCO: Mario Gabelli 23 RICs $10.5 billion 6 RICs ($5 B); None (14) (41) 18 PIVs $745.0 million 17 PIVs (653 M); 1,735 $9.9 billion 5 other accounts other accounts ($1.44 B) ------------------------------------------------------------------------------------------------------------------- Systematic: Ron Mushock 5 RICs $780.0 million ---------------------- 5 PIVs $437.0 million 1 other account None (28) (55) Systematic: 95 other $5.12 billion ($191.0 M) Kevin McCreesh accounts ------------------------------------------------------------------------------------------------------------------ WEDGE: 1 RIC $0.07 billion R. Michael James 181 other $2.60 billion accounts ---------------------- WEDGE: None (29) (56) Peter F. Bridge ---------------------- WEDGE: Paul M. VeZolles - ------------------------------------------------------------------------------------------------------------------------------------ Short Duration Scott Kirby 10 RICS $8.54 billion 1 other $10,001- U.S. Government 7 PIVs $2.14 billion account $50,000 51 other $22.26 billion ($32.99 M) accounts ---------------------------------------------------------------------------------------- (2) (31) Jamie Jackson 12 RICs $10.46 billion $10,001- 8 PIVs $3.15 billion $50,000 35 other $7.19 billion accounts - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap American Century: 15 RICs $10.57 billion Equity Thomas P. Vaiana 3 other $316.3 million accounts ------------------------------------------------------------- American Century: 14 RICs $7.52 billion William Martin 3 other $316.3 million accounts ------------------------------------------------------------- American Century: 6 RICs $2.44 billion None (10) (37) Wihelmine von Turk 2 other $306.2 million accounts ------------------------------------------------------------- American Century: 7 RICs $2.45 billion Brian Ertley 2 other $306.2 million accounts ------------------------------------------------------------------------------------------------------------------- Lord, Abbett: 3 RICs $1.78 billion Michael T. Smith 14 other $833.3 million None (15) (42) accounts ------------------------------------------------------------------------------------------------------------------- Wellington Management : 3 RICs $1.64 billion Kenneth L. Abrams 3 PIVs $994.3 million 21 other $1.87 billion $500,001- accounts 1 RIC ($1.41 B); $1,000,000 ------------------------------------------------------------ 1 other account ---------- (12) (39) Wellington Management : 3 RICs $1.64 billion ($311.1 M) Daniel J. Fitzpatrick 3 PIVs $994.3 million None 13 other $1.85 billion accounts - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 111
- ------------------------------------------------------------------------------------------------------------------------------------ OTHER ACCOUNTS MANAGED (excluding the fund) ---------------------------------------------------- OWNERSHIP POTENTIAL FUND PORTFOLIO MANAGER NUMBER AND TYPE APPROXIMATE PERFORMANCE BASED OF FUND CONFLICTS STRUCTURE OF OF ACCOUNT TOTAL NET ASSETS ACCOUNTS SHARES OF INTEREST COMPENSATION - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value Donald Smith: 2 RICs $1,136.0 million Donald G. Smith 1 PIV $199.0 million ---------------------- 30 other $2,055.0 million None (16) (43) Donald Smith: accounts Richard L. Greenberg ------------------------------------------------------------------------------------------------------------------- Franklin Portfolio Associates: John S. Cone ---------------------- Franklin Portfolio Associates: Michael F. Dunn ---------------------- Franklin Portfolio Associates: Oliver E. Buckley ---------------------- 16 RICs $14.5 billion 2 RICs ($9.1 B); Franklin Portfolio 5 PIVs $199.0 million 17 other accounts None (17) (44) Associates: 92 other $4.75 billion ($4.75 B) Kristin J. Crawford accounts ---------------------- Franklin Portfolio Associates: Langton Garvin ---------------------- Franklin Portfolio Associates: Patrick Slattery ------------------------------------------------------------------------------------------------------------------- BHMS: James S. McClure 2 RICs $430.40 million ---------------------- 16 other $731.60 million None (18) (45) BHMS: John P. Harloe accounts ----------------------------------------------------------------------------------------------------------------- MetWest: Gary W. Lisenbee ---------------------- MetWest: Howard 3 RICs $568.9 million Gleicher 4 PIVs $57.20 million None (19) (46) ---------------------- 7 other $65.90 million MetWest: Jeffrey Peck accounts ---------------------- MetWest: Jay Cunningham - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Scott Kirby 10 RICs $9.38 billion 1 other Mortgage 7 PIVs $2.14 billion account $10,001- 51 other $22.26 billion ($32.99 M) $50,000 (2) (31) accounts - ------------------------------------------------------------------------------------------------------------------------------------ Value Eli M. Salzmann 12 RICs $25.69 billion 1 other None (15) (42) ---------------------- 10 PIVs $822.8 million account Sholom Dinsky 45,651 other $17.778 billion ($221.4 M) accounts - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------------------ Dividend Warren Spitz Over Opportunity $1,000,000 ---------------------- 5 RICs $12.24 billion ---------- Steve Schroll 1 PIV $149.85 million $100,001- 4 other $275.76 million $500,000 ---------------------- accounts ---------- (2) (31) Laton Spahr $50,001- $100,000 ------------------------------------------------------------- ---------- Paul Stocking - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate Julene Melquist $10,001- $50,000 ---------------------- None ---------- (2), (3) (31) J. Blair Brumley None - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Core Bond Tom Murphy 7 RICs $9.86 billion $10,001- 3 PIVs $1.15 billion $50,000 24 other $15.07 billion accounts ---------------------------------------------------------------------------------------- Jamie Jackson 14 RICs $16.99 billion $10,001- 6 PIVs $3.48 billion $50,000 (2) (31) 35 other $7.61billion accounts ---------------------------------------------------------------------------------------- Scott Kirby 10 RICs $11.58 billion 1 other 6 PIVs $2.08 billion account $10,001- 51 other $21.72 billion ($33.29 M) $50,000 accounts - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 112
- ------------------------------------------------------------------------------------------------------------------------------------ OTHER ACCOUNTS MANAGED (excluding the fund) ---------------------------------------------------- OWNERSHIP POTENTIAL FUND PORTFOLIO MANAGER NUMBER AND TYPE APPROXIMATE PERFORMANCE BASED OF FUND CONFLICTS STRUCTURE OF OF ACCOUNT TOTAL NET ASSETS ACCOUNTS SHARES OF INTEREST COMPENSATION - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Dimitris Bertsimas 17 RICs $1.79 billion $100,001- Equity 1 PIV $113.40 million $500,000 10 other $209.66 million accounts ------------------------------------------------------------ ---------- (2) (31) Gina Mourtzinou 3 RICs $1.33 billion $50,001- 5 other $178.76 million $100,000 accounts - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Dimitris Bertsimas 17 RICs $3.71 billion Small and Mid 1 PIV $113.40 million Cap Equity 10 other $209.66 million accounts None (2) (31) ------------------------------------------------------------ Gina Mourtzinou 3 RICs $3.24 billion 5 other $178.76 million accounts - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Dimitris Bertsimas 17 RICs $3.70 billion Small Cap Value 1 PIV $113.40 million $100,001- (2) (31) 10 other $209.66 million $500,000 accounts ------------------------------------------------------------ ---------- Gina Mourtzinou 3 RICs $3.24 billion $10,001- 5 other $178.76 million $50,000 accounts ------------------------------------------------------------ ---------- Jonathan Calvert 13 RICs $1.48 billion None - ------------------------------------------------------------------------------------------------------------------------------------ Floating Rate Lynn Hopton 13 other $6.08 billion None (2) (31) accounts ------------------------------------------------------------ ---------- Yvonne Stevens 14 other $6.28 billion $10,001- accounts $50,000 ------------------------------------------------------------ ---------- Erol Sonderegger 11 RICs $303.58 million ---------------------- ---------- Colin Lundgren None - ------------------------------------------------------------------------------------------------------------------------------------ Growth Nick Thakore 4 RICs $12.62 billion 2 PIVs $45.77 million None (2) (31) 2 other $107.09 million accounts - ------------------------------------------------------------------------------------------------------------------------------------ Income Brian Lavin 1 RIC $222.69 million $50,001- Opportunity 1 PIV $18.66 million $100,000 ------------------------------------------------------------ ---------- Jennifer Ponce de Leon 5 RICs $8.48 billion $10,001- (2) (31) 1 PIV $18.66 million $50,000 11 other 1.86 billion accounts - ------------------------------------------------------------------------------------------------------------------------------------ Inflation Jamie Jackson 14 RICs $16.94 billion $10,001- Protected 6 PIVs $3.48 billion $50,000 Securities 35 other $7.61 billion (2) (31) accounts - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Equity Nick Thakore 4 RICs $8.14 billion 2 PIVs $45.77 million 2 other $107.09 million accounts ------------------------------------------------------------ None (2) (31) Bob Ewing 6 RICs $7.54 billion 2 PIVs $45.77 million 2 other $107.09 million accounts - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Value Bob Ewing 6 RICs $15.28 billion 2 PIVs $45.77 million None (2) (31) 2 other $107.09 million accounts - ------------------------------------------------------------------------------------------------------------------------------------ Limited Tom Murphy 7 RICs $9.93 billion $10,001- Duration Bond 3 PIVs $1.15 billion $50,000 24 other $15.07 million accounts ---------------------------------------------------------------------------------------- Jamie Jackson 14 RICs $17.06 billion $10,001- 6 PIVs $3.48 billion $50,000 (2) (31) 35 other $7.61 billion accounts ---------------------------------------------------------------------------------------- Scott Kirby 10 RICs $11.65 billion 1 other account $10,001- 6 PIVs $2.08 billion ($33.29 M) $50,000 51 other $21.72 billion accounts - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 113
- ------------------------------------------------------------------------------------------------------------------------------------ OTHER ACCOUNTS MANAGED (excluding the fund) ---------------------------------------------------- OWNERSHIP POTENTIAL FUND PORTFOLIO MANAGER NUMBER AND TYPE APPROXIMATE PERFORMANCE BASED OF FUND CONFLICTS STRUCTURE OF OF ACCOUNT TOTAL NET ASSETS ACCOUNTS SHARES OF INTEREST COMPENSATION - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ California Rick LaCoff 8 RICs $4.79 billion Tax-Exempt 15 PIVs $8.05 billion - ----------------------------------------------------------------------------- Massachusetts 8 RICs $4.91 billion Tax-Exempt 15 PIVs $8.05 billion - ----------------------------------------------------------------------------- Michigan 8 RICs $4.92 billion Tax-Exempt 15 PIVs $8.05 billion None (2) (31) - ----------------------------------------------------------------------------- Minnesota 8 RICs $4.63 billion Tax-Exempt 15 PIVs $8.05 billion - ----------------------------------------------------------------------------- New-York 8 RICs $4.90 billion Tax-Exempt 15 PIVs $8.05 billion - ----------------------------------------------------------------------------- Ohio 8 RICs $4.92 billion Tax-Exempt 15 PIVs $8.05 billion - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Tom Murphy 8 RICs $4.74 billion 3 RICs ($1.45 B); $100,001- (2) (31) Bond 4 PIVs $1.29 billion $500,000 23 other accounts $19.82 billion 1 other account ($0.098 B) ------------------------------------------------------------ ---------- Jamie Jackson 12 RICs $6.85 billion $10,001- 6 PIVs $3.21 billion $50,000 31 other $5.59 billion accounts ------------------------------------------------------------ ---------- Scott Kirby 11 RICs $9.79 billion 6 PIVs $2.38 billion $10,001- 45 other $23.27 billion $50,000 accounts ---------------------------------------------------------------------------------------- Jennifer Ponce de Leon 5 RICs $5.83 billion $10,001- 1 PIV $0.03 billion $50,000 10 other $3.25 billion accounts ---------------------------------------------------------------------------------------- Nicolas Pifer 4 RICs $3.02 billion 1 other account $1- 4 PIVs $0.47 billion ($0.14 B) $10,000 15 other $4.22 billion accounts - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced Tom Murphy 8 RICs $6.51 billion 2 RICs $1.03 B); $10,001- (2) (31) 4 PIVs $1.26 billion 1 other account ($50,000 22 other $17.03 billion ($0.098 B) accounts ------------------------------------------------------------ ---------- Jamie Jackson 12 RICs $8.72 billion None 7 PIVs $3.16 billion 29 other $6.68 billion accounts ------------------------------------------------------------ ---------- Scott Kirby 11 RICs $8.66 billion 7 PIVs $2.32 billion None 44 other $22.72 billion accounts ------------------------------------------------------------ ---------- Bob Ewing 6 RICs $6.08 billion 6 RICs $100,001- (2) (31) 2 PIVs $0.04 billion $500,000 1 other account $0.01 billion - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Warren Spitz 4 RICs $5.13 billion 4 RICs $100,001- (2) (31) Equity Income 1 PIV $0.16 billion $500,000 1 other account $0.01 billion ---------------------- ---------- Laton Spahr None ---------------------- ---------- Steve Schroll $50,001- $100,000 --------------------------------------------------------------------------------------- Paul Stocking - ----------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Warren Spitz 4 RICs $9.19 billion 4 RICs $100,001- (2) (31) 1 PIV $0.16 billion $500,000 1 other account $0.01 billion ---------------------- ---------- Laton Spahr $10,001- $50,000 ---------------------- ---------- Steve Schroll $50,001- $100,000 ---------------------------------------------------------------------------------------- Paul Stocking - -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 114
- ---------------------------------------------------------------------------------------------------- OTHER ACCOUNTS MANAGED (excluding the fund) ------------------------------------------------------- APPROXIMATE PERFORMANCE FUND PORTFOLIO MANAGER NUMBER AND TYPE TOTAL NET BASED OF ACCOUNT ASSETS ACCOUNTS - ---------------------------------------------------------------------------------------------------- Strategic Tom Murphy 8 RICs 4 PIVs 22 $6.74 billion 2 RICs ($1.26 Allocation other accounts $1.26 billion B); 1 other $17.03 billion account ($0.098 B) ------------------------------------------------------------- Jamie Jackson 12 RICs 7 PIVs 29 $8.72 billion other accounts $3.16 billion $6.68 billion ------------------------------------------------------------- Scott Kirby 11 RICs 7 PIVs 44 $8.9 billion other accounts $2.32 billion $22.72 billion ---------------------------------------------------------------------------------- Dimitris Bertsimas 4 RICs 6 PIVs 8 $2.18 billion 4 RICs other accounts $0.16 billion $0.08 billion ---------------------------------------------------------------------------------- Jonathan Calvert 2 RICs 6 PIVs $0.12 billion 2 RICs $0.16 billion ------------------------------------------------------------- Gina Mourtnizou 2 RICs 3 other $2.06 billion accounts $0.04 billion - --------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------------- Absolute Return Nicholas Pifer 6 RICs 8 PIVs 16 $6.29 billion 1 other account Currency and other accounts $0.669 billion ($0.14 B) Income $4.166 billion - --------------------------------------------------------------------------------------------------- Disciplined Dimitris Bertsimas 8 RICs 7 PIVs 10 $3.2 billion International other accounts $0.246 billion Equity $0.223 billion ------------------------------------------------------------- Jonathan Calvert 3 RICs 6 PIVs $1.09 billion $0.131 billion - --------------------------------------------------------------------------------------------------- Emerging Markets Julian A.S. Thompson 1 RIC 3 other $226.0 million accounts $212.0 million ------------------------------------------------------------- Jules Mort 1 RIC 1 PIV 3 other $226.0 million accounts $1.428 billion $212.0 million - --------------------------------------------------------------------------------------------------- Emerging Markets Nicholas Pifer 6 RICs 8 PIVs 15 $5.543 billion 1 RIC ($0.39 Bond other accounts $0.56 billion B); 1 other $4.031 billion account ($0.14 B) - --------------------------------------------------------------------------------------------------- European Equity Dominic Baker 1 PIV $105.0 million ------------------------------------------------------------- Rob Jones None - --------------------------------------------------------------------------------------------------- Global Bond Nicholas Pifer 5 RICs 6 PIVs 15 $4.932 billion 1 RIC ($36 M); other accounts $496.025 million 1 other account $4.202 billion ($142 M) - --------------------------------------------------------------------------------------------------- Global Equity Dominic Rossi 2 RICs 1 other $1.717 billion account $604.5 million ------------------------------------------------------------- Stephen Thornber 1 RIC 1 PIV 2 other $122.0 million accounts $72.0 million $93.0 million - --------------------------------------------------------------------------------------------------- Global Nina Hughes 1 PIV $11.437 million Technology - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- OWNERSHIP POTENTIAL FUND OF FUND CONFLICTS STRUCTURE OF SHARES OF INTEREST COMPENSATION - ---------------------------------------------------------------------------------------- Strategic Allocation $10,001-$50,000 -------------------- None (2) (31) -------------------- $10,001-$50,000 ----------------------------------------------- Over $1,000,000 (2) (31) -------------------- $100,001-$500,000 -------------------- $50,001-$100,000 - ---------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------- Absolute Return None (2) (31) Currency and Income - ---------------------------------------------------------------------------------------- Disciplined International None (2) (31) Equity - ---------------------------------------------------------------------------------------- Emerging Markets None (20) (47) - ---------------------------------------------------------------------------------------- Emerging Markets None (2) (31) Bond - ---------------------------------------------------------------------------------------- European Equity None (20) (47) - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Global Bond $1-$10,000 (2) (31) - ---------------------------------------------------------------------------------------- Global Equity None (20) (47) - ---------------------------------------------------------------------------------------- Global None (2),(3) (31) Technology - ----------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 115
- ------------------------------------------------------------------------------------------------------------------------------------ OTHER ACCOUNTS MANAGED (excluding the fund) ---------------------------------------------------- OWNERSHIP POTENTIAL FUND PORTFOLIO MANAGER NUMBER AND TYPE APPROXIMATE PERFORMANCE BASED OF FUND CONFLICTS STRUCTURE OF OF ACCOUNT TOTAL NET ASSETS ACCOUNTS SHARES OF INTEREST COMPENSATION - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ International Columbia WAM: Aggressive Growth P. Zachary Egan 1 RIC $2.6 billion None (21) (48) --------------------- Columbia WAM: Louis J. Mendes ------------------------------------------------------------------------------------------------------------------ Principal: John Pihlblad 3 RICs $1.5 billion None (22) (49) 2 other $437.0 million accounts ---------------------------------------------------------- Principal: Steven Larson 1 RIC $724.9 million - ------------------------------------------------------------------------------------------------------------------------------------ International Boston Company: 18 RICs $7.1 billion Equity D. Kirk Henry 9 PIVs $8.5 billion --------------------- 77 other $16.0 billion None (23) (50) Boston Company: accounts Clifford A. Smith ------------------------------------------------------------------------------------------------------------------ Marisco: 14 RICs $4.428 billion None (24) (51) James G. Gendelman 2 other $143.8 million accounts - ------------------------------------------------------------------------------------------------------------------------------------ International Alex Lyle 2 RICs $1.297 billion Opportunity 25 PIVs $1.602 billion 2 other $287.0 million None(l) (20) (47) accounts ---------------------------------------------------------- Dominic Rossi 2 RICs $1.732 billion 1 other account $604.5 million - ------------------------------------------------------------------------------------------------------------------------------------ International Kevin F. Simms 15 RICs $6.9 billion Select Value 11 PIVs $2.7 billion --------------------- 152 other $18.5 billion None (25) (52) Henry S. D'Auria accounts - ------------------------------------------------------------------------------------------------------------------------------------ International AIGGIC: 2 RICs $369.85 million Small Cap Hans K. Danielsson 5 PIVs $1.27 billion 2 other accounts 3 other $294.83 million ($88.78 M) None (26) (53) accounts ----------------------------------------------------------------------------- AIGGIC: 1 RIC $272.43 million Chantal Brennan 1 PIV $398.5 million ---------------------------------------------------------- AIGGIC: Ming Hsu 1 RIC $272.43 million 7 PIVs $99.96 million 2 other $275.07 million accounts ---------------------------------------------------------- AIGGIC: 1 RIC $272.43 million Noriko Umino 1 PIV $3.73 million 3 other $88.79 million accounts ------------------------------------------------------------------------------------------------------------------ Batterymarch: Thomas Linkas --------------------- Batterymarch: Charles F. Lovejoy --------------------- Batterymarch: Guy Bennett --------------------- 14 other $2.985 billion None (27) (54) Batterymarch: accounts Christopher W. Floyd --------------------- Batterymarch: Jeremy Knight --------------------- Batterymarch: John Vietz - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 116
- ------------------------------------------------------------------------------------------------------------------------------------ OTHER ACCOUNTS MANAGED (excluding the fund) ---------------------------------------------------- OWNERSHIP POTENTIAL FUND PORTFOLIO MANAGER NUMBER AND TYPE APPROXIMATE PERFORMANCE BASED OF FUND CONFLICTS STRUCTURE OF OF ACCOUNT TOTAL NET ASSETS ACCOUNTS SHARES OF INTEREST COMPENSATION - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Growth Duncan J. Evered 2 RICs $918.82 million 2 PIVs $215.55 million $100,001 - 17 other $616.98 million $500,000 (2) (31) accounts - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Rick LaCoff 8 RICs $1.72 billion None (2) (31) Income 15 PIVs $8.05 billion - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate Rick LaCoff 8 RICs $4.87 billion None (2) (31) Tax-Exempt 15 PIVs $8.05 billion - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond Rick LaCoff 8 RICs $4.11 billion None (2) (31) 15 PIVs $8.05 billion - ------------------------------------------------------------------------------------------------------------------------------------ RIC refers to a Registered Investment Company; PIV refers to a Pooled Investment Vehicle. Number of accounts for which the advisory fee paid is based in part or wholly on performance and the aggregate net assets in those accounts. 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. 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. The portfolio manager began managing the fund after its last fiscal period end; therefore the reporting information is as of March 31, 2006. The portfolio manager began managing the fund after its last fiscal period end; therefore the reporting information is as of Dec. 31, 2005. Reflects each wrap program strategy as a single client, rather than counting each participant in the program as a separate client. Primarily managed money/wrap accounts. 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. 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. Messrs. Murphy, Jackson and Kirby manage the fixed income portion of these 3 RICs. Mr. Jackson manages $0.21 million of that account, and Mr. Kirby manages $82.58 million of that account. The fund is available for sale only in the U.S. The portfolio managers do not reside in the U.S. and therefore do not hold any shares of the fund. The fund is new and shares were not yet being offered as of the fiscal period end. As of the date of this SAI, the fund had not passed its first fiscal period end, and therefore the portfolio manager reporting information is as of Dec. 31, 2005. As of the date of this SAI, the fund had not passed its first fiscal period end, and therefore the portfolio manager reporting information is as of March 31, 2006. Mr. LaCoff began managing the funds after the last fiscal period end; therefore reporting information is as of July 31, 2006. Mr. Stocking began managing the funds Aug. 1, 2006, therefore reporting information is not yet available. As of Oct. 1, 2006, Mr. McVail and Mr. Turner will no longer be managing the Fund. They will be replaced by Tara Hedlund and Jason Schrotberger. The portfolio managers began managing the Fund after its last fiscal period end; therefore reporting information is as of June 30, 2006. The portfolio managers began managing the Fund after its last fiscal period end; therefore reporting information is as of July 31, 2006.
Statement of Additional Information - Sept. 29, 2006 Page 117 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. In addition to the accounts above, portfolio managers may manage accounts in a personal capacity that may include holdings that are similar to, or the same as, those of the fund. The investment manager has in place a Code of Ethics that is designed to address conflicts and that, among other things, imposes restrictions on the ability of the portfolio managers and other "investment access persons" to invest in securities that may be recommended or traded in the fund and other client accounts. (2) RiverSource Investments portfolio managers may manage one or more mutual funds as well as other types of accounts, including hedge funds, proprietary accounts, separate accounts for institutions and individuals, and other pooled investment vehicles. Portfolio managers make investment decisions for an account or portfolio based on its investment objectives and policies, and other relevant investment considerations. A portfolio manager may manage a separate account or other pooled investment vehicle whose fees may be materially greater than the management fees paid by the Fund and may include a performance-based fee. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of trades. In addition, RiverSource Investments monitors a variety of areas (e.g., allocation of investment opportunities) and compliance with the firm's Code of Ethics, and places additional investment restrictions on portfolio managers who manage hedge funds and certain other accounts. RiverSource Investments has a fiduciary responsibility to all of the clients for which it manages accounts. RiverSource Investments seeks to provide best execution of all securities transactions and to aggregate securities transactions and then allocate securities to client accounts in a fair and timely manner. RiverSource Investments has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. Statement of Additional Information - Sept. 29, 2006 Page 118 In addition to the accounts above, portfolio managers may manage accounts in a personal capacity that may include holdings that are similar to, or the same as, those of the fund. The investment manager has in place a Code of Ethics that is designed to address conflicts and that, among other things, imposes restrictions on the ability of the portfolio managers and other "investment access persons" to invest in securities that may be recommended or traded in the fund and other client accounts. (3) The portfolio manager's responsibilities also include working as a securities analyst. This dual role may give rise to conflicts with respect to making investment decisions for accounts that the portfolio manager manages versus communicating his or her analyses to other portfolio managers concerning securities that he or she follows as an analyst. (4) The management of a portfolio and other accounts by a portfolio manager could result in potential conflicts of interest if the portfolio and other accounts have different objectives, benchmarks and fees because the portfolio manager and his team must allocate time and investment expertise across multiple accounts, including the portfolio. The portfolio manager and his team manage the portfolio and other accounts utilizing a model portfolio approach that groups similar accounts within a model portfolio. UBS Global Asset Management (Americas) Inc. manages accounts according to the appropriate model portfolio, including where possible, those accounts that have specific investment restrictions. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across accounts, which may minimize the potential for conflicts of interest. If a portfolio manager identifies a limited investment opportunity that may be suitable for more than one account or model portfolio, the portfolio may not be able to take full advantage of that opportunity due to an allocation or filled purchase or sale orders across all eligible model portfolios and accounts. To deal with these situations, UBS Global Asset Management (Americas) Inc. has adopted procedures for allocating portfolio trades among multiple accounts to provide fair treatment to all accounts. The management of personal accounts by a portfolio manager may also give rise to potential conflicts of interest. UBS Global Asset Management (Americas) Inc. has adopted Codes of Ethics that govern such personal trading, but there is no assurance that the Codes will adequately address all such conflicts. (5) As is typical for many money managers, potential conflicts of interest may arise related to Turner's management of accounts including the Fund where not all accounts are able to participate in a desired IPO, or other limited opportunity, relating to use of soft dollars and other brokerage practices, related to the voting of proxies, employee personal securities trading, and relating to a variety of other circumstances. In all cases, however, Turner believes it has written policies and procedures in place reasonably designed to prevent violations of the federal securities laws and to prevent material conflicts of interest from arising. Please also see Turner's Form ADV, Part II for a description of some of its policies and procedures in this regard. (6) To ensure that Essex addresses compliance and control issues, an open dialogue exists between the portfolio managers, the trading desk, and our account services groups. This allows Essex to monitor compliance among these parties to accommodate both our clients' and the firm's investment guidelines. In order to prevent and detect violations, we have the following checks and balances built into our compliance process: o The client service group and the Compliance Officer -- Christopher P. McConnell, Co-Chief Executive Officer and Chief Financial Officer -- interpret each compliance restriction. o Portfolio Managers review each trade for appropriateness. o Our trading systems are state of the art and have been developed to prevent an inappropriate security or position from being purchased in a portfolio once the system is coded. o Our administrative group reviews each trade on a daily basis for reconciliation purposes. o Each member of our firm has signed our Code of Ethics policy which outlines authorized trading activity and procedures. Statement of Additional Information - Sept. 29, 2006 Page 119 (7) MDTA offers several wealth management models in which their private clients (separately managed accounts) participate. Those offerings which follow the MDT Small Cap Growth strategy include portfolios of investments substantially identical to the portfolio managed for the RiverSource Small Cap Growth Fund ("RSCGF"), which could create certain conflicts of interest. In all cases, MDTA 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. (8) Kenwood, an indirect partially-owned subsidiary of Ameriprise Financial, is an affiliate of RiverSource Investments. Kenwood portfolio managers 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 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. Kenwood has a fiduciary responsibility to all of the clients for which it manages accounts. Kenwood seeks to provide best execution of all securities transactions. Where possible, security transactions are aggregated and allocated to client accounts in a fair and timely manner. Kenwood has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. In addition to monitoring these policies and procedures, Kenwood monitors compliance with the firm's Code of Ethics and places additional investment restrictions on portfolio managers who manage certain other accounts. (9) Management of the Income Builder and Retirement Plus Funds-of-Funds differs from that of the other RiverSource funds. The portfolio management process is set forth generally below and in more detail in the funds' prospectus. Management of the portfolios is based on proprietary, quantitative techniques and qualitative review of the quantitative output. Using these methodologies, a group of RiverSource investment professionals allocates each fund's assets within and across different asset classes in an effort to achieve the fund's objective of providing a high level of current income and growth of capital. After the initial allocation, the fund will be rebalanced monthly in an effort to maximize the level of income and capital growth, incorporating various measures of relative value subject to constraints that set minimum or maximum exposure within asset classes, as set forth in the prospectus. Within the equity and fixed income asset classes, the quantitative model establishes allocations for the funds, seeking to achieve each fund's objective by investing in defined investment categories. The target allocation range constraints are intended, in part, to promote diversification within the asset classes. Because of the structure of the funds-of-funds, the potential conflicts of interest for the portfolio managers may be different than the potential conflicts of interest for portfolio managers who manage other funds. These potential conflicts of interest include: o In certain cases, the portfolio managers of the underlying funds are the same as the portfolio managers of the Income Builder and Retirement Plus Funds-of-Funds, and could influence the allocation of funds-of-funds assets to or away from the underlying funds that they manage. o RiverSource Investments, LLC and its affiliates may receive higher compensation as a result of allocations to underlying funds with higher fees. o RiverSource Investments, LLC monitors the performance of the underlying funds and may, from time to time, recommend to the board of directors of the funds a change in portfolio management or fund strategy or the closure or merger of an underlying fund. In addition, RiverSource Investments, LLC may believe that certain RiverSource funds may benefit from additional assets or could be harmed by redemptions. All of these factors may also influence decisions in connection with the allocation of funds-of-funds assets to or away from certain underlying funds. Statement of Additional Information - Sept. 29, 2006 Page 120 In addition to the accounts above, portfolio managers may manage accounts in a personal capacity that may include holdings that are similar to, or the same as, those of the fund. The investment manager has in place a Code of Ethics that is designed to address conflicts and that, among other things, imposes restrictions on the ability of the portfolio managers and other "investment access persons" to invest in securities that may be recommended or traded in the fund and other client accounts. (10) Certain conflicts of interest may arise in connection with the management of multiple portfolios. Potential conflicts include, for example, conflicts among investment strategies and conflicts in the allocation of investment opportunities. American Century has adopted policies and procedures that are designed to minimize the effects of these conflicts. Responsibility for managing American Century client portfolios is organized according to investment discipline. Investment disciplines include, for example, quantitative equity, small- and mid-cap growth, large-cap growth, value, international, fixed income, asset allocation, and sector funds. Within each discipline are one or more portfolio teams responsible for managing specific client portfolios. Generally, client portfolios with similar strategies are managed by the same team using the same objective, approach, and philosophy. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across similar portfolios, which minimizes the potential for conflicts of interest. For each investment strategy, one portfolio is generally designated as the "policy portfolio." Other portfolios with similar investment objectives, guidelines and restrictions are referred to as "tracking portfolios." When managing policy and tracking portfolios, a portfolio team typically purchases and sells securities across all portfolios that the team manages. American Century's trading systems include various order entry programs that assist in the management of multiple portfolios, such as the ability to purchase or sell the same relative amount of one security across several funds. In some cases a tracking portfolio may have additional restrictions or limitations that cause it to be managed separately from the policy portfolio. Portfolio managers make purchase and sale decisions for such portfolios alongside the policy portfolio to the extent the overlap is appropriate, and separately, if the overlap is not. American Century may aggregate orders to purchase or sell the same security for multiple portfolios when it believes such aggregation is consistent with its duty to seek best execution on behalf of its clients. Orders of certain client portfolios may, by investment restriction or otherwise, be determined not available for aggregation. American Century has adopted policies and procedures to minimize the risk that a client portfolio could be systematically advantaged or disadvantaged in connection with the aggregation of orders. To the extent equity trades are aggregated, shares purchased or sold are generally allocated to the participating portfolios pro rata based on order size. Because initial public offerings (IPOs) are usually available in limited supply and in amounts too small to permit across-the-board pro rata allocations, American Century has adopted special procedures designed to promote a fair and equitable allocation of IPO securities among clients over time. Fixed income securities transactions are not executed through a centralized trading desk. Instead, portfolio teams are responsible for executing trades with broker/dealers in a predominantly dealer marketplace. Trade allocation decisions are made by the portfolio manager at the time of trade execution and orders entered on the fixed income order management system. Finally, investment of American Century's corporate assets in proprietary accounts may raise additional conflicts of interest. To mitigate these potential conflicts of interest, American Century has adopted policies and procedures intended to provide that trading in proprietary accounts is performed in a manner that does not give improper advantage to American Century to the detriment of client portfolios. (11) Goldman Sachs Asset Management, L.P. ("GSAM") 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. Statement of Additional Information - Sept. 29, 2006 Page 121 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 affected between a Fund and another client account. GSAM conducts periodic reviews of trades for consistency with these policies. (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 primarily responsible for the day-to-day management of the funds ("portfolio managers") 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 funds. The portfolio managers make investment decisions for the funds based on the investment objectives, policies, practices, benchmarks, cash flows, tax and other relevant investment considerations applicable to that portfolio. Consequently, the portfolio managers may purchase or sell securities, including IPOs, for one portfolio and not another portfolio, and the performance of securities purchased for the fund may vary from the performance of securities purchased for other portfolios. The portfolio managers 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 fund, or make investment decisions that are similar to those made for the funds, both of which have the potential to adversely impact the funds depending on market conditions. For example, the portfolio managers 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 funds to Wellington Management. Because incentive payments are tied to revenues earned by Wellington Management, and where noted, to the performance achieved by the manager in each account, the incentives associated with any given account may be significantly higher or lower than those associated with other accounts managed by the portfolio manager. Finally, the portfolio managers may hold shares or investments in the other pooled investment vehicles and/or other accounts identified above. 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 IPOs, 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 portfolio managers. Although Wellington Management does not track the time a portfolio manager spends on a single portfolio, Wellington Management does periodically assess whether a portfolio manager has adequate time and resources to effectively manage the portfolio manager's various client mandates. (13) Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one portfolio or other account. More specifically, portfolio managers who manage multiple portfolios and /or other accounts are presented with the following potential conflicts: 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. Statement of Additional Information - Sept. 29, 2006 Page 122 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. 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. (14) 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. 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., ("Gabelli & Co.") 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 & Co. to execute portfolio transactions for the Fund even if using Gabelli & Co. 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 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. Statement of Additional Information - Sept. 29, 2006 Page 123 (15) Conflicts of interest may arise in connection with the investment manager's management of the investments of the relevant fund and the investments of the other accounts. Such conflicts may arise with respect to the allocation of investment opportunities among the relevant fund and other accounts Conflicts of interest may arise in connection with the portfolio managers' management of the investments of the relevant fund and the investments of the other accounts included in the table above. Such conflicts may arise with respect to the allocation of investment opportunities among the relevant fund and other accounts with similar investment objectives and policies. A portfolio manager potentially could use information concerning the relevant fund's transactions to the advantage of other accounts and to the detriment of the relevant fund. To address these potential conflicts of interest, Lord Abbett has adopted and implemented a number of policies and procedures. Lord Abbett has adopted Policies and Procedures for Evaluating Best Execution of Equity Transactions, as well as Trading Practices/Best Execution Procedures. The objective of these policies and procedures is to ensure the fair and equitable treatment of transactions and allocation of investment opportunities on behalf of all accounts managed by Lord Abbett. In addition, Lord Abbett's Code of Ethics sets forth general principles for the conduct of employee personal securities transactions in a manner that avoids any actual or potential conflicts of interest with the interests of Lord Abbett's clients including the relevant fund. Moreover, Lord Abbett's Statement of Policy and Procedures on Receipt and Use of Inside Information sets forth procedures for personnel to follow when they have inside information. Lord Abbett is not affiliated with a full service broker-dealer and therefore does not execute any portfolio transactions through such an entity, a structure that could give rise to additional conflicts. Lord Abbett does not conduct any investment bank functions and does not manage any hedge funds. Lord Abbett does not believe that any material conflicts of interest exist in connection with the portfolio managers' management of the investments of the relevant fund and the investments of the other accounts referenced in the table above. (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. Statement of Additional Information - Sept. 29, 2006 Page 124 (18) Actual or potential conflicts of interest may arise when a portfolio manager has management responsibilities to more than one account (including the Fund). BHMS manages potential conflicts between funds or with other types of accounts through allocation policies and procedures, internal review processes and oversight by directors and independent third parties to ensure that no client, regardless of type or fee structure, is intentionally favored at the expense of another. Allocation policies are designed to address potential conflicts in situations where two or more funds or accounts participate in investment decisions involving the same securities. (19) Certain conflicts of interest may arise in connection with the management of multiple portfolios and investment strategies. Potential conflicts include the allocation of investment opportunities across client accounts and the allocation of similar investments across different strategies. MetWest Capital has adopted policies and procedures designed to minimize the effects of these conflicts. Responsibility for managing MetWest Capital client portfolios is organized according to investment strategy. All accounts in each strategy are managed to a model portfolio, as specified by the investment team. The investment team implements the model consistently across client portfolios. Consequently, position sizes and industry and sector allocations are similar across our clients' portfolios. Typically, no positions differ from portfolio to portfolio, except in the case of client-imposed restrictions. For such a portfolio, the investment team determines the position(s) that comply with client requirements. This process minimizes the potential for conflicts of interest. MetWest Capital's allocation policy allocates all investment opportunities among clients in the fairest possible way, taking into account clients' best interests. We have adopted policies and procedures designed to ensure that allocations do not involve a practice of favoring or disfavoring any strategy, client or group of clients. Account and strategy performance is never a factor in trade allocations. When necessary, we address known conflicts of interests in our trading practices by disclosure to clients and/or in our Form ADV or other appropriate action. The decision to buy or sell a position in the model portfolio is based on the direction of the investment team. Once the decision is made, traders prepare the trade "blocks." All participating strategies and client portfolios (those without pending cash flows or prohibited transactions) are block-traded together, typically grouped either by custodian or trade broker according to best-execution practices. Orders are placed to ensure random fills so that no one strategy, client or group of clients is favored or disfavored on a systematic basis. Each portfolio manager/client service representative is responsible for reviewing the blocks and implementing all buy and sell orders for his/her accounts, taking into consideration client-specific factors. Both the lead strategist and the portfolio manager/client service representatives review trade reports for all accounts on a daily basis. (20) Threadneedle Investments portfolio managers may manage one or more mutual funds as well as other types of accounts, including proprietary accounts, separate accounts for institutions, and other pooled investment vehicles. Portfolio managers make investment decisions for an account or portfolio based on its investment objectives and policies, and other relevant investment considerations. A portfolio manager may manage a separate account or other pooled investment vehicle whose fees may be materially greater than the management fees paid by the Fund and may include a performance-based fee. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of trades. In addition, the portfolio manager's responsibilities at Threadneedle Investments include working as a securities analyst. This dual role may give rise to conflicts with respect to making investment decisions for accounts that he/she manages versus communicating his/her analyses to other portfolio managers concerning securities that he/she follows as an analyst. Threadneedle Investments has a fiduciary responsibility to all of the clients for which it manages accounts. Threadneedle Investments seeks to provide best execution of all securities transactions and to aggregate securities transactions and then allocate securities to client accounts in a fair and timely manner. Threadneedle Investments has developed policies and procedures, including brokerage and trade allocation policies and procedures, designed to mitigate and manage the potential conflicts of interest that may arise from the management of multiple types of accounts for multiple clients. Statement of Additional Information - Sept. 29, 2006 Page 125 (21) Like other investment professionals with multiple clients, a portfolio manager for a fund may face certain potential conflicts of interest in connection with managing both the fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which Columbia WAM believes are faced by investment professionals at most major financial firms. Columbia WAM has adopted compliance policies and procedures that attempt to address certain of these potential conflicts. The management of accounts with different advisory fee rates and/or fee structures may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others: o The most attractive investments could be allocated to higher-fee accounts. o The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time. o The trading of other accounts could be used to benefit higher-fee accounts (front-running). o The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation. Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, Columbia WAM's investment professionals do not have the opportunity to invest in client accounts, other than the funds. A potential conflict of interest may arise when a fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a fund as well as other accounts, Columbia WAM's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to the fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account. "Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. Columbia WAM has adopted compliance procedures that provide that any transactions between the funds and another Columbia-advised account are to be made at an independent current market price, as required by law. Another potential conflict of interest may arise based on the different investment objectives and strategies of the funds and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts. A fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies. Statement of Additional Information - Sept. 29, 2006 Page 126 The funds' portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the funds. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to a fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages. Columbia WAM or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of a fund and/or accounts that provide greater overall returns to the investment manager and its affiliates. The funds' portfolio managers may also face other potential conflicts of interest in managing the funds, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a fund and other accounts. In addition, the funds' portfolio managers may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at Columbia WAM, including the funds' portfolio managers, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by Columbia WAM and the funds, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of the funds. (22) The subadviser provides investment advisory services to numerous clients other than the Fund. The investment objectives and policies of these accounts may differ from those of the Fund. Based on these differing circumstances, potential conflicts of interest may arise because the subadviser may be required to pursue different investment strategies on behalf of the Fund and other client accounts. For example, a subadviser may be required to consider an individual client's existing positions, personal tax situation, suitability, personal biases and investment time horizon, which considerations would not affect his investment decisions on behalf of the Fund. This means that research on securities to determine the merits of including them in the Fund's portfolio are similar, but not identical, to those employed in building private client portfolios. As a result, there may be instances in which a subadviser purchases or sells an investment for one or more private accounts and not for the Fund, or vice versa. To the extent the Fund and other clients seek to acquire the same security at about the same time, the Fund may not be able to acquire as large a position in such security as it desires or it may have to pay a higher price for the security. Similarly, the Fund may not be able to obtain as large an execution of an order to sell or as high a price for any particular security if the subadviser desires to sell the same portfolio security at the same time on behalf of other clients. On the other hand, if the same securities are bought or sold at the same time by more than one client, the resulting participation in volume transactions could produce better executions for the Fund. (23) INTRODUCTION A conflict of interest is generally defined as a single person or entity having two or more interests that are inconsistent. The Boston Company Asset Management, LLC ("The Boston Company") has implemented various policies and procedures that are intended to address the conflicts of interest that may exist or be perceived to exist at The Boston Company. These conflicts may include, but are not limited to when a portfolio manager is responsible for the management of more than one account; the potential arises for the portfolio manager to favor one account over another. Generally, the risk of such conflicts of interest could increase if a portfolio manager has a financial incentive to favor one account over another. Statement of Additional Information - Sept. 29, 2006 Page 127 This disclosure statement is not intended to cover all of the conflicts that exist within The Boston Company, but rather to highlight the general categories of conflicts and the associated mitigating controls. Other conflicts are addressed within the policies of The Boston Company. Further, the Chief Compliance Officer of The Boston Company shall maintain a Conflicts Matrix that further defines the conflicts specific to The Boston Company. NEW INVESTMENT OPPORTUNITIES Potential Conflict: A portfolio manager could favor one account over another in allocating new investment opportunities that have limited supply, such as initial public offerings and private placements. If, for example, an initial public offering that was expected to appreciate in value significantly shortly after the offering was allocated to a single account, that account may be expected to have better investment performance than other accounts that did not receive an allocation. o The Boston Company has policies that require a portfolio manager to allocate such investment opportunities in an equitable manner and generally to allocate such investments proportionately among all accounts with similar investment objectives. COMPENSATION Potential Conflict: A portfolio manager may favor an account if the portfolio manager's compensation is tied to the performance of that account rather than all accounts managed by the portfolio manager. If, for example, the portfolio manager receives a bonus based upon the performance of certain accounts relative to a benchmark while other accounts are disregarded for this purpose, the portfolio manager will have a financial incentive to seek to have the accounts that determine the bonus achieve the best possible performance to the possible detriment of other accounts. Similarly, if The Boston Company receives a performance-based advisory fee, the portfolio manager may favor that account, regardless of whether the performance of that account directly determines the portfolio manager's compensation. o The investment performance on specific accounts is not a factor in determining the portfolio manager's compensation. INVESTMENT OBJECTIVES Potential Conflict: Where different accounts managed by the same portfolio manager have materially and potentially conflicting investment objectives or strategies, a conflict of interest may arise. For example, if a portfolio manager purchases a security for one account and sells the same security short for another account, such a trading pattern could potentially disadvantage either account. o To mitigate the conflict in this scenario The Boston Company has in places a restriction in the order management system and requires a written explanation from the portfolio manager before determining whether to lift the restriction. However, where a portfolio manager is responsible for accounts with differing investment objectives and policies, it is possible that the portfolio manager will conclude that it is in the best interest of one account to sell a portfolio security while another account continues to hold or increase the holding in such security. Statement of Additional Information - Sept. 29, 2006 Page 128 TRADING Potential Conflict: A portfolio manager could favor one account over another in the order in which trades for the accounts are placed. If a portfolio manager determines to purchase a security for more than one account in an aggregate amount that may influence the market price of the security, accounts that purchased or sold the security first may receive a more favorable price than accounts that make subsequent transactions. The less liquid the market for the security or the greater the percentage that the proposed aggregate purchases or sales represent of average daily trading volume, the greater the potential for accounts that make subsequent purchases or sales to receive a less favorable price. o When a portfolio manager intends to trade the same security for more than one account, the policies of The Boston Company generally require that such trades be "bunched," which means that the trades for the individual accounts are aggregated and each account receives the same price. Some accounts may not be eligible for bunching for contractual reasons (such as directed brokerage arrangements). Circumstances may also arise where the trader believes that bunching the orders may not result in the best possible price. Where those accounts or circumstances are involved, The Boston Company will place the order in a manner intended to result in as favorable a price as possible for such client. PERSONAL INTEREST Potential Conflict: A portfolio manager may favor an account if the portfolio manager has a beneficial interest in the account, in order to benefit a large client or to compensate a client that had poor returns. For example, if the portfolio manager held an interest in a mutual fund that was one of the accounts managed by the portfolio manager, the portfolio manager would have an economic incentive to favor the account in which the portfolio manager held an interest. o All accounts with the same or similar investment objectives are part of a trading group. All accounts in a particular trading group are managed and traded identically taking into account client imposed restrictions or cash flows. As a result of this management and trading style an account in a trading group cannot be treated any differently than any other account in that trading group. OUTSIDE DIRECTORSHIP Potential Conflict: Employees may serve as directors, officers or general partners of certain outside entities after obtaining the appropriate approvals in compliance with the Code of Conduct and Mellon Corporate Policy on Outside Directorships and Offices (CPP-805-I). However, in view of the potential conflicts of interest and the possible liability for The Boston Company, its affiliates and its employees, employees are urged to be cautious when considering serving as directors, officers, or general partners of outside entities. o In addition to completing the reporting requirements set forth in the Mellon corporate policies, employees should ensure that their service as an outside director, officer or general partner does not interfere with the discharge of their job responsibilities and must recognize that their primary obligation is to complete their assigned responsibilities at The Boston Company in a timely manner. PROXY VOTING Potential Conflict: Whenever The Boston Company owns the securities of client or prospective client in fiduciary accounts there is a potential conflict between the interests of the firm and the interests of the beneficiaries of our client accounts. o Material conflicts of interest are addressed through the establishment of our parent company's Proxy Committee structure. It applies detailed, pre-determined proxy voting guidelines in an objective and consistent manner across client accounts, based on internal and external research and recommendations provided by a third party vendor, and without consideration of any client relationship factors. Further, we engage a third party as an independent fiduciary to vote all proxies for Mellon securities and Fund securities. Statement of Additional Information - Sept. 29, 2006 Page 129 PERSONAL TRADING Potential Conflict: There is an inherent conflict where a portfolio manager manages personal accounts alongside client accounts. Further, there is a conflict where other employees in the firm know of portfolio decisions in advance of trade execution and could potentially use this information to their advantage and to the disadvantage of The Boston Company's clients. o Subject to the personal Securities Trading Policy, employees of The Boston Company may buy and sell securities which are recommended to its clients; however, no employee is permitted to do so (a) where such purchase or sale would affect the market price of such securities, or (b) in anticipation of the effect of such recommendation on the market price. o Consistent with the Securities Trading Policy relating to Investment Employees (which includes all Access Persons), approval will be denied for sales/purchases of securities for which investment transactions are pending and, at minimum, for two business days after transactions for the security were completed for client accounts. Portfolio managers are prohibited from trading in a security for seven days before and after transactions in that security are completed for client accounts managed by that Portfolio Manager. SOFT DOLLARS Potential Conflict: Use of client commissions to pay for services that benefit The Boston Company and not client accounts. o It is the policy of The Boston Company to enter into soft-dollar arrangements in a manner which will ensure the availability of the safe harbor provided by Section 28(e) of the Securities Exchange Act of 1934 and which will ensure that the firm meets its fiduciary obligations for seeking to obtain best execution for its clients. All soft dollar services are justified in writing by the user specifically noting how the service will assist in the investment decision making process and approved in advance by the Soft Dollar Committee. CONSULTANT BUSINESS Potential Conflict: Many of our clients retain consulting firms to assist them in selecting investment managers. Some of these consulting firms provide services to both those who hire investment managers (i.e., clients) and to investment management firms. The Boston Company may pay to attend conferences sponsored by consulting firms and/or purchase services from consulting firms where it believes those services will be useful to it in operating its investment management business. o The Boston Company does not pay referral fees to consultants. GIFTS Potential Conflict: Where investment personnel are offered gifts or entertainment by business associates that assist them in making or executing portfolio decisions or recommendations for client accounts a potential conflict exists. The Code of Conduct sets forth broad requirements for accepting gifts and entertainment. The Boston Company's Gift Policy supplements the Code of Conduct and provides further clarification for The Boston Company employees. o The Boston Company has established a Gift Policy that supplements the Mellon Code of Conduct. Gifts received with a face value under $100 may be accepted so long as they are not intended to influence. It is imperative that common sense and good judgment be used when accepting gifts in the course of business. For gifts accepted in accordance with the Gift Policy and the Mellon Code of Conduct with a face value over $100, The Boston Company has determined that it is in the best interest of the firm and its employees that any amount over $100 shall be donated to a 501(c)(3) charitable organization of the employee's choice. Statement of Additional Information - Sept. 29, 2006 Page 130 (24) Portfolio managers at Marsico typically manage multiple accounts. These accounts may include, among others, mutual funds, separate accounts (assets managed on behalf of institutions such as pension funds, colleges and universities, foundations, and accounts managed on behalf of individuals), and commingled trust accounts. Portfolio managers make investment decisions for each portfolio based on the investment objectives, policies, practices and other relevant investment considerations that the managers believe are applicable to that portfolio. Consequently, portfolio managers may purchase (or sell) securities for one portfolio and not another portfolio, or may take similar actions for different portfolios at different times. Consequently, the mix of securities purchased in one portfolio may perform better than the mix of securities purchased for another portfolio. Similarly, the sale of securities from one portfolio may cause that portfolio to perform better than others if the value of those securities decline. Potential conflicts of interest may also arise when allocating and/or aggregating trades. Marsico often aggregates into a single trade order several individual contemporaneous client trade orders in a single security. Under Marsico's trade management policy and procedures, when trades are aggregated on behalf of more than one account, such transactions will be allocated to all participating client accounts in a fair and equitable manner. With respect to IPOs and other syndicated or limited offerings, it is Marsico's policy to seek to assure that over the long term, accounts with the same or similar investment objectives will receive an equitable opportunity to participate meaningfully and will not be unfairly disadvantaged. To deal with these situations, Marsico has adopted policies and procedures for allocating transactions across multiple accounts. Marsico's policies also seek to ensure that portfolio managers do not systematically allocate other types of trades in a manner that would be more beneficial to one account than another. Marsico's compliance department monitors transactions made on behalf of multiple clients to seek to assure adherence to its policies. As discussed above, Marsico has adopted and implemented policies and procedures that seek to minimize potential conflicts of interest that may arise as a result of a portfolio manager advising multiple accounts. In addition, Marsico monitors a variety of areas, including compliance with primary Fund guidelines, the allocation of securities, and compliance with its Code of Ethics. (25) As an investment adviser and fiduciary, Alliance Capital owes its clients and shareholders an undivided duty of loyalty. We recognize that conflicts of interest are inherent in our business and accordingly have developed policies and procedures (including oversight monitoring) reasonably designed to detect, manage and mitigate the effects of actual or potential conflicts of interest in the area of employee personal trading, managing multiple accounts for multiple clients, including AllianceBernstein Mutual Funds, and allocating investment opportunities. Investment professionals, including portfolio managers and research analysts, are subject to the above-mentioned policies and oversight monitoring to ensure that all clients are treated equitably. We place the interests of our clients first and expect all of our employees to meet their fiduciary duties. Employee Personal Trading Alliance Capital has adopted a Code of Business Conduct and Ethics that is designed to detect and prevent conflicts of interest when investment professionals and other personnel of Alliance Capital own, buy or sell securities which may be owned by, or bought or sold for, clients. Personal securities transactions by an employee may raise a potential conflict of interest when an employee owns or trades in a security that is owned or considered for purchase or sale by a client, or recommended for purchase or sale by an employee to a client. Subject to the reporting requirements and other limitations of its Code of Business Conduct and Ethics, Alliance Capital permits its employees to engage in personal securities transactions, and also allows them to acquire investments in the AllianceBernstein Mutual Funds through direct purchase, 401K/profit sharing plan investment and/or notionally in connection with deferred incentive compensation awards. Alliance Capital's Code of Ethics and Business Conduct requires disclosure of all personal accounts and maintenance of brokerage accounts with designated broker-dealers approved by Alliance Capital. The Code also requires preclearance of all securities transactions and imposes a one-year holding period for securities purchased by employees to discourage short-term trading. Statement of Additional Information - Sept. 29, 2006 Page 131 Managing Multiple Accounts for Multiple Clients Alliance Capital has compliance policies and oversight monitoring in place to address conflicts of interest relating to the management of multiple accounts for multiple clients. Conflicts of interest may arise when an investment professional has responsibilities for the investments of more than one account because the investment professional may be unable to devote equal time and attention to each account. The investment professional or investment professional teams for each client may have responsibilities for managing all or a portion of the investments of multiple accounts with a common investment strategy, including other registered investment companies, unregistered investment vehicles, such as hedge funds, pension plans, separate accounts, collective trusts and charitable foundations. Among other things, Alliance Capital's policies and procedures provide for the prompt dissemination to investment professionals of initial or changed investment recommendations by analysts so that investment professionals are better able to develop investment strategies for all accounts they manage. In addition, investment decisions by investment professionals are reviewed for the purpose of maintaining uniformity among similar accounts and ensuring that accounts are treated equitably. No investment professional that manages client accounts carrying performance fees is compensated directly or specifically for the performance of those accounts. Investment professional compensation reflects a broad contribution in multiple dimensions to long-term investment success for our clients and is not tied specifically to the performance of any particular client's account, nor is it directly tied to the level or change in the level of assets under management. Allocating Investment Opportunities Alliance Capital has policies and procedures intended to address conflicts of interest relating to the allocation of investment opportunities. These policies and procedures are designed to ensure that information relevant to investment decisions is disseminated promptly within its portfolio management teams and investment opportunities are allocated equitably among different clients. The investment professionals at Alliance Capital routinely are required to select and allocate investment opportunities among accounts. Portfolio holdings, position sizes, and industry and sector exposures tend to be similar across similar accounts, which minimizes the potential for conflicts of interest relating to the allocation of investment opportunities. Nevertheless, investment opportunities may be allocated differently among accounts due to the particular characteristics of an account, such as size of the account, cash position, tax status, risk tolerance and investment restrictions or for other reasons. Alliance Capital's procedures are also designed to prevent potential conflicts of interest that may arise when Alliance Capital has a particular financial incentive, such as a performance-based management fee, relating to an account. An investment professional may perceive that he or she has an incentive to devote more time to developing and analyzing investment strategies and opportunities or allocating securities preferentially to accounts for which Alliance Capital could share in investment gains. To address these conflicts of interest, Alliance Capital's policies and procedures require, among other things, the prompt dissemination to investment professionals of any initial or changed investment recommendations by analysts; the aggregation of orders to facilitate best execution for all accounts; price averaging for all aggregated orders; objective allocation for limited investment opportunities (e.g., on a rotational basis) to ensure fair and equitable allocation among accounts; and limitations on short sales of securities. These procedures also require documentation and review of justifications for any decisions to make investments only for select accounts or in a manner disproportionate to the size of the account. Statement of Additional Information - Sept. 29, 2006 Page 132 (26) AIG Global Investment Corp. ("AIGGIC") aims to conduct its activities in such a manner that permits it to deal fairly with each of its clients on an overall basis in accordance with applicable securities laws and fiduciary obligations. In that regard, AIGGIC has adopted and implemented policies and procedures, including brokerage and trade allocation policies and procedures, which AIGGIC believes address the conflicts associated with managing multiple accounts for multiple clients (including affiliated clients). AIGGIC also monitors a variety of areas, including compliance with guidelines of the Fund and other accounts it manages and compliance with AIGGIC's Code of Ethics. Furthermore, AIGGIC's management periodically reviews the performance of a portfolio manager. Although AIGGIC does not track the time a portfolio manager spends on a single portfolio, AIGGIC does periodically assess whether a portfolio manager has adequate time and resources to effectively manage all of such portfolio manager's accounts. (27) Actual or potential conflicts may arise in managing the Funds in conjunction with the portfolios of Batterymarch's other clients. A brief description of some of the potential conflicts of interest and compliance factors that may arise as a result is included below. We do not believe any of these potential conflicts of interest and compliance factors pose significant risk to the Funds. Although Batterymarch believes that its compliance policies and procedures are appropriate to prevent or eliminate many potential conflicts of interest between Batterymarch, its related persons and clients, clients should be aware that no set of policies and procedures can possibly anticipate or relieve all potential conflicts of interest. Moreover, it is possible that additional potential conflicts of interest may exist that Batterymarch has not identified in the summary below. Allocation of Investment Opportunities If an investment team identifies a limited investment opportunity (including initial public offerings) that may be suitable for multiple client accounts, the Funds may not be able to take full advantage of that opportunity. However, Batterymarch has adopted compliance policies and procedures for such situations. Opposite (i.e., Contradictory) Transactions in Securities Batterymarch provides investment advisory services for various clients and under various investment mandates and may give advice, and take action, with respect to any of those clients that may differ from the advice given, or the timing or nature of action taken, with respect to any other individual client account. In the course of providing advisory services, Batterymarch may simultaneously recommend the sale of a particular security for one client account while recommending the purchase of the same or a similar security for another account. This may occur for a variety of reasons. For example, in order to raise cash to handle a redemption/withdrawal from a client account, Batterymarch may be forced to sell a security that is ranked a "buy" by its stock selection model. Certain Batterymarch portfolio managers that manage long-only portfolios also manage portfolios that sell securities short. As such, Batterymarch may purchase or sell a security in one or more of its long-only portfolios under management during the same day it executes an opposite transaction in the same or a similar security for one or more of its market neutral portfolios under management, and Batterymarch's market neutral portfolios may contain securities sold short that are simultaneously held as long positions in certain of the long-only portfolios managed by Batterymarch. The stock selection model(s), risk controls and portfolio construction rules used by Batterymarch to manage its clients' long-only portfolios differ from the model and rules that are used to manage its market neutral portfolios. Because different stock selection models, risk controls and portfolio construction rules are used, it is possible that the same or similar securities may be ranked differently for different mandates and that the timing of trading in such securities may differ. Batterymarch has created certain compliance policies and procedures designed to minimize harm from such contradictory activities/events. Statement of Additional Information - Sept. 29, 2006 Page 133 Personal Securities Transactions Batterymarch allows its employees to trade in securities that it recommends to advisory clients, including the Funds. Batterymarch's supervised persons (to the extent not prohibited by Batterymarch's Code of Ethics) might buy, hold or sell securities or investment products (including interests in partnerships and investment companies) at or about the same time that Batterymarch is purchasing, holding or selling the same or similar securities or investment products for client account portfolios and the actions taken by such persons on a personal basis may be, or may be deemed to be, inconsistent with the actions taken by Batterymarch for its client accounts. Clients should understand that these activities might create a conflict of interest between Batterymarch, its supervised persons and its clients. Batterymarch employees may also invest in mutual funds, including the Funds, which are managed by Batterymarch. This may result in a potential conflict of interest since Batterymarch employees have knowledge of such funds' investment holdings, which is non-public information. To address this, Batterymarch has adopted a written Code of Ethics designed to prevent and detect personal trading activities that may interfere or conflict with client interests (including shareholders' interests in the Funds). Batterymarch is the investment adviser to a pooled investment vehicle that invests in long and short positions, under a US all capitalization market neutral equity strategy. Certain Batterymarch employees have ownership interests in this fund. Employee ownership of this market neutral fund may create potential conflicts of interest for Batterymarch. (28) Systematic Financial Management, L.P. is an affiliated firm of Affiliated Managers Group, Inc. (AMG). The AMG Affiliates do not formulate advice for Systematic's clients and do not, in Systematic's view, present any potential conflict of interest with Systematic's clients. Portfolio managers oversee the investment of various types of accounts in the same strategy such as mutual funds, pooled investment vehicle and separate accounts for individuals and institutions. Investment decisions generally are applied to all accounts utilizing that particular strategy taking into consideration client restrictions, instructions and individual needs. A portfolio manager may manage an account whose fees may be higher or lower than the basic fee schedule to provide for varying client circumstances. Management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of client trades. However, Systematic has a variety of internal controls in place that are designed to prevent such conflicts of interest. (29) During the normal course of managing assets for multiple clients of varying types and asset levels, WEDGE will inevitably encounter conflicts of interest that could, if not properly addressed, be harmful to one or more of its clients. Those of a material nature that are encountered most frequently surround security selection, brokerage selection, employee personal securities trading, proxy voting and the allocation of securities. To mitigate these conflicts and ensure its clients are not negatively impacted by the adverse actions of WEDGE or its employees, WEDGE has implemented a series of policies including its Personal Security Trading Policy, Proxy Voting Policy, Equity Trading Policy, Trading Error Policy, and others designed to prevent and detect conflicts when they occur. WEDGE reasonably believes that these and other policies combined with the periodic review and testing performed by its compliance professionals adequately protects the interests of its clients. Statement of Additional Information - Sept. 29, 2006 Page 134 STRUCTURE OF COMPENSATION (30) The compensation of RiverSource Investments employees consists of (i) a base salary, (ii) an annual cash bonus, and (iii) equity incentive awards in the form of stock options and/or restricted stock. The annual cash bonus is based on management's assessment of the employee's performance relative to individual and business unit goals and objectives which, for portfolio managers Joy, Keeley and Truscott, may be based, in part, on achieving certain investment performance goals and retaining and attracting assets under management, and for portfolio manager Bergene, on developing competitive products, managing existing products, and selecting and monitoring subadvisers for RiverSource funds. In addition, subject to certain vesting requirements, the compensation of portfolio managers Joy, Keeley and Truscott, includes an annual award based on the performance of Ameriprise Financial over rolling three-year periods. RiverSource Investments' portfolio managers are provided with a benefit package including life insurance, health insurance and participation in the company's 401(k) plan comparable to that received by other RiverSource Investments employees. Depending upon their job level, RiverSource Investments' portfolio managers may also be eligible for other benefits or perquisites that are available to all RiverSource Investments employees at the same job level. (31) Portfolio manager compensation is typically comprised of (i) a base salary, (ii) an annual cash bonus, a portion of which may be subject to a mandatory deferral program, and may include (iii) an equity incentive award in the form of stock options and/or restricted stock. The annual bonus is paid from a team bonus pool that is based on the performance of the accounts managed by the portfolio management team, which might include mutual funds, institutional portfolios and hedge funds. Funding for the bonus pool for equity portfolio managers is determined by a percentage of the aggregate assets under management in the accounts managed by the portfolio managers, including the fund, plus, where applicable, a percentage of the assets of the funds they support as research analysts*, and by the short term (typically one-year) and long-term (typically three year) pre-tax performance of those accounts in relation to the relevant peer group universe. Funding for the bonus pool for fixed income portfolio managers is determined by the aggregate market competitive bonus targets for the teams of which the portfolio manager is a member and by the short-term (typically one year) and long-term (typically three year) pre-tax performance of those accounts in relation to applicable benchmarks or the relevant peer group universe. With respect to institutional portfolios managed by Lynn Hopton and Yvonne Stevens, funding for the bonus pool is a percentage of operating profit earned on the institutional portfolios managed by them and institutional portfolio profitability. With respect to hedge funds and separately managed accounts that follow a hedge fund mandate, funding for the bonus pool is a percentage of performance fees earned on the hedge funds or accounts managed by the portfolio managers, plus, where applicable, a percentage of performance fees earned on the hedge funds or accounts they support as research analysts. Senior management of RiverSource Investments has the discretion to increase or decrease the size of the part of the bonus pool and to determine the exact amount of each portfolio manager's bonus paid from this portion of the bonus pool based on his/her performance as an employee. In addition, where portfolio managers invest in a hedge fund managed by the investment manager, they receive a cash reimbursement for the fees charged on their hedge fund investments. Senior management of RiverSource Investments does not have discretion over the size of the bonus pool related to institutional portfolios managed by Lynn Hopton and Yvonne Stevens. RiverSource Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in 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. The portfolio managers that currently support funds as research analysts are: Clay Hoes, Julene Melquist, J. Blair Brumley and Nina Hughes. Statement of Additional Information - Sept. 29, 2006 Page 135 (32) The compensation received by portfolio managers at UBS Global Asset Management includes a base salary and incentive compensation based on the portfolio manager's personal performance. UBS Global Asset Management'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 our investment professionals with the interests of UBS Global Asset Management's clients. Overall compensation can be grouped into four categories: o Competitive salary, benchmarked to maintain competitive compensation opportunities. o Annual bonus, tied to individual contributions and investment performance. o UBS equity awards, promoting company-wide success and employee retention. o Partnership Incentive Program (PIP), a phantom-equity-like program for key senior staff. Base salary is fixed compensation 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 Global Asset Management strongly believes that tying bonuses to both long-term (3-year) and shorter-term (1-year) portfolio pre-tax performance closely aligns our investment professionals' interests with those of UBS Global Asset Management's clients. A portion of each portfolio manager's bonus is based on the performance of each portfolio the portfolio manages as compared to the portfolio's broad-based index over a three-year rolling period. UBS AG equity. Senior investment professionals, including each portfolio manager of the portfolio, 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 Global Asset Management 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 opportunity to purchase UBS stock with after-tax funds from their bonus or salary. Two UBS AG stock options are given for each share acquired and held for two years. UBS Global Asset Management feels that this engages its employees as partners in the firm's success, and helps to maximize its integrated business strategy. (33) Turner's investment professionals receive a base salary commensurate with their level of experience. Turner's goal is to maintain competitive base salaries through review of industry standards, market conditions, and salary surveys. Bonus compensation, which is a multiple of base salary, is based on the performance of each individual's sector and portfolio assignments relative to appropriate market benchmarks. In addition, each employee is eligible for equity ownership and equity owners share the firm's profits. Most of the members of the Investment Team and all Portfolio Managers for The Funds, are equity owners of Turner. This compensation and ownership structure provides incentive 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 professionals' compensation. The CIO is also responsible for identifying investment professionals that should be considered for equity ownership on an annual basis. Statement of Additional Information - Sept. 29, 2006 Page 136 (34) The professionals at Essex are compensated by a three-tiered approach. First, all of the investment professionals have industry-competitive base salaries and receive a percentage of the firm's profits through a profit-sharing/pension plan. Second, Essex's professionals receive a year-end bonus based on the portfolio's performance on an absolute basis as well as relative to our peers and benchmarks. Third, Essex offers a competitive benefit package including comprehensive family health coverage. Portfolio managers, specifically those that are Principals of the firm, are evaluated on the basis of two components: (1) overall performance of the firm and (2) performance of his or her managed portfolios. Overall performance of the firm is the overriding measure by which Principals are evaluated. A lesser weighting, but certainly one of importance, is the portfolio's performance, which is measured in terms of absolute, benchmark-relative and competitor-relative performance. An analyst's evaluation consists of three components: the performance of the portfolio, production/work ethic/communications, and teamwork. The performance of the portfolio is measured in terms of both absolute performance, as well as relative performance to that of the comparative benchmark and peer group. Productivity, work ethic, and communication is very much a qualitative measure and is first and foremost a comprehensive assessment of how individual analysts generate stock ideas. It is an assessment of the number of names that are looked at, knowledge of those names, the frequency with which the analyst's recommendations are incorporated into the portfolio and the analyst's overall preparedness for coverage meetings. Teamwork is another rather qualitative element of the evaluation. It is a measurement of an individual analyst's functioning within the team largely in terms of cooperation, collaboration, and the sharing of ideas. An analyst's evaluation plays a part, in addition to the performance of the overall firm, in determining the size of his or her bonus, which typically ranges from 25% - 150% of base salary. Each trader at Essex is evaluated annually by the firm's Chief Executive Officers. The two Chief Executive Officers examine several factors such as: number of errors, obtaining best execution, opinions of our portfolio managers, etc. A trader's performance evaluation contributes to 25%-30% of his or her total pay. As an added retention mechanism, Essex offers ownership to both existing and prospective employees. The current ownership structure allows Essex to capitalize a portion of its free cash flow each year and transform it into stock ownership. Essex envisions granting ownership as an additional incentive to the employees who contribute the greatest to the firm's future success. We feel that our compensation structure is extremely competitive when compared with other firms in the industry. Finally, Essex offers a deferred compensation plan for certain employees by way of granting them a Special Recognition Award. Essex maintains a fundamental team approach that encourages continuity among its investment professionals and makes a conscious effort to reward its team members accordingly. Our investment professionals are continuously motivated by our compensation structure, competitive personnel benefit packages, and entrepreneurial-like culture. (35) MDTA's Chief Investment Officer, David Goldsmith, receives a fixed cash salary that is not based on the performance of MDTA investment strategies. He also receives a cash bonus as part of his compensation that is calculated based on a percentage of total advisory revenue earned by MDTA. MDTA's other investment professionals receive a fixed cash salary and a cash bonus that is calculated based on the performance of MDTA's strategies. The compensation of all of MDTA's investment professionals includes a 401(k) retirement plan. The compensation of all of MDTA's investment professionals with respect to the RSCGF is no different than compensation they receive for services provided to other accounts. (36) 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. Statement of Additional Information - Sept. 29, 2006 Page 137 (37) 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. 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. 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. Statement of Additional Information - Sept. 29, 2006 Page 138 (38) GSAM's Growth Team's (the "Growth Team") compensation packages for its portfolio managers are 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 its 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 its performance on a market cycle basis which is typically measured over a three to seven year period, rather than being focused on short term gains in its 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 either be broad based or narrow based indices which will vary based on client expectations. 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. The Growth Team's decision may also be influenced by the following: the performance of GSAM, the profitability of Goldman, Sachs & Co. ("Goldman Sachs") and anticipated compensation levels among competitor firms. Other Compensation. In addition to base salary and performance bonus, GSAM has a number of additional benefits/deferred compensation programs for all portfolio managers in place including: (i) a 401k 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 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. (39) The funds pay Wellington Management a fee based on the assets under management of the fund as set forth in the Subadvisory Agreement between Wellington Management and Ameriprise Financial, Inc. with respect to each fund. Wellington Management pays its investment professionals out of its total revenues and other resources, including the advisory fees earned with respect to each fund. The following information relates to the fiscal year ended May 31, 2006. 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 portfolio managers includes a base salary and incentive components. The base salary for each portfolio manager 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 portfolio managers is determined by their experience and performance in their role as portfolio manager. Base salaries for employees are reviewed annually and may be adjusted based on the recommendation of the portfolio manager's business manager, using guidelines established by Wellington Management's Compensation Committee, which has final oversight responsibility for base salaries for employees. Each portfolio manager is eligible to receive an incentive payment based on the revenues earned by Wellington Management from the fund managed by the portfolio manager and generally each other portfolio managed by such portfolio manager. Each portfolio manager's incentive payment relating to the Funds is linked to the gross pre-tax performance of the Funds compared to the benchmark or peer group identified below 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 the portfolio manager, including Statement of Additional Information - Sept. 29, 2006 Page 139 portfolios with performance fees. Portfolio-based incentives across all portfolios managed by a portfolio manager can, and typically do, represent a significant portion of a portfolio manager's overall compensation; incentive compensation varies significantly by individual and can vary significantly from year to year. Some portfolio managers 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 tax qualified retirement plan, the contributions to which are made pursuant to an actuarial formula, as a partner of the firm. Mr. Abrams, Boselli and Shilling are partners of the firm.
------------------------------------------------------------------ FUND BENCHMARK INDEX AND/OR PEER GROUP ------------------------------------------------------------------ Small Cap Equity Fund Russell 2000 Index ------------------------------------------------------------------ Fundamental Growth Fund Russell 1000 Growth Index ------------------------------------------------------------------
(40) 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. (41) 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 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, GAMCO Investors, 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. (42) Lord Abbett compensates its portfolio managers on the basis of salary, bonus and profit sharing plan contributions. The level of compensation takes into account the portfolio manager's experience, reputation and competitive market rates. Statement of Additional Information - Sept. 29, 2006 Page 140 Fiscal year-end bonuses, which can be a substantial percentage of base level compensation, are determined after an evaluation of various factors. These factors include the portfolio manager's investment results and style consistency, the dispersion among funds with similar objectives, the risk taken to achieve the fund returns, and similar factors. Investment results are evaluated based on an assessment of the portfolio manager's three- and five-year investment returns on a pre-tax basis vs. both the appropriate style benchmarks and the appropriate peer group rankings. Finally, there is a component of the bonus that reflects leadership and management of the investment team. The evaluation does not follow a formulaic approach, but rather is reached following a review of these factors. No part of the bonus payment is based on the portfolio manager's assets under management, the revenues generated by those assets, or the profitability of the portfolio manager's unit. Lord Abbett does not manage hedge funds. Lord Abbett may designate a bonus payment of a manager for participation in the firm's senior incentive compensation plan, which provides for a deferred payout over a five-year period. The plan's earnings are based on the overall asset growth of the firm as a whole. Lord Abbett believes this incentive focuses portfolio managers on the impact their fund's performance has on the overall reputation of the firm as a whole and encourages exchanges of investment ideas among investment professionals managing different mandates. Lord Abbett provides a 401(k) profit-sharing plan for all eligible employees. Contributions to a portfolio manager's profit-sharing account are based on a percentage of the portfolio manager's total base and bonus paid during the fiscal year, subject to a specified maximum amount. The assets of this profit-sharing plan are entirely invested in Lord Abbett-sponsored funds. (43) All employees at Donald Smith & Co., Inc. are compensated on incentive plans. The compensation for portfolio managers, analysts and traders at Donald Smith consists of a base salary, a partnership interest in the firm's profits, and possibly an additional, discretionary bonus. This discretionary bonus can exceed 100% of the base salary if performance for clients exceeds established benchmarks. The current benchmark utilized is the Russell 2000 Value Index. Additional distribution of firm ownership is a strong motivation for continued employment at Donald Smith & Co., Inc. Administrative personnel are also given a bonus as a function of their contribution and the profitability of the firm. (44) 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. (45) 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. Statement of Additional Information - Sept. 29, 2006 Page 141 (46) Metropolitan West's compensation system is designed not only to attract and retain experienced, highly qualified investment personnel, but also to closely align employees' interests with clients' interests. Compensation for investment professionals consists of a base salary, bonus, generous benefits and, in some cases, ownership. Benefits include a comprehensive insurance benefits program (medical, vision and dental), 401(k) plan and profit-sharing plan. For those individuals who do not have an ownership interest in the firm, a material portion of each such professional's annual compensation is in the form of a bonus tied to results relative to clients' benchmarks and overall client satisfaction. Bonuses may range from 20% to over 100% of salary. Metropolitan West's compensation system is not determined on an account-specific basis. Rather, bonuses are tied to overall firm profitability and composite performance relative to the benchmark. The primary benchmark for the Small Cap Intrinsic Value strategy is the Russell 2000 Value Index. To reinforce long-term focus, performance is measured over Metropolitan West's investment horizon (typically two to three years). Analysts are encouraged to maintain a long-term focus and are not compensated for the number of their recommendations that are purchased in the portfolio. Rather, their bonuses are tied to overall strategy performance. Messrs. Lisenbee and Gleicher are owners of Metropolitan West. As such, their compensation consists of a fixed salary and participation in the firm's profits. (47) The portfolio manager's compensation as a Threadneedle Investments employee consists of (i) a base salary, (ii) an annual cash bonus, and (iii) an equity incentive award 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 the aggregate market competitive bonus targets for the teams of which the portfolio manager is a member and by the short-term (typically one year) and long-term (typically three year) performance of the accounts compared to applicable benchmarks. Senior management of Threadneedle Investments has the discretion to increase or decrease the size of the bonus pool and to determine the exact amount of each portfolio manager's bonus based on his/her performance as an employee. Threadneedle Investments portfolio managers are provided with a benefits package, including life insurance, health insurance, and participation in a company pension plan, comparable to that received by other Threadneedle Investments employees. Depending upon their job level, Threadneedle Investments portfolio managers may also be eligible for other benefits or perquisites that are available to all Threadneedle Investments employees at the same job level. (48) As of October 31, 2005, the portfolio managers receive all of their compensation from Columbia WAM and its parent company. P. Zachary Egan and Louis J. Mendes each received compensation in the form of salary and bonus. In addition, Mr. Egan received a distribution in connection with his association with Columbia WAM prior to its acquisition in September 2000 and Columbia WAM's recent performance. Mr. Mendes also participates in a supplemental pool for Columbia WAM employees that was established in connection with the acquisition of Columbia WAM and is based on Columbia WAM's recent performance. Portfolio manager compensation is variable and is based on both security analysis and portfolio management skill, as reflected through investment performance. Security analysis performance is evaluated based on investment results versus benchmarks of assigned coverage areas, industry and country weighting recommendations, achievement of industry and country weighting change mandates, the attainment of consistency across accounts, the magnitude of assets managed and the number of new investment ideas generated. Portfolio management performance is gauged on the pre-tax total return of each fund as measured against the performance of its benchmark index as well as its Lipper peer group. For portfolio managers that manage multiple funds, the performance of each fund is weighted by asset size so that the performance of a larger fund bears more importance on a portfolio manager's compensation than a smaller fund. Other factors used to determine portfolio manager compensation include the manager's business building efforts and governance and citizenship. The same factors and approach are applied to a portfolio manager's management of a separate account. Further, salary and bonus amounts were also impacted by Columbia WAM's income growth, revenue growth and growth of assets under management. Base salary amounts are determined according to multiple year performance, whereas bonus amounts are determined largely according to the manager's current year performance. Statement of Additional Information - Sept. 29, 2006 Page 142 A portion of Mr. Egan's compensation is also based on his responsibilities as the director of international research at Columbia WAM. (49) Principal Global Investors offers all employees a competitive salary and incentive compensation plan that is evaluated annually. Percentages of base salary versus performance bonus vary by position but are based on nationally competitive market data and are consistent with industry standards. Total cash compensation is targeted at the median of the market and benefits are targeted slightly above median. The investment staff is compensated under a base salary plus variable annual bonus (incentive compensation). The incentive compensation plan for equity portfolio managers is 90% weighted to investment performance and 10% weighted to Principal Global Investors annual performance score. The target incentive for equity portfolio managers ranges from 150% to 350% of actual base earnings, depending on job level. o Investment performance is based on gross performance versus a benchmark, peer group or both, depending on the client mandate. o Performance versus peers is measured for a period up to three years (shorter if the portfolio manager has managed the respective portfolio for a period less than three years). o Versus the peer group, incentive payout starts at 49th percentile and reaches 100% at the 25th percentile for the 1, 2, and 3-year periods. 15% of incentive payout is achieved at 49th percentile. No payout is realized if performance is below 50th percentile. As a wholly owned subsidiary of Principal Financial Group, all Principal Global employees are eligible to participate in our Employee Stock Purchase Plan that allows them to purchase company stock at a 15% discount each quarter. In addition, through our 401(k) plan, employees are able to contribute to an Employee Stock Ownership Plan (ESOP) through which they can buy additional company stock. (50) The portfolio managers' cash compensation is comprised primarily of a market-based salary and incentive compensation plans (annual and long term incentive). Funding for the TBCAM Annual Incentive Plan and Long Term Incentive Plan is through a pre-determined fixed percentage of overall TBCAM profitability. Therefore, all bonus awards are based initially on TBCAM's financial performance. The portfolio managers are eligible to receive annual cash bonus awards from the Annual Incentive Plan. Annual incentive opportunities are pre-established for each individual, expressed as a percentage of base salary ("target awards"). Annual awards are determined by applying multiples to this target award (0-2 times target award represents a portfolio manager's range of opportunity) and are capped at a maximum range of incentive opportunity for the job category. Awards are 100% discretionary and regardless of performance will be subject to pool funding availability. Awards are paid in cash on an annual basis. A significant portion of the target opportunity awarded is based upon the one-year and three-year (weighted more heavily) pre-tax performance of the portfolio manager's accounts relative to the performance of the appropriate Lipper and Callan peer groups. Other factors considered in determining the award are individual qualitative performance and the asset size and revenue growth of the products managed. For research analysts and other investment professionals, awards are distributed to the respective product teams (in the aggregate) based upon product performance relative to TBCAM-wide performance measured on the same basis as described above. Further allocations are made to specific team members by the product portfolio manager based upon sector contribution and other qualitative factors. All portfolio managers and analysts are also eligible to participate in the TBCAM Long Term Incentive Plan. This plan provides for an annual award, payable in cash after a three-year cliff vesting period. The value of the award increases during the vesting period based upon the growth in TBCAM's net income (capped at 20% and with a minimum payout of the Mellon 3 year CD rate). (51) Marsico's portfolio managers are generally subject to the compensation structure applicable to all Marsico employees. As such, Mr. Gendelman's compensation consists of a base salary (reevaluated at least annually), and periodic cash bonuses. Bonuses are typically based on two primary factors: (1) Marsico's overall profitability for the period, and (2) individual achievement and contribution. Portfolio manager compensation takes into account, among other factors, the overall performance of all accounts for which the manager provides investment advisory services. Portfolio managers do not receive special Statement of Additional Information - Sept. 29, 2006 Page 143 consideration based on the performance of particular accounts. Exceptional individual efforts are rewarded through greater participation in the bonus pool. Portfolio manager compensation comes solely from Marsico. Although Marsico may compare account performance with relevant benchmark indices, portfolio manager compensation is not directly tied to achieving any pre-determined or specified level of performance. In order to encourage a long-term time horizon for managing portfolios, Marsico seeks to evaluate the portfolio manager's individual performance over periods longer than the immediate compensation period. In addition, portfolio managers are compensated based on other criteria, including effectiveness of leadership within Marsico's Investment Team, contributions to Marsico's overall investment performance, discrete securities analysis, and other factors. In addition to his salary and bonus, Mr. Gendelman may participate in other Marsico benefits to the same extent and on the same basis as other Marsico employees. (52) Alliance Capital's compensation program for investment professionals is designed to be competitive and effective in order to attract and retain the highest caliber employees. The compensation program for investment professionals is designed to reflect their ability to generate long-term investment success for our clients, including shareholders of the AllianceBernstein Mutual Funds. Investment professionals do not receive any direct compensation based upon the investment returns of any individual client account, nor is compensation tied directly to the level or change in the level of assets under management. Investment professionals' annual compensation is comprised of the following: (i) Fixed base salary: This is generally the smallest portion of compensation. The base salary is a relatively low, fixed salary within a similar range for all investment professionals. The base salary (determined at the outset of employment based on level of experience), does not change significantly from year-to-year, and hence, is not particularly sensitive to performance. (ii) Discretionary incentive compensation in the form of an annual cash bonus: Alliance Capital's overall profitability determines the total amount of incentive compensation available to investment professionals. This portion of compensation is determined subjectively based on qualitative and quantitative factors. In evaluating this component of an investment professional's compensation, Alliance Capital considers the contribution to his/her team or discipline as it relates to that team's overall contribution to the long-term investment success, business results and strategy of Alliance Capital. Quantitative factors considered include, among other things, relative investment performance (e.g., by comparison to competitor or peer group funds or similar styles of investments, and appropriate, broad-based or specific market indices), and consistency of performance. There are no specific formulas used to determine this part of an investment professional's compensation and the compensation is not tied to any pre-determined or specified level of performance. Alliance Capital also considers qualitative factors such as the complexity and risk of investment strategies involved in the style or type of assets managed by the investment professional; success of marketing/business development efforts and client servicing; seniority/length of service with the firm; management and supervisory responsibilities; and fulfillment of Alliance Capital's leadership criteria. (iii) Discretionary incentive compensation in the form of awards under Alliance Capital's Partners Compensation Plan ("deferred awards"): Alliance Capital's overall profitability determines the total amount of deferred awards available to investment professionals. The deferred awards are allocated among investment professionals based on criteria similar to those used to determine the annual cash bonus. There is no fixed formula for determining these amounts. Deferred awards, for which there are various investment options, vest over a four-year period and are generally forfeited if the employee resigns or Alliance Capital terminates his/her employment. Investment options under the deferred awards plan include many of the same AllianceBernstein Mutual Funds offered to mutual fund investors, thereby creating a close alignment between the financial interests of the investment professionals and those of Alliance Capital's clients and mutual fund shareholders with respect to the performance of those mutual funds. Alliance Capital also permits deferred award recipients to allocate up to 50% of their award to investments in Alliance Capital's publicly traded equity securities (prior to Statement of Additional Information - Sept. 29, 2006 Page 144 2002, investment professional compensation also included discretionary long-term incentive in the form of restricted grants of Alliance Capital's Master Limited Partnership Units). (iv) Contributions under Alliance Capital's Profit Sharing/401(k) Plan: The contributions are based on Alliance Capital's overall profitability. The amount and allocation of the contributions are determined at the sole discretion of Alliance Capital. (53) Compensation for AIGGIC portfolio managers has both a salary and a bonus component. The salary component is a fixed base salary, which is generally based upon several factors, including experience and market levels of salary for such position. The bonus component is based both on a portfolio manager's individual performance and the organizational performance of AIGGIC. The bonus component is generally calculated as follows: (1) 60% is linked to the management of a portfolio manager's funds; (2) 20% is based on AIGGIC's profitability; and (3) 20% is determined on a discretionary basis (including individual qualitative goals). For the 60% component, the measures for a portfolio manager may vary according to the day-to-day responsibilities of a particular portfolio manager. The measures comprise any combination of (a) total return measures, (b) benchmark measures and (c) peer group measures. Any long-term compensation may include stock options and restricted stock units, both having vesting schedules. (54) Compensation for Batterymarch investment professionals includes: competitive base salaries; individual performance-based bonuses (based on the investment professionals' added value to the portfolios for which they are responsible measured on a one-, three- and five-year basis versus benchmarks and peer universes); corporate profit-sharing; and a non-qualified deferred compensation plan (this plan has a three-year cliff-vesting provision with annual contributions. In order for an employee to receive any contribution, they must remain employed for the full three-year period after the initial award). Our compensation structure is highly competitive by current industry standards in terms of base salary and incentive compensation. This is based upon an annual industry-wide survey, to which Batterymarch subscribes, conducted by McLagan Partners. A key component at Batterymarch in attracting and retaining key professionals is an environment which promotes continuous learning and sharing. All investment professionals have specific geographic coverage and sector responsibilities and each has responsibility for the success of investment models in these areas. We believe that this concept of "ownership" has contributed significantly to our ability to attract and retain investment professionals. (55) Ron Mushock and Kevin McCreesh are partners of the firm and co-Portfolio managers for the strategy. Employee-owners receive income distributions scaled to the company's profit margins. Other investment professionals are compensated with both a competitive salary and an annual performance bonus determined by their contribution to our investment process and its results. Other factors influencing the performance bonus include overall growth and profitability of the firm and client service responsibilities. Systematic's ability to offer equity ownership to senior professionals also provides a significant incentive for our investment team. Moreover, Messres. Mushock and McCreesh are provided with a benefits package, including health insurance, and participation in a company 401(k) plan, comparable to that received by other Systematic employees. (56) WEDGE's incentive compensation has been structured to reward all professionals for their contribution to the growth and profitability of the firm. General Partners are compensated via a percentage of the firm's net profitability. Other investment professionals' compensation is based on similar criteria including relative short and long-term portfolio performance as compared to both the index and a universe of peer managers. Statement of Additional Information - Sept. 29, 2006 Page 145 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
- ------------------------------------------------------------------------------------------------------------------------------------ ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ------------------------------------------------------------------------------------------- $500,000,001 - $1,000,000,001 - $3,000,000,001 - FUND $0 - 500,000,000 1,000,000,000 3,000,000,000 12,000,000,000 $12,000,000,001 + - ------------------------------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income 0.080% 0.075% 0.070% 0.060% 0.050% Disciplined International Equity Disciplined Small Cap Value Emerging Markets Emerging Markets Bond European Equity Global Bond Global Equity International Aggressive Growth International Equity International Opportunity International Select Value International Small Cap Small Cap Advantage Small Cap Equity Small Cap Growth Small Cap Value Small Company Index Strategic Allocation - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040% Core Bond Diversified Bond Floating Rate High-Yield Bond Income Opportunities Inflation Protected Intermediate Tax-Exempt Limited Duration Bond Massachusetts Tax-Exempt Michigan Tax-Exempt Minnesota Tax-Exempt New York Tax-Exempt Ohio Tax-Exempt Short Duration U.S. Government Tax-Exempt Bond Tax-Exempt High Income U.S. Government Mortgage - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 146
- ------------------------------------------------------------------------------------------------------------------------------------ ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES ------------------------------------------------------------------------------------------- $500,000,001 - $1,000,000,001 - $3,000,000,001 - FUND $0 - 500,000,000 1,000,000,000 3,000,000,000 12,000,000,000 $12,000,000,001 + - ------------------------------------------------------------------------------------------------------------------------------------ Aggressive Growth 0.060% 0.055% 0.050% 0.040% 0.030% Balanced Cash Management Disciplined Equity Disciplined Small and Mid Cap Equity Diversified Equity Income Dividend Opportunity Equity Value Fundamental Growth Fundamental Value Global Technology Growth Large Cap Equity Large Cap Value Mid Cap Growth Mid Cap Value Precious Metals Real Estate S&P 500 Index Select Value Tax-Exempt Money Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Basic Income 0.020% 0.020% 0.020% 0.020% 0.020% Income Builder Enhanced Income Income Builder Moderate Income Portfolio Builder Aggressive Portfolio Builder Conservative Portfolio Builder Moderate Portfolio Builder Moderate Aggressive Portfolio Builder Moderate Conservative Portfolio Builder Total Equity Retirement Plus 2010 Retirement Plus 2015 Retirement Plus 2020 Retirement Plus 2025 Retirement Plus 2030 Retirement Plus 2035 Retirement Plus 2040 Retirement Plus 2045 - ------------------------------------------------------------------------------------------------------------------------------------ Effective Oct. 1, 2005, the funds' Board approved a change to the Administrative Services Agreement fee schedule under the Administrative Services Agreement between Ameriprise Financial and the funds.
Statement of Additional Information - Sept. 29, 2006 Page 147 The fee is calculated for each calendar day on the basis of net assets as of the close of the preceding day. Fees paid in each of the last three fiscal periods are shown in the table below. The table also shows the daily rate applied to each fund's net assets as of the last day of the most recent fiscal period. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. TABLE 22. ADMINISTRATIVE FEES
- ------------------------------------------------------------------------------------------------------------------------------------ ADMINISTRATIVE SERVICES FEES PAID IN DAILY RATE ---------------------------------------------- APPLIED TO FUND 2006 2005 2004 FUND ASSETS - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Aggressive $ 51,235 $ 13,785 N/A 0.020 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Conservative 17,895 5,969 N/A 0.020 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate 85,545 23,460 N/A 0.020 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Aggressive 104,658 28,002 N/A 0.020 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Moderate Conservative 34,371 10,779 N/A 0.020 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Builder Total Equity 41,435 10,959 N/A 0.020 - ------------------------------------------------------------------------------------------------------------------------------------ Small Company Index 861,455 784,439 731,549 0.076 - ------------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index 222,321 319,791 324,551 0.060 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------------ Equity Value 558,514 454,202 451,613 0.056 - ------------------------------------------------------------------------------------------------------------------------------------ Precious Metals 50,123 51,848 52,769 0.060 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Advantage 568,712 491,869 371,247 0.078 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth 180,537 224,042 218,131 0.080 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2010 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2015 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2020 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2025 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2030 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2035 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2040 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Retirement Plus 2045 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Aggressive Growth 130,418 24,630 7,449 0.059 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Growth 83,643 31,978 6,428 0.060 - ------------------------------------------------------------------------------------------------------------------------------------ Fundamental Value 658,982 458,121 271,928 0.057 - ------------------------------------------------------------------------------------------------------------------------------------ High Yield Bond 1,328,295 1,219,476 1,227,227 0.064 - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Basic Income 581 N/A N/A 0.020 - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Enhanced Income 1,226 N/A N/A 0.020 - ------------------------------------------------------------------------------------------------------------------------------------ Income Builder Moderate Income 1,394 N/A N/A 0.020 - ------------------------------------------------------------------------------------------------------------------------------------ Select Value 443,873 427,460 240,301 0.059 - ------------------------------------------------------------------------------------------------------------------------------------ Short Duration U.S. Government 821,082 960,018 1,317,413 0.067 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Equity 205,335 129,820 88,061 0.080 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value 858,118 824,914 676,121 0.077 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Mortgage 172,175 152,145 204,741 0.070 - ------------------------------------------------------------------------------------------------------------------------------------ Value 285,079 285,752 228,212 0.060 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------------------ Dividend Opportunity 658,242 406,110 415,515 0.056 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate 91,341 41,449 2,235(c) 0.060 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 148
- ------------------------------------------------------------------------------------------------------------------------------------ ADMINISTRATIVE SERVICES FEES PAID IN DAILY RATE ---------------------------------------------- APPLIED TO FUND 2006 2005 2004 FUND ASSETS - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Management 1,741,492 1,016,703 1,171,667 0.050 - ------------------------------------------------------------------------------------------------------------------------------------ Core Bond 133,655 78,241 38,539 0.070 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Equity 496,810 29,441 6,521 0.054 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Small and Mid Cap Equity 1,143 N/A N/A 0.060 - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined Small Cap Value 4,615 N/A N/A 0.080 - ------------------------------------------------------------------------------------------------------------------------------------ Floating Rate 46,916 N/A N/A 0.070 - ------------------------------------------------------------------------------------------------------------------------------------ Growth 1,791,547 1,370,094 1,523,915 0.051 - ------------------------------------------------------------------------------------------------------------------------------------ Income Opportunities 253,936 164,038 81,849 0.070 - ------------------------------------------------------------------------------------------------------------------------------------ Inflation Protected Securities 169,778 61,197 6,834 0.070 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Equity 2,119,930 860,387 212,114 0.051 - ------------------------------------------------------------------------------------------------------------------------------------ Large Cap Value 78,248 67,667 41,856 0.060 - ------------------------------------------------------------------------------------------------------------------------------------ Limited Duration Bond 133,102 88,881 53,771 0.070 - ------------------------------------------------------------------------------------------------------------------------------------ 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt 87,771 100,323 111,565 0.040 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Bond 1,259,427 1,460,195 1,674,570 0.046 - ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced 524,986 588,644 610,513 0.039 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Equity Income 1,216,876 942,358 676,319 0.026 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value 385,071 170,293 58,931 0.050 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Allocation 383,942 390,084 381,033 0.037 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Absolute Return Currency and Income N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Disciplined International Equity N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets 351,359 271,857 208,342 0.080 - ------------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Bond N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ European Equity 75,504 78,835 82,084 0.080 - ------------------------------------------------------------------------------------------------------------------------------------ Global Bond 342,324 314,640 311,211 0.079 - ------------------------------------------------------------------------------------------------------------------------------------ Global Equity 305,907 284,795 304,662 0.079 - ------------------------------------------------------------------------------------------------------------------------------------ Global Technology 112,326 131,702 93,713 0.060 - ------------------------------------------------------------------------------------------------------------------------------------ International Aggressive Growth 240,889 149,750 94,603 0.080 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity 127,687 88,536 38,014 0.080 - ------------------------------------------------------------------------------------------------------------------------------------ International Opportunity 331,818 255,871 239,593 0.080 - ------------------------------------------------------------------------------------------------------------------------------------ International Select Value 861,655 549,050 284,251 0.075 - ------------------------------------------------------------------------------------------------------------------------------------ International Small Cap 74,264 46,103 13,092 0.080 - ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 149
- ------------------------------------------------------------------------------------------------------------------------------------ ADMINISTRATIVE SERVICES FEES PAID IN DAILY RATE ---------------------------------------------- APPLIED TO FUND 2005 2004 2003 FUND ASSETS - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate Tax-Exempt 64,053 69,058 65,453 0.070 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Growth 1,023,124 1,056,445 868,316 0.054 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Bond 321,037 323,368 371,126 0.069 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt High Income 1,505,060 1,447,459 1,546,469 0.060 - ------------------------------------------------------------------------------------------------------------------------------------ FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market 42,768 45,528 60,388 0.060 - ------------------------------------------------------------------------------------------------------------------------------------ For the period from March 4, 2004 (when shares became publicly available) to Jan. 31, 2005. For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. For the period from March 4, 2004 (when shares became publicly available) to June 30, 2004. For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. 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. Statement of Additional Information - Sept. 29, 2006 Page 150 TRANSFER AGENCY AGREEMENT Each fund has a Transfer Agency Agreement with RiverSource Service Corporation located at 734 Ameriprise Financial Center, Minneapolis, MN 55474. This agreement governs RiverSource Service Corporation's responsibility for administering and/or performing transfer agent functions, 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. For all but Class I shares, the fund will pay on the basis of the relative percentage of net assets of each class of shares, first allocating the base fee (equal to Class Y shares) across share classes, and then allocating the incremental per share class fee, based on the number of shareholder accounts. For Class I shares, the fund allocates the fees based strictly on the number of shareholder accounts. You can find your fund's investment category in Table 1. BALANCED, EQUITY, FUNDS-OF-FUNDS - EQUITY FUNDS The annual per account fee accrued daily and payable monthly, for the applicable classes is as follows:
Class A Class B Class C Class D Class E Class I Class Y ------- ------- ------- ------- ------- ------- ------- $19.50 $20.50 $20.00 $19.50 $19.50 $1.00 $17.50
FUNDS-OF-FUNDS - FIXED INCOME, STATE TAX-EXEMPT FIXED INCOME, TAXABLE FIXED INCOME, TAX-EXEMPT FIXED INCOME FUNDS The annual per account fee accrued daily and payable monthly, for the applicable classes is as follows:
Class A Class B Class C 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 RiverSource Distributors, Inc. and Ameriprise Financial Services, Inc. (collectively, the distributor), 70100 Ameriprise Financial Center, Minneapolis, MN 55474, serve as the fund's principal underwriter. The fund's shares are offered on a continuous basis. Under a Distribution Agreement, sales charges deducted for distributing fund shares are paid to the distributor daily. The following table shows the sales charges paid to the Distributor and the amount retained by the Distributor after paying commissions and other expenses for each of the last three fiscal periods. The table is organized by fiscal year end. You can find your fund's fiscal year end in Table 1. Statement of Additional Information - Sept. 29, 2006 Page 151
TABLE 23. SALES CHARGES PAID TO DISTRIBUTOR - ---------------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES FUND --------------------------------------------------------------------------------------- 2006 2005 2004 2006 2005 2004 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive $ 3,095,956 $2,689,735 N/A $ 1,116,369 $1,129,812 N/A - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative 577,821 722,689 N/A 105,590 178,650 N/A - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 4,118,788 3,810,185 N/A 1,075,302 1,309,727 N/A - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 7,078,581 6,114,118 N/A 2,691,706 2,610,071 N/A - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 1,286,540 1,603,913 N/A 274,017 530,042 N/A - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 1,845,156 1,393,255 N/A 518,093 509,719 N/A - ---------------------------------------------------------------------------------------------------------------------------------- Small Company Index 1,228,665 1,511,932 1,717,480 337,031 554,278 485,006 - ---------------------------------------------------------------------------------------------------------------------------------- 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 645,442 740,741 798,502 116,536 258,954 212,373 - ---------------------------------------------------------------------------------------------------------------------------------- Precious Metals 104,779 141,256 146,086 21,277 58,658 46,448 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage 986,996 1,972,996 2,543,371 276,857 774,287 757,410 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth 401,382 636,221 1,140,014 127,479 251,743 371,324 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Aggressive Growth 217,559 166,200 131,508 44,653 72,464 50,690 - ---------------------------------------------------------------------------------------------------------------------------------- Fundamental Growth 69,062 109,110 87,619 15,922 43,395 18,759 - ---------------------------------------------------------------------------------------------------------------------------------- Fundamental Value 1,915,417 2,827,644 2,069,259 406,545 1,038,987 633,428 - ---------------------------------------------------------------------------------------------------------------------------------- High Yield Bond 2,479,319 3,295,433 4,885,301 682,596 1,011,136 1,014,719 - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income 128,246 N/A N/A 25,697 N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income 326,707 N/A N/A 73,038 N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income 437,903 N/A N/A 109,389 N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Select Value 945,839 1,633,975 2,473,422 213,839 582,671 668,150 - ---------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government 1,908,960 3,842,195 8,055,130 482,228 1,629,476 2,236,469 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Equity 604,021 523,687 687,100 190,699 187,706 199,371 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Value 1,616,642 2,787,117 3,415,712 478,093 1,053,640 1,093,404 - ---------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage 442,638 631,090 1,414,409 61,137 197,759 322,339 - ---------------------------------------------------------------------------------------------------------------------------------- Value 474,692 836,914 1,098,734 83,140 248,868 257,673 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity 1,665,096 1,604,180 1,451,779 207,486 523,080 537,003 - ---------------------------------------------------------------------------------------------------------------------------------- Real Estate 598,431 556,465 224,344 180,632 223,572 95,933 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 152
- ---------------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES FUND --------------------------------------------------------------------------------------- 2006 2005 2004 2006 2005 2004 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Cash Management 718,247 994,923 1,556,245 714,638 993,250 1,554,374 - ---------------------------------------------------------------------------------------------------------------------------------- Core Bond 180,034 207,266 243,504 62,588 90,811 169,705 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity 322,731 126,376 64,957 67,609 47,059 13,620 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 1,760 N/A N/A 852 N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value 6,304 N/A N/A 1,708 N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Floating Rate 364,914 N/A N/A (118,354) N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Growth 4,553,722 3,540,317 5,194,048 955,528 1,430,279 1,979,434 - ---------------------------------------------------------------------------------------------------------------------------------- Income Opportunities 486,593 891,368 1,008,513 108,764 201,999 268,488 - ---------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities 326,780 429,879 218,847 47,098 84,033 45,591 - ---------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity 3,400,059 1,812,939 2,547,239 629,348 723,158 711,343 - ---------------------------------------------------------------------------------------------------------------------------------- Large Cap Value 123,212 196,360 454,971 37,908 71,406 132,559 - ---------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond 220,446 393,925 423,604 28,711 115,701 178,177 - ---------------------------------------------------------------------------------------------------------------------------------- 2005 2004 2003 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt 218,698 246,897 369,212 111,053 96,481 147,346 - ---------------------------------------------------------------------------------------------------------------------------------- Diversified Bond 3,072,387 3,926,269 5,046,003 1,203,503 1,516,544 722,797 - ---------------------------------------------------------------------------------------------------------------------------------- Massachusetts Tax-Exempt 98,324 163,094 230,570 44,188 67,903 23,080 - ---------------------------------------------------------------------------------------------------------------------------------- Michigan Tax-Exempt 68,367 108,759 123,009 20,700 48,877 9,420 - ---------------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt 463,661 645,851 658,737 141,616 225,724 43,189 - ---------------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt 134,248 155,512 146,838 63,799 65,578 26,914 - ---------------------------------------------------------------------------------------------------------------------------------- Ohio Tax-Exempt 55,404 113,361 155,216 9,152 35,469 15,472 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------------------------------------------- Balanced 501,366 735,450 750,472 168,698 240,733 228,111 - ---------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income 9,791,165 10,301,867 3,604,654 2,664,788 2,933,886 1,012,358 - ---------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 3,098,747 2,377,837 655,293 986,793 837,278 149,937 - ---------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation 1,083,154 989,579 847,194 244,136 316,545 223,952 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Emerging Markets 798,990 556,829 243,062 (6,658,875) (6,660,972) (2,681,731) - ---------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Global Bond 765,438 956,580 1,009,917 390,806 536,364 537,388 - ---------------------------------------------------------------------------------------------------------------------------------- Global Equity 778,062 467,198 437,154 211,977 203,564 196,939 - ---------------------------------------------------------------------------------------------------------------------------------- Global Technology 328,770 591,744 543,360 67,485 208,704 150,041 - ---------------------------------------------------------------------------------------------------------------------------------- International Aggressive Growth 816,345 796,060 528,748 282,465 360,944 194,832 - ---------------------------------------------------------------------------------------------------------------------------------- International Equity 299,410 456,321 329,351 96,946 175,987 82,777 - ---------------------------------------------------------------------------------------------------------------------------------- International Opportunity 873,855 997,517 274,577 244,843 371,845 104,589 - ---------------------------------------------------------------------------------------------------------------------------------- International Select Value 3,425,153 3,105,887 1,896,607 1,020,350 1,220,539 527,546 - ---------------------------------------------------------------------------------------------------------------------------------- International Small Cap 203,543 324,756 86,270 60,817 115,235 18,806 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 176,349 306,545 611,983 40,451 86,091 100,008 - ---------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth 1,821,533 3,566,760 4,166,089 635,918 1,373,111 1,046,768 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 371,626 495,541 740,644 107,815 197,028 233,789 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income 2,115,452 3,131,234 4,468,036 2,736,405 1,256,629 1,475,443 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 153
- ---------------------------------------------------------------------------------------------------------------------------------- AMOUNT RETAINED AFTER PAYING SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES FUND --------------------------------------------------------------------------------------- 2005 2004 2003 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------------- For the period from March 4, 2004 (when shares became publicly available) to Jan. 31, 2005. For the period from Feb. 16, 2006 (when shares became publicly available) to May 31, 2006. For the period from March 4, 2004 (when shares became publicly available to June 30, 2004. For the period from May 18, 2006 (when shares became publicly available) to July 31, 2006. For the period from Feb. 16, 2006 (when shares became publicly available) to July 31, 2006. 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, except for Cash Management and Retirement Plus funds, the fund rpays the distributor a fee for service provided to shareholders by the Distributor 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 approved a Plan of Distribution (Plan) and entered into an agreement under the Plan pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, of the type known as a reimbursement plan, the fund pays a fee up to actual expenses incurred at an annual rate as follows: The fee is based on the average daily net assets of the fund attributable to the applicable class:
Class A Class B Class C Class D ------- ------- ------- ------- 0.25% 1.00% 1.00% 0.25%
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 Class C ------- ------- ------- 0.10% 0.85% 0.75%
For Class B and Class C shares, up to 0.75% is reimbursed for distribution expenses. For Class A and Class B shares, 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. Statement of Additional Information - Sept. 29, 2006 Page 154 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.
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 $ 484,308 $ 577,276 $ 46,390 N/A - ---------------------------------------------------------------------------------------------- Portfolio Builder Conservative 137,397 287,019 57,771 N/A - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate 749,024 1,152,301 128,534 N/A - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive 997,023 1,133,797 110,329 N/A - ---------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative 281,878 506,549 84,250 N/A - ---------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 388,326 477,375 40,094 N/A - ---------------------------------------------------------------------------------------------- Small Company Index 2,079,181 3,813,752 N/A N/A - ---------------------------------------------------------------------------------------------- S&P 500 Index N/A N/A N/A 165,605 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ---------------------------------------------------------------------------------------------- Equity Value 2,183,812 2,384,097 34,165 N/A - ---------------------------------------------------------------------------------------------- Precious Metals 165,867 162,206 17,083 N/A - ---------------------------------------------------------------------------------------------- Small Cap Advantage 1,491,995 2,099,561 119,350 N/A - ---------------------------------------------------------------------------------------------- Small Cap Growth 350,381 628,494 59,731 N/A - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ---------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------- Retirement Plus 2015 N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------- Retirement Plus 2025 N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------- Retirement Plus 2035 N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------- Retirement Plus 2045 N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 155
- ---------------------------------------------------------------------------------------------- FUND CLASS A CLASS B CLASS C CLASS D - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ---------------------------------------------------------------------------------------------- Aggressive Growth 310,563 348,467 9,442 N/A - ---------------------------------------------------------------------------------------------- Fundamental Growth 48,218 73,735 4,838 N/A - ---------------------------------------------------------------------------------------------- Fundamental Value 1,827,800 2,973,732 185,363 N/A - ---------------------------------------------------------------------------------------------- High Yield Bond 4,151,744 5,172,801 319,473 N/A - ---------------------------------------------------------------------------------------------- Income Builder Basic Income 5,500 6,097 897 N/A - ---------------------------------------------------------------------------------------------- Income Builder Enhanced Income 12,226 10,395 1,978 N/A - ---------------------------------------------------------------------------------------------- Income Builder Moderate Income 14,420 10,414 1,572 N/A - ---------------------------------------------------------------------------------------------- Select Value 1,285,850 1,804,688 111,631 N/A - ---------------------------------------------------------------------------------------------- Short Duration U.S. Government 1,925,517 4,437,987 188,438 N/A - ---------------------------------------------------------------------------------------------- Small Cap Equity 452,722 523,768 39,821 N/A - ---------------------------------------------------------------------------------------------- Small Cap Value 1,844,040 3,273,190 209,094 N/A - ---------------------------------------------------------------------------------------------- U.S. Government Mortgage 365,255 806,733 86,693 N/A - ---------------------------------------------------------------------------------------------- Value 623,643 1,258,485 84,477 N/A - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------- Dividend Opportunity 2,246,282 2,890,686 139,322 N/A - ---------------------------------------------------------------------------------------------- Real Estate 208,160 222,515 11,761 N/A - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------- Cash Management 3,205,933 820,043 16,368 N/A - ---------------------------------------------------------------------------------------------- Core Bond 89,181 122,351 5,692 N/A - ---------------------------------------------------------------------------------------------- Disciplined Equity 1,426,565 427,156 12,242 N/A - ---------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity 4,723 45 19 N/A - ---------------------------------------------------------------------------------------------- Disciplined Small Cap Value 12,475 758 90 N/A - ---------------------------------------------------------------------------------------------- Floating Rate 123,623 35,196 9,352 N/A - ---------------------------------------------------------------------------------------------- Growth 5,852,158 5,574,406 181,214 N/A - ---------------------------------------------------------------------------------------------- Income Opportunities 504,284 707,566 64,272 N/A - ---------------------------------------------------------------------------------------------- Inflation Protected Securities 242,647 467,215 35,838 N/A - ---------------------------------------------------------------------------------------------- Large Cap Equity 7,096,389 8,048,484 201,664 N/A - ---------------------------------------------------------------------------------------------- Large Cap Value 170,730 240,605 12,172 N/A - ---------------------------------------------------------------------------------------------- Limited Duration Bond 196,674 214,578 15,662 N/A - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------- California Tax-Exempt 483,557 182,416 33,536 N/A - ---------------------------------------------------------------------------------------------- Diversified Bond 4,534,413 5,752,444 193,278 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 - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------- Balanced 2,607,027 1,043,188 30,859 N/A - ---------------------------------------------------------------------------------------------- Diversified Equity Income 7,657,786 10,740,806 480,884 N/A - ---------------------------------------------------------------------------------------------- Mid Cap Value 1,330,390 1,925,014 93,253 N/A - ---------------------------------------------------------------------------------------------- Strategic Allocation 2,265,380 972,773 51,964 N/A - ----------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 156
- ---------------------------------------------------------------------------------------------- FUND CLASS A CLASS B CLASS C CLASS D - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------- Absolute Return Currency and Income N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------- Disciplined International Equity N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------- Emerging Markets 615,902 837,876 20,597 N/A - ---------------------------------------------------------------------------------------------- Emerging Markets Bond N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------- European Equity 215,628 357,616 14,910 N/A - ---------------------------------------------------------------------------------------------- Global Bond 955,642 1,383,322 46,223 N/A - ---------------------------------------------------------------------------------------------- Global Equity 998,361 1,085,962 16,253 N/A - ---------------------------------------------------------------------------------------------- Global Technology 332,148 541,521 36,342 N/A - ---------------------------------------------------------------------------------------------- International Aggressive Growth 473,135 538,762 31,073 N/A - ---------------------------------------------------------------------------------------------- International Equity 251,971 246,890 15,280 N/A - ---------------------------------------------------------------------------------------------- International Opportunity 988,705 870,310 24,597 N/A - ---------------------------------------------------------------------------------------------- International Select Value 2,092,138 2,820,781 147,657 N/A - ---------------------------------------------------------------------------------------------- International Small Cap 156,292 163,874 7,220 N/A - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------- Intermediate Tax-Exempt 288,204 202,747 76,645 N/A - ---------------------------------------------------------------------------------------------- Mid Cap Growth 3,423,983 3,565,125 128,400 N/A - ---------------------------------------------------------------------------------------------- Tax-Exempt Bond 1,609,147 333,246 43,532 N/A - ---------------------------------------------------------------------------------------------- Tax-Exempt High Income 9,288,829 2,274,999 255,897 N/A - ---------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ---------------------------------------------------------------------------------------------- Tax-Exempt Money Market 117,570 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 FIXED INCOME FUNDS OTHER THAN DIVERSIFIED BOND AND HIGH YIELD BOND: 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 FIXED INCOME, TAX-EXEMPT FIXED INCOME AND TAX-EXEMPT MONEY MARKET FUNDS, AS WELL AS DIVERSIFIED BOND AND HIGH YIELD BOND: 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. Statement of Additional Information - Sept. 29, 2006 Page 157 ORGANIZATIONAL INFORMATION Each fund is an open-end management investment company. The fund's headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268. SHARES The shares of a fund represent an interest in that fund's assets only (and profits or losses), and, in the event of liquidation, each share of a fund would have the same rights to dividends and assets as every other share of that fund. VOTING RIGHTS As a shareholder in a fund, you have voting rights over the fund's management and fundamental policies. You are entitled to vote based on your total dollar interest in the fund. Each class, if applicable, has exclusive voting rights with respect to matters for which separate class voting is appropriate under applicable law. All shares have cumulative voting rights with respect to the election of Board members. This means that you have as many votes as the dollar amount you own, including the fractional amount, multiplied by the number of members to be elected. DIVIDEND RIGHTS Dividends paid by a fund, if any, with respect to each applicable class of shares will be calculated in the same manner, at the same time, on the same day, and will be in the same amount, except for differences resulting from differences in fee structures.
TABLE 25. FUND HISTORY TABLE FOR RIVERSOURCE FUNDS* - --------------------------------------------------------------------------------------------------------------- DATE FIRST OFFERED TO FORM OF FUND DATE OF ORGANIZATION PUBLIC ORGANIZATION - --------------------------------------------------------------------------------------------------------------- BOND SERIES, INC. 4/29/81, 6/13/86 Corporation - --------------------------------------------------------------------------------------------------------------- Core Bond Fund 6/19/03 - --------------------------------------------------------------------------------------------------------------- Floating Rate Fund 2/16/06 - --------------------------------------------------------------------------------------------------------------- Income Opportunities Fund 6/19/03 - --------------------------------------------------------------------------------------------------------------- Inflation Protected Securities Fund 3/4/04 - --------------------------------------------------------------------------------------------------------------- Limited Duration Bond Fund 6/19/03 - --------------------------------------------------------------------------------------------------------------- CALIFORNIA TAX-EXEMPT TRUST 4/7/86 Business Trust - --------------------------------------------------------------------------------------------------------------- California Tax-Exempt Fund 8/18/86 - --------------------------------------------------------------------------------------------------------------- DIMENSIONS SERIES, INC 2/20/68, 6/13/86 Corporation - --------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Fund 5/18/06 - --------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value Fund 2/16/06 - --------------------------------------------------------------------------------------------------------------- DIVERSIFIED INCOME SERIES, INC. 6/27/74, 6/31/86(1) Corporation - --------------------------------------------------------------------------------------------------------------- Diversified Bond Fund 10/3/74 - --------------------------------------------------------------------------------------------------------------- EQUITY SERIES, INC. 3/18/57, 6/13/86(1) Corporation - --------------------------------------------------------------------------------------------------------------- Mid Cap Growth Fund 6/4/57 - --------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- STATE OF FISCAL FUND ORGANIZATION YEAR END DIVERSIFIED - ----------------------------------------------------------------------------------------------- BOND SERIES, INC. NV/MN 7/31 - ----------------------------------------------------------------------------------------------- Core Bond Fund Yes - ----------------------------------------------------------------------------------------------- Floating Rate Fund Yes - ----------------------------------------------------------------------------------------------- Income Opportunities Fund Yes - ----------------------------------------------------------------------------------------------- Inflation Protected Securities Fund No - ----------------------------------------------------------------------------------------------- Limited Duration Bond Fund Yes - ----------------------------------------------------------------------------------------------- CALIFORNIA TAX-EXEMPT TRUST MA 6/30 - ----------------------------------------------------------------------------------------------- California Tax-Exempt Fund No - ----------------------------------------------------------------------------------------------- DIMENSIONS SERIES, INC NV/MN 7/31 - ----------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity Fund Yes - ----------------------------------------------------------------------------------------------- Disciplined Small Cap Value Fund Yes - ----------------------------------------------------------------------------------------------- DIVERSIFIED INCOME SERIES, INC. NV/MN 8/31 - ----------------------------------------------------------------------------------------------- Diversified Bond Fund Yes - ----------------------------------------------------------------------------------------------- EQUITY SERIES, INC. NV/MN 11/30 - ----------------------------------------------------------------------------------------------- Mid Cap Growth Fund Yes - -----------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 158
- --------------------------------------------------------------------------------------------------------------- DATE BEGAN FORM OF FUND DATE OF ORGANIZATION OPERATIONS ORGANIZATION - --------------------------------------------------------------------------------------------------------------- GLOBAL SERIES, INC. 10/28/88 Corporation - --------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income Fund 6/15/06 - --------------------------------------------------------------------------------------------------------------- Emerging Markets Bond Fund 2/16/06 - --------------------------------------------------------------------------------------------------------------- Emerging Markets Fund 11/13/96 - --------------------------------------------------------------------------------------------------------------- Global Bond Fund 3/20/89 - --------------------------------------------------------------------------------------------------------------- Global Equity Fund, 5/29/90 - --------------------------------------------------------------------------------------------------------------- Global Technology Fund 11/13/96 - --------------------------------------------------------------------------------------------------------------- GOVERNMENT INCOME SERIES, INC. 3/12/85 Corporation - --------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government Fund 8/19/85 - --------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage Fund 2/14/02 - --------------------------------------------------------------------------------------------------------------- HIGH YIELD INCOME SERIES, INC. 8/17/83 Corporation - --------------------------------------------------------------------------------------------------------------- High Yield Bond Fund 12/8/83 - --------------------------------------------------------------------------------------------------------------- INCOME SERIES, INC. 2/10/45; 6/13/86 Corporation - --------------------------------------------------------------------------------------------------------------- Income Builder Basic Income Fund 2/16/06 - --------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income Fund 2/16/06 - --------------------------------------------------------------------------------------------------------------- Income Builder Moderate Income Fund 2/16/06 - --------------------------------------------------------------------------------------------------------------- INTERNATIONAL MANAGERS SERIES, INC. 5/9/01 Corporation - --------------------------------------------------------------------------------------------------------------- International Aggressive Growth Fund 9/28/01 - --------------------------------------------------------------------------------------------------------------- International Equity Fund 10/3/02 - --------------------------------------------------------------------------------------------------------------- International Select Value Fund 9/28/01 - --------------------------------------------------------------------------------------------------------------- International Small Cap Fund 10/3/02 - --------------------------------------------------------------------------------------------------------------- INTERNATIONAL SERIES, INC. 7/18/84 Corporation - --------------------------------------------------------------------------------------------------------------- Disciplined International Equity Fund 5/18/06 - --------------------------------------------------------------------------------------------------------------- European Equity Fund 6/26/00 - --------------------------------------------------------------------------------------------------------------- International Opportunity Fund, 11/15/84 - --------------------------------------------------------------------------------------------------------------- INVESTMENT SERIES, INC. 1/18/40; 6/13/86 Corporation - --------------------------------------------------------------------------------------------------------------- Balanced Fund 4/16/40 - --------------------------------------------------------------------------------------------------------------- Diversified Equity Income Fund 10/15/90 - --------------------------------------------------------------------------------------------------------------- Mid Cap Value Fund 2/14/02 - --------------------------------------------------------------------------------------------------------------- LARGE CAP SERIES, INC. 5/21/70, 6/13/86(1) Corporation - --------------------------------------------------------------------------------------------------------------- Disciplined Equity Fund 4/24/03 - --------------------------------------------------------------------------------------------------------------- Growth Fund 3/1/72 - --------------------------------------------------------------------------------------------------------------- Large Cap Equity Fund 3/28/02 - --------------------------------------------------------------------------------------------------------------- Large Cap Value Fund 6/27/02 - --------------------------------------------------------------------------------------------------------------- MANAGERS SERIES, INC. 3/20/01 Corporation - --------------------------------------------------------------------------------------------------------------- Aggressive Growth Fund 4/24/03 - --------------------------------------------------------------------------------------------------------------- Fundamental Growth Fund 4/24/03 - --------------------------------------------------------------------------------------------------------------- Fundamental Value Fund 6/18/01 - --------------------------------------------------------------------------------------------------------------- Select Value Fund 3/8/02 - --------------------------------------------------------------------------------------------------------------- Small Cap Equity Fund 3/8/02 - --------------------------------------------------------------------------------------------------------------- Small Cap Value Fund 6/18/01 - --------------------------------------------------------------------------------------------------------------- Value Fund 6/18/01 - --------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- STATE OF FISCAL FUND ORGANIZATION YEAR END DIVERSIFIED - ----------------------------------------------------------------------------------------------- GLOBAL SERIES, INC. MN 10/31 - ----------------------------------------------------------------------------------------------- Absolute Return Currency and Income Fund No - ----------------------------------------------------------------------------------------------- Emerging Markets Bond Fund No - ----------------------------------------------------------------------------------------------- Emerging Markets Fund Yes - ----------------------------------------------------------------------------------------------- Global Bond Fund No - ----------------------------------------------------------------------------------------------- Global Equity Fund, Yes - ----------------------------------------------------------------------------------------------- Global Technology Fund No - ----------------------------------------------------------------------------------------------- GOVERNMENT INCOME SERIES, INC. MN 5/31 - ----------------------------------------------------------------------------------------------- Short Duration U.S. Government Fund Yes - ----------------------------------------------------------------------------------------------- U.S. Government Mortgage Fund Yes - ----------------------------------------------------------------------------------------------- HIGH YIELD INCOME SERIES, INC. MN 5/31 - ----------------------------------------------------------------------------------------------- High Yield Bond Fund Yes - ----------------------------------------------------------------------------------------------- INCOME SERIES, INC. NV/MN 5/31 - ----------------------------------------------------------------------------------------------- Income Builder Basic Income Fund No - ----------------------------------------------------------------------------------------------- Income Builder Enhanced Income Fund No - ----------------------------------------------------------------------------------------------- Income Builder Moderate Income Fund No - ----------------------------------------------------------------------------------------------- INTERNATIONAL MANAGERS SERIES, INC. MN 10/31 - ----------------------------------------------------------------------------------------------- International Aggressive Growth Fund Yes - ----------------------------------------------------------------------------------------------- International Equity Fund Yes - ----------------------------------------------------------------------------------------------- International Select Value Fund Yes - ----------------------------------------------------------------------------------------------- International Small Cap Fund Yes - ----------------------------------------------------------------------------------------------- INTERNATIONAL SERIES, INC. MN 10/31 - ----------------------------------------------------------------------------------------------- Disciplined International Equity Fund Yes - ----------------------------------------------------------------------------------------------- European Equity Fund Yes - ----------------------------------------------------------------------------------------------- International Opportunity Fund, Yes - ----------------------------------------------------------------------------------------------- INVESTMENT SERIES, INC. NV/MN 9/30 - ----------------------------------------------------------------------------------------------- Balanced Fund Yes - ----------------------------------------------------------------------------------------------- Diversified Equity Income Fund Yes - ----------------------------------------------------------------------------------------------- Mid Cap Value Fund Yes - ----------------------------------------------------------------------------------------------- LARGE CAP SERIES, INC. NV/MN 7/31 - ----------------------------------------------------------------------------------------------- Disciplined Equity Fund Yes - ----------------------------------------------------------------------------------------------- Growth Fund Yes - ----------------------------------------------------------------------------------------------- Large Cap Equity Fund Yes - ----------------------------------------------------------------------------------------------- Large Cap Value Fund Yes - ----------------------------------------------------------------------------------------------- MANAGERS SERIES, INC. MN 5/31 - ----------------------------------------------------------------------------------------------- Aggressive Growth Fund Yes - ----------------------------------------------------------------------------------------------- Fundamental Growth Fund Yes - ----------------------------------------------------------------------------------------------- Fundamental Value Fund Yes - ----------------------------------------------------------------------------------------------- Select Value Fund Yes - ----------------------------------------------------------------------------------------------- Small Cap Equity Fund Yes - ----------------------------------------------------------------------------------------------- Small Cap Value Fund Yes - ----------------------------------------------------------------------------------------------- Value Fund Yes - -----------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 159
- --------------------------------------------------------------------------------------------------------------- DATE FIRST OFFERED TO FORM OF FUND** DATE OF ORGANIZATION PUBLIC ORGANIZATION - --------------------------------------------------------------------------------------------------------------- MARKET ADVANTAGE SERIES, INC. 8/25/89 Corporation - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative Fund 3/4/04 - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative Fund 3/4/04 - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 3/4/04 - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive Fund 3/4/04 - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 3/4/04 - --------------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity Fund 3/4/04 - --------------------------------------------------------------------------------------------------------------- S&P 500 Index Fund 10/25/99 - --------------------------------------------------------------------------------------------------------------- Small Company Index Fund 8/19/96 - --------------------------------------------------------------------------------------------------------------- MONEY MARKET SERIES, INC. 8/22/75; 6/13/86 Corporation - --------------------------------------------------------------------------------------------------------------- Cash Management Fund 10/6/75 - --------------------------------------------------------------------------------------------------------------- RETIREMENT SERIES TRUST 1/27/06 Business Trust - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 Fund 5/18/06 - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 Fund 5/18/06 - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 Fund 5/18/06 - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 Fund 5/18/06 - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 Fund 5/18/06 - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 Fund 5/18/06 - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 Fund 5/18/06 - --------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 Fund 5/18/06 - --------------------------------------------------------------------------------------------------------------- SECTOR SERIES, INC. 3/25/88 Corporation - --------------------------------------------------------------------------------------------------------------- Dividend Opportunity Fund 8/1/88 - --------------------------------------------------------------------------------------------------------------- Real Estate Fund 3/4/04 - --------------------------------------------------------------------------------------------------------------- SELECTED SERIES, INC. 10/5/84 Corporation - --------------------------------------------------------------------------------------------------------------- Precious Metals Fund 4/22/86 - --------------------------------------------------------------------------------------------------------------- SPECIAL TAX-EXEMPT SERIES TRUST 4/7/86 Business Trust - --------------------------------------------------------------------------------------------------------------- Massachusetts Tax-Exempt Fund 7/2/87 - --------------------------------------------------------------------------------------------------------------- Michigan Tax-Exempt Fund 7/2/87 - --------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt Fund 8/18/86 - --------------------------------------------------------------------------------------------------------------- New York Tax-Exempt Fund 8/18/86 - --------------------------------------------------------------------------------------------------------------- Ohio Tax-Exempt Fund 7/2/87 - --------------------------------------------------------------------------------------------------------------- STRATEGIC ALLOCATION SERIES, INC. 10/9/84 Corporation - --------------------------------------------------------------------------------------------------------------- Strategic Allocation Fund 1/23/85 - --------------------------------------------------------------------------------------------------------------- STRATEGY SERIES, INC. 1/24/84 Corporation - --------------------------------------------------------------------------------------------------------------- Equity Value Fund 5/14/84 - --------------------------------------------------------------------------------------------------------------- Small Cap Growth Fund 1/24/01 - --------------------------------------------------------------------------------------------------------------- Small Cap Advantage Fund 5/4/99 - --------------------------------------------------------------------------------------------------------------- TAX-EXEMPT INCOME SERIES, INC. 12/21/78; 6/13/86 Corporation - --------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income Fund 5/7/79 - --------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- STATE OF FISCAL FUND ORGANIZATION YEAR END DIVERSIFIED - ----------------------------------------------------------------------------------------------- MARKET ADVANTAGE SERIES, INC. MN 1/31 - ----------------------------------------------------------------------------------------------- Portfolio Builder Conservative Fund No - ----------------------------------------------------------------------------------------------- Portfolio Builder Moderate Conservative Fund No - ----------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund No - ----------------------------------------------------------------------------------------------- Portfolio Builder Moderate Aggressive Fund No - ----------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund No - ----------------------------------------------------------------------------------------------- Portfolio Builder Total Equity Fund No - ----------------------------------------------------------------------------------------------- S&P 500 Index Fund Yes - ----------------------------------------------------------------------------------------------- Small Company Index Fund Yes - ----------------------------------------------------------------------------------------------- MONEY MARKET SERIES, INC. NV/MN 7/31 - ----------------------------------------------------------------------------------------------- Cash Management Fund Yes - ----------------------------------------------------------------------------------------------- RETIREMENT SERIES TRUST MA 4/30 - ----------------------------------------------------------------------------------------------- Retirement Plus 2010 Fund No - ----------------------------------------------------------------------------------------------- Retirement Plus 2015 Fund No - ----------------------------------------------------------------------------------------------- Retirement Plus 2020 Fund No - ----------------------------------------------------------------------------------------------- Retirement Plus 2025 Fund No - ----------------------------------------------------------------------------------------------- Retirement Plus 2030 Fund No - ----------------------------------------------------------------------------------------------- Retirement Plus 2035 Fund No - ----------------------------------------------------------------------------------------------- Retirement Plus 2040 Fund No - ----------------------------------------------------------------------------------------------- Retirement Plus 2045 Fund No - ----------------------------------------------------------------------------------------------- SECTOR SERIES, INC. MN 6/30 - ----------------------------------------------------------------------------------------------- Dividend Opportunity Fund Yes - ----------------------------------------------------------------------------------------------- Real Estate Fund No - ----------------------------------------------------------------------------------------------- SELECTED SERIES, INC. MN 3/31 - ----------------------------------------------------------------------------------------------- Precious Metals Fund No - ----------------------------------------------------------------------------------------------- SPECIAL TAX-EXEMPT SERIES TRUST MA 6/30 - ----------------------------------------------------------------------------------------------- Massachusetts Tax-Exempt Fund No - ----------------------------------------------------------------------------------------------- Michigan Tax-Exempt Fund No - ----------------------------------------------------------------------------------------------- Minnesota Tax-Exempt Fund Yes - ----------------------------------------------------------------------------------------------- New York Tax-Exempt Fund No - ----------------------------------------------------------------------------------------------- Ohio Tax-Exempt Fund No - ----------------------------------------------------------------------------------------------- STRATEGIC ALLOCATION SERIES, INC. MN 9/30 - ----------------------------------------------------------------------------------------------- Strategic Allocation Fund Yes - ----------------------------------------------------------------------------------------------- STRATEGY SERIES, INC. MN 3/31 - ----------------------------------------------------------------------------------------------- Equity Value Fund Yes - ----------------------------------------------------------------------------------------------- Small Cap Growth Fund Yes - ----------------------------------------------------------------------------------------------- Small Cap Advantage Fund Yes - ----------------------------------------------------------------------------------------------- TAX-EXEMPT INCOME SERIES, INC. NV/MN 11/30 - ----------------------------------------------------------------------------------------------- Tax-Exempt High Income Fund Yes - -----------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 160
- ----------------------------------------------------------------------------------------------------------- DATE FIRST OFFERED TO FORM OF FUND DATE OF ORGANIZATION PUBLIC ORGANIZATION - ----------------------------------------------------------------------------------------------------------- TAX-EXEMPT MONEY SERIES, INC. 2/29/80, 6/13/86(1) Corporation - ----------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Fund 8/5/80 - ----------------------------------------------------------------------------------------------------------- TAX-EXEMPT SERIES, INC. 9/30/76, 6/13/86(1) Corporation - ----------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Fund 11/13/96 - ----------------------------------------------------------------------------------------------------------- Tax-Exempt Bond Fund 11/24/76 - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- STATE OF FISCAL FUND ORGANIZATION YEAR END DIVERSIFIED - ----------------------------------------------------------------------------------------------- TAX-EXEMPT MONEY SERIES, INC. NV/MN 12/31 - ----------------------------------------------------------------------------------------------- Tax-Exempt Money Market Fund Yes - ----------------------------------------------------------------------------------------------- TAX-EXEMPT SERIES, INC. NV/MN 11/30 - ----------------------------------------------------------------------------------------------- Intermediate Tax-Exempt Fund Yes - ----------------------------------------------------------------------------------------------- Tax-Exempt Bond Fund Yes - ----------------------------------------------------------------------------------------------- The RiverSource Variable Portfolio funds are not included in this table. Please see the Variable Portfolio funds' SAI for fund history. Effective Oct. 1, 2005 American Express Funds changed its name to RiverSource funds and the names Threadneedle and Partners were removed from fund names. If a non-diversified fund is managed as if it were a diversified fund for a period of three years, its status under the 1940 Act will convert automatically from non-diversified to diversified. A diversified fund may convert to non-diversified status only with approval of shareholders. Date merged into a Minnesota corporation incorporated on April 7, 1986. 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. Effective April 21, 2006, AXP Discovery Series, Inc. changed its name to RiverSource Bond Series, Inc.; AXP Fixed Income Series, Inc. changed its name to RiverSource Diversified Income Series, Inc.; AXP Growth Series, Inc. changed its name to RiverSource Large Cap Series, Inc.; AXP High Yield Tax-Exempt Series, Inc. changed its name to RiverSource Tax-Exempt Income Series, Inc.; AXP Managed Series, Inc. changed its name to RiverSource Strategic Allocation Series, Inc.; AXP Partners International Series, Inc. changed its name to RiverSource International Managers Series, Inc.; AXP Partners Series, Inc. changed its name to RiverSource Managers Series, Inc.; AXP Tax-Free Money Series, Inc. changed its name to RiverSource Tax-Exempt Money Market Series, Inc.; and for all other corporations and business trusts, AXP was replaced with RiverSource in the registrant name. 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. 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. Effective July 9, 2004, Emerging Markets Fund changed its name to Threadneedle Emerging Markets Fund, European Equity Fund changed its name to Threadneedle European Equity Fund, Global Equity Fund changed its name to Threadneedle Global Equity Fund, and International Fund changed its name to Threadneedle International Fund. Effective Oct. 20, 2003, Global Growth Fund changed its name to Global Equity Fund. Effective Feb. 18, 2004, Utilities Fund changed its name to Dividend Opportunity Fund.
Statement of Additional Information - Sept. 29, 2006 Page 161 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 100 RiverSource funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday.
TABLE 26. BOARD MEMBERS INDEPENDENT BOARD MEMBERS - ---------------------------------------------------------------------------------------------------------------------------------- POSITION HELD WITH FUNDS AND PRINCIPAL OCCUPATION NAME, ADDRESS, AGE LENGTH OF SERVICE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS COMMITTEE MEMBERSHIPS - ---------------------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Board member Chief Justice, Minnesota Supreme Joint Audit, 901 S. Marquette Ave. since 2006 Court, 1998-2005 Investment Review Minneapolis, MN 55402 Age 52 - ---------------------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, Board Services Corporation Contracts, Executive, 901 S. Marquette Ave. since 1999 (provides administrative services Investment Review, Minneapolis, MN 55402 to boards); former Governor of Board Effectiveness Age 72 Minnesota - ---------------------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member Trustee Professor of Economics Contracts, 901 S. Marquette Ave. since 2004 and Management, Bentley College; Investment Review Minneapolis, MN 55402 former Dean, McCallum Graduate Age 55 School of Business, Bentley College - ---------------------------------------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant Joint Audit, 901 S. Marquette Ave. since 1985 Board Effectiveness, Minneapolis, MN 55402 Executive, Age 71 Investment Review - ---------------------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind Board member Former Managing Director, Shikiar American Progressive Board Effectiveness, 901 S. Marquette Ave. since 2005 Asset Management Insurance Joint Audit, Minneapolis, MN 55402 Investment Review Age 70 - ---------------------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Professor Valmont Industries, Contracts, 901 S. Marquette Ave. since 2002 of Economics, Carleton College Inc. (manufactures Investment Review, Minneapolis, MN 55402 irrigation systems) Executive, Age 67 Board Effectiveness - ---------------------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Board member Director, Enterprise Asset Strategic Contracts, 901 S. Marquette Ave. since 2004 Management, Inc. (private real Distribution, Inc. Executive, Minneapolis, MN 55402 estate and asset management (transportation, Investment Review Age 54 company) distribution and logistics consultants) - ---------------------------------------------------------------------------------------------------------------------------------- Vikki L. Pryor Board member President and Chief Executive Joint Audit, 901 S. Marquette Ave. since 2006 Officer, SBLI USA Mutual Life Investment Review Minneapolis, MN 55402 Insurance Company, Inc. Age 53 since 1999 - ---------------------------------------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Chief Executive Officer, Hybridon, Inc. Investment Review, 901 S. Marquette Ave. since 2002 RiboNovix, Inc. since 2003 (biotechnology); Contracts Minneapolis, MN 55402 (biotechnology); former American Healthways, Age 62 President, Forester Biotech Inc. (health management programs) - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 162
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS - ------------------------------------------------------------------------------------------------------------------------ POSITION HELD WITH FUNDS AND OTHER COMMITTEE NAME, ADDRESS, AGE LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS - ------------------------------------------------------------------------------------------------------------------------ William F. Truscott Board member President, Ameriprise Certificate Company Investment 53600 Ameriprise since 2001, since 2006; President - U.S. Asset Review Financial Center Vice President Management and Chief Investment Officer, Minneapolis, MN 55474 since 2002, Ameriprise Financial, Inc. and President, Age 46 Acting Chairman of the Board and Chief Investment President Officer, RiverSource Investments, LLC since since 2006 2005; Senior Vice President - Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 - ------------------------------------------------------------------------------------------------------------------------ Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments. Paula R. Meyer resigned her position as President for the RiverSource funds. Mr. Truscott has been appointed Acting President and will be assuming the responsibilities of President until a permanent replacement for Ms. Meyer is found.
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 and Acting President, the fund's other officers are:
TABLE 27. FUND OFFICERS - ------------------------------------------------------------------------------------------------------------------------ POSITION HELD WITH FUNDS PRINCIPAL OCCUPATION NAME, ADDRESS, AGE AND LENGTH OF SERVICE DURING PAST FIVE YEARS - ------------------------------------------------------------------------------------------------------------------------ Jeffrey P. Fox Treasurer since 2002 Vice President - Investment Accounting, 105 Ameriprise Financial Center Ameriprise Financial, Inc., since 2002; Vice President Minneapolis, MN 55474 - Finance, American Express Company, 2000-2002 Age 51 - ------------------------------------------------------------------------------------------------------------------------ Michelle M. Keeley Vice President since 2004 Executive Vice President - Equity and Fixed Income, 172 Ameriprise Financial Center Ameriprise Financial, Inc. and RiverSource Minneapolis, MN 55474 Investments, LLC since 2006; Vice President - Age 42 Investments, Ameriprise Certificate Company since 2003; Senior Vice President - Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006; Managing Director, Zurich Global Assets, 2001-2002 - ------------------------------------------------------------------------------------------------------------------------ Leslie L. Ogg Vice President, President of Board Services Corporation 901 S. Marquette Ave. General Counsel, and Minneapolis, MN 55402 Secretary since 1978 Age 68 - ------------------------------------------------------------------------------------------------------------------------ Edward S. Dryden Acting Chief Compliance Chief Compliance Officer, Ameriprise Certificate 1875 Ameriprise Financial Center Officer since 2006 Company since 2006; Vice President - Asset Management Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC since 2006; Age 41 Chief Compliance Officer - Mason Street Advisors, LLC, 2002-2006 - ------------------------------------------------------------------------------------------------------------------------ Neysa M. Alecu Anti-Money Laundering Compliance Director and Anti-Money Laundering Officer, 2934 Ameriprise Financial Center Officer since 2004 Ameriprise Financial, Inc., since 2004; Manager Minneapolis, MN 55474 Anti-Money Laundering, Ameriprise Financial, Inc., Age 42 2003-2004; Compliance Director and Bank Secrecy Act Officer, American Express Centurion Bank, 2000-2003 - ------------------------------------------------------------------------------------------------------------------------ Beth E. Weimer resigned her position as Chief Compliance Officer for the RiverSource funds. Mr. Dryden has been appointed Acting Chief Compliance Officer and will be assuming the responsibilities of Chief Compliance Officer until a permanent replacement for Ms. Weimer is found.
Statement of Additional Information - Sept. 29, 2006 Page 163 RESPONSIBILITIES OF BOARD WITH RESPECT TO FUND MANAGEMENT The Board initially approves an Investment Management Services Agreement and other contracts with the investment manager and its affiliates, and other service providers. Once the contracts are approved, the Board monitors the level and quality of services including commitments of service providers to achieve expected levels of investment performance and shareholder services. In addition, the Board oversees that processes are in place to assure compliance with applicable rules, regulations and investment policies and addresses possible conflicts of interest. Annually, the Board evaluates the services received under the contracts by receiving reports covering investment performance, shareholder services, marketing, and the investment manager's profitability in order to determine whether to continue existing contracts or negotiate new contracts. SEVERAL COMMITTEES FACILITATE ITS WORK Executive Committee -- Acts for the Board between meetings of the Board. Joint Audit Committee -- Meets with the independent 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 vitae and be mailed to the Chairman of the Board, RiverSource Funds, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268. Contracts Committee -- Receives and analyzes reports covering the level and quality of services provided under contracts with the fund and advises the Board regarding actions taken on these contracts during the annual review process. 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 - -------------------------------------------------------------------------------------------------------------------- INVESTMENT BOARD EXECUTIVE JOINT AUDIT REVIEW EFFECTIVENESS CONTRACTS FISCAL PERIOD COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE - -------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending January 31 1 4 5 4 7 - -------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending March 31 0 3 4 3 6 - -------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending May 31 0 3 4 3 6 - -------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending June 30 0 3 4 3 5 - -------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending July 31 1 4 5 4 6 - -------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending August 31 1 4 4 5 6 - -------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending September 30 2 4 5 6 7 - -------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending October 31 2 4 4 5 7 - -------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending November 30 2 4 5 4 7 - -------------------------------------------------------------------------------------------------------------------- For funds with fiscal period ending December 31 1 4 5 4 7 - --------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 164 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, 2005 of all funds overseen by the Board member.
TABLE 29. BOARD MEMBER HOLDINGS* - ALL FUNDS Based on net asset values as of Dec. 31, 2005 - ------------------------------------------------------------------------------ AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES OF BOARD MEMBER ALL FUNDS OVERSEEN BY BOARD MEMBER - ------------------------------------------------------------------------------ Arne H. Carlson Over $100,000 - ------------------------------------------------------------------------------ Patricia M. Flynn $50,001 - $100,000** - ------------------------------------------------------------------------------ Anne P. Jones Over $100,000 - ------------------------------------------------------------------------------ Jeffrey Laikind None - ------------------------------------------------------------------------------ Stephen R. Lewis, Jr. Over $100,000** - ------------------------------------------------------------------------------ Catherine James Paglia $50,001 - $100,000 - ------------------------------------------------------------------------------ Alison Taunton-Rigby Over $100,000 - ------------------------------------------------------------------------------ William F. Truscott Over $100,000 - ------------------------------------------------------------------------------ Ms. Blatz and Ms. Pryor were not Board members as of Dec. 31, 2005 and therefore are not included in the table. Includes deferred compensation invested in share equivalents.
HOLDINGS IN EACH INDIVIDUAL FUND. This table shows the dollar range of equity securities beneficially owned on Dec. 31, 2005 of each fund.
TABLE 30. BOARD MEMBER HOLDINGS - INDIVIDUAL FUNDS Based on net asset values as of Dec. 31, 2005 - ---------------------------------------------------------------------------------------------------------------------------- DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND ------------------------------------------------------------------------------------------------ FUND TAUNTON- CARLSON FLYNN JONES LAIKIND LEWIS PAGLIA RIGBY TRUSCOTT - ---------------------------------------------------------------------------------------------------------------------------- Absolute Return N/A N/A N/A N/A N/A N/A N/A N/A Currency and Income - ---------------------------------------------------------------------------------------------------------------------------- Aggressive Growth None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Balanced None None None None None None None $50,001- $100,000 - ---------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Cash Management Over None None None None None None None $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Core Bond None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Disciplined Equity $10,001- None None None None None None $50,001- $50,000 $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Disciplined International N/A N/A N/A N/A N/A N/A N/A N/A Equity - ---------------------------------------------------------------------------------------------------------------------------- Disciplined Small and N/A N/A N/A N/A N/A N/A N/A N/A Mid Cap Equity - ---------------------------------------------------------------------------------------------------------------------------- Disciplined Small N/A N/A N/A N/A N/A N/A N/A N/A Cap Value - ---------------------------------------------------------------------------------------------------------------------------- Diversified Bond None None $10,001- None None None None $10,001- $50,000 $50,000 - ---------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income None None None None $10,001- $10,001- $10,001- None $50,000 $50,000 $50,000 - ---------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity $10,001- None None None None None None Over $50,000 $100,000 - ----------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 165
- ---------------------------------------------------------------------------------------------------------------------------- DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND ------------------------------------------------------------------------------------------------ FUND TAUNTON- CARLSON FLYNN JONES LAIKIND LEWIS PAGLIA RIGBY TRUSCOTT - ---------------------------------------------------------------------------------------------------------------------------- Emerging Markets None None None None None None None $10,001- $50,000 - ---------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond N/A N/A N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Equity Value None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- European Equity None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Floating Rate N/A N/A N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Fundamental Growth None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Fundamental Value $10,001- None None None None None None None $50,000 - ---------------------------------------------------------------------------------------------------------------------------- Global Bond None None Over None None None None None $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Global Equity None None $50,001- None None None None Over $100,000 $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Global Technology None None None None None None $10,001- $10,001- $50,000 $50,000 - ---------------------------------------------------------------------------------------------------------------------------- Growth $10,001- None Over None None $10,001- $10,001- $50,001- $50,000 $100,000 $50,000 $50,000 $100,000 - ---------------------------------------------------------------------------------------------------------------------------- High Yield Bond None None Over None None None None $50,001- $100,000 $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Income Builder N/A N/A N/A N/A N/A N/A N/A N/A Basic Income - ---------------------------------------------------------------------------------------------------------------------------- Income Builder N/A N/A N/A N/A N/A N/A N/A N/A Enhanced Income - ---------------------------------------------------------------------------------------------------------------------------- Income Builder N/A N/A N/A N/A N/A N/A N/A N/A Moderate Income - ---------------------------------------------------------------------------------------------------------------------------- Income Opportunities None None None None None None None $10,001- $50,000 - ---------------------------------------------------------------------------------------------------------------------------- Inflation Protected None None None None None None None None Securities - ---------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt None None None None None None None $50,001- $100,000 - ---------------------------------------------------------------------------------------------------------------------------- International None None None None None None $10,001- None Aggressive Growth $50,000 - ---------------------------------------------------------------------------------------------------------------------------- International Equity None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- International Opportunity None None None None None None None Over $100,000 - ---------------------------------------------------------------------------------------------------------------------------- International Select Value None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- International Small Cap None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Large Cap Equity None None None None None None $10,001- Over $50,000 $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Large Cap Value 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 - ---------------------------------------------------------------------------------------------------------------------------- Massachusetts None None None None None None None Over Tax-Exempt $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Michigan Tax-Exempt None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth None None None None $10,001- None None $50,001- $50,000 $100,000 - ----------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 166
- ---------------------------------------------------------------------------------------------------------------------------- DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND ------------------------------------------------------------------------------------------------ FUND TAUNTON- CARLSON FLYNN JONES LAIKIND LEWIS PAGLIA RIGBY TRUSCOTT - ---------------------------------------------------------------------------------------------------------------------------- Mid Cap Value None None None None None None $10,001- $10,001- $50,000 $50,000 - ---------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Ohio Tax-Exempt None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder None None None None None None None None Aggressive - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder None None None None None None None None Conservative - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder None None None None None None None Over Moderate Aggressive $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder None None None None None None None None Moderate Conservative - ---------------------------------------------------------------------------------------------------------------------------- Portfolio Builder None None None None None None None None Total Equity - ---------------------------------------------------------------------------------------------------------------------------- Precious Metals None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Real Estate None None None None None None None $50,001- $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A N/A N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 N/A N/A N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A N/A N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 N/A N/A N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A N/A N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 N/A N/A N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A N/A N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 N/A N/A N/A N/A N/A N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------- S&P 500 Index None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Select Value $0-$10,000 None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Short Duration None None Over None None None None None U.S. Government $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Small Cap Equity None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Small Cap Growth None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Small Cap Value None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Small Company Index None None Over None None None None None $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Strategic Allocation $10,001- $10,001- None None None None $10,001- Over $50,000 $50,000 $50,000 $100,000 - ---------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond None None $10,001- None None None None None $50,000 - ---------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income None None None None None None None $50,001- $100,000 - ----------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 167
- ---------------------------------------------------------------------------------------------------------------------------- DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND ------------------------------------------------------------------------------------------------ FUND TAUNTON- CARLSON FLYNN JONES LAIKIND LEWIS PAGLIA RIGBY TRUSCOTT - ---------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Value None None None None None None None None - ---------------------------------------------------------------------------------------------------------------------------- Ms. Blatz and Ms. Pryor were not Board members as of Dec. 31, 2005 and therefore are not included in the table. The fund is new and shares were not yet being offered as of Dec. 31, 2005.
Deferred compensation invested in share equivalents: A. Flynn Growth.................................$10,001-$50,000 Strategic Allocation...................$10,001-$50,000 B. Lewis Diversified Equity Income................Over $100,000 Emerging Markets.......................$10,001-$50,000 International Opportunity..............$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 period.
TABLE 31. BOARD MEMBER COMPENSATION - ALL FUNDS - ------------------------------------------------------------------------------ TOTAL CASH COMPENSATION FROM RIVERSOURCE FUNDS BOARD MEMBER PAID TO BOARD MEMBER - ------------------------------------------------------------------------------ Kathleen Blatz $71,450 - ------------------------------------------------------------------------------ Philip J. Carroll, Jr. 0 - ------------------------------------------------------------------------------ Livio D. DeSimone 0 - ------------------------------------------------------------------------------ Patricia M. Flynn 68,508 - ------------------------------------------------------------------------------ Anne P. Jones 139,917 - ------------------------------------------------------------------------------ Jeffrey Laikind 111,833 - ------------------------------------------------------------------------------ Stephen R. Lewis, Jr. 122,675 - ------------------------------------------------------------------------------ Catherine James Paglia 65,817 - ------------------------------------------------------------------------------ Vikki L. Pryor 48,917 - ------------------------------------------------------------------------------ Alan K. Simpson 145,017 - ------------------------------------------------------------------------------ Alison Taunton-Rigby 141,767 - ------------------------------------------------------------------------------ Arne H. Carlson, Chair of the Board, is compensated by Board Services Corporation, a company providing administrative services to the funds. Board member compensation is a combination of a base fee and meeting fees. No fees or expenses are paid to Board members until the assets of a fund reach $20 million. Mr. Carroll retired as a member of the Board, effective Nov. 10, 2005. Mr. DeSimone retired as a member of the Board, effective Sept. 8, 2005. Mr. Simpson retired as a member of the Board, effective Sept. 14, 2006.
COMPENSATION FROM EACH FUND. The following table shows the compensation paid to independent Board members from each fund during its last fiscal period. Statement of Additional Information - Sept. 29, 2006 Page 168
TABLE 32. BOARD MEMBER COMPENSATION - INDIVIDUAL FUNDS - ---------------------------------------------------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND ---------------------------------------------------------------------------------------------------------- FUND TAUNTON- BLATZ CARROLL DESIMONE FLYNN JONES LAIKIND LEWIS PAGLIA PRYOR SIMPSON 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 225 1,571 1,238 1,858 1,963 608 2,264 2,008 0 1,808 2,008 Amount deferred 0 1,571 1,238 929 0 0 737 225 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index - total 167 1,071 838 1,250 1,354 450 1,655 1,400 0 1,200 1,400 Amount deferred 0 1,071 838 625 0 0 531 167 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ---------------------------------------------------------------------------------------------------------------------------------- Equity Value - total 350 1,319 1,003 1,775 1,828 717 2,129 1,875 67 1,725 1,875 Amount deferred 0 1,319 1,003 888 0 0 532 400 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Precious Metals - total 175 919 703 1,150 1,203 442 1,504 1,250 8 1,100 1,250 Amount deferred 0 919 703 575 0 0 376 225 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage - total 300 1,253 953 1,650 1,703 650 2,004 1,750 50 1,600 1,750 Amount deferred 0 1,253 953 825 0 0 501 350 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth - total 175 986 753 1,225 1,278 458 1,579 1,325 8 1,175 1,325 Amount deferred 0 986 753 613 0 0 395 225 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 - ---------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Aggressive Growth - total 392 653 436 1,100 1,153 708 1,453 1,200 225 1,100 1,200 Amount deferred 0 653 436 550 0 0 363 442 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Fundamental Growth - total 567 903 603 1,567 1,619 967 1,919 1,667 250 1,567 1,667 Amount deferred 0 903 603 783 0 0 480 617 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Fundamental Value - total 633 803 536 1,517 1,569 1,000 1,869 1,617 350 1,517 1,617 Amount deferred 0 803 536 758 0 0 467 683 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- High Yield Bond - total 933 903 603 1,933 1,986 1,333 2,286 2,033 517 1,933 2,033 Amount deferred 0 903 603 967 0 0 571 983 0 0 0 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 169
- ---------------------------------------------------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------------------------------------------------------- FUND TAUNTON- BLATZ CARROLL DESIMONE FLYNN JONES LAIKIND LEWIS PAGLIA PRYOR SIMPSON RIGBY - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Basic Income - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income - ---------------------------------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income - ---------------------------------------------------------------------------------------------------------------------------------- Select Value - total 508 803 536 1,392 1,444 875 1,744 1,492 275 1,392 1,492 Amount deferred 0 803 536 696 0 0 436 558 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Short Duration U.S. Government - total 458 803 536 1,342 1,394 825 1,694 1,442 292 1,342 1,442 Amount deferred 0 803 536 671 0 0 424 508 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Equity - total 375 653 436 1,083 1,136 692 1,436 1,183 208 1,083 1,183 Amount deferred 0 653 436 542 0 0 359 425 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Value - total 617 953 636 1,675 1,728 1,033 2,028 1,775 333 1,675 1,775 Amount deferred 0 953 636 838 0 0 507 667 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- U.S. Government Mortgage -total 383 703 469 1,150 1,203 717 1,503 1,250 200 1,150 1,250 Amount deferred 0 703 469 575 0 0 376 433 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Value - total 425 753 503 1,250 1,303 775 1,603 1,350 225 1,250 1,350 Amount deferred 0 753 503 625 0 0 401 475 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ---------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity - total 800 803 503 1,700 1,753 1,200 2,003 1,750 500 1,700 1,750 Amount deferred 0 803 503 850 0 0 501 850 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Real Estate - total 725 594 378 1,375 1,428 1,042 1,678 1,425 558 1,375 1,425 Amount deferred 0 594 378 688 0 0 419 775 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ---------------------------------------------------------------------------------------------------------------------------------- Cash Management - total 1,875 1,250 600 3,450 3,516 2,675 3,766 3,566 1,342 3,566 3,500 Amount deferred 0 1,250 600 1,725 0 0 941 1,991 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Core Bond - total 558 383 167 1,050 1,116 925 1,366 1,166 392 1,166 1,100 Amount deferred 0 383 167 525 0 0 341 674 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity - total 992 383 167 1,483 1,549 1,358 1,799 1,599 825 1,599 1,533 Amount deferred 0 383 167 742 0 0 450 1,107 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Small and Mid Cap Equity - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Cap Value - ---------------------------------------------------------------------------------------------------------------------------------- Floating Rate 383 0 0 433 549 483 549 449 383 549 383 0 0 0 217 0 0 137 449 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Growth - total 1,533 583 267 2,275 2,341 2,000 2,591 2,391 1,250 2,391 2,325 Amount deferred 0 583 267 1,138 0 0 648 1,649 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Income Opportunities - total 642 417 183 1,175 1,241 1,025 1,491 1,291 442 1,291 1,225 Amount deferred 0 417 183 588 0 0 373 757 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Securities - total 617 383 167 1,108 1,174 983 1,424 1,224 433 1,224 1,158 Amount deferred 0 383 167 554 0 0 356 732 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity - total 2,917 750 350 3,867 3,932 3,467 4,182 3,982 2,600 3,982 3,917 Amount deferred 0 750 350 1,933 0 0 1,046 3,032 0 0 0 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 170
- ---------------------------------------------------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------------------------------------------------------- FUND TAUNTON- BLATZ CARROLL DESIMONE FLYNN JONES LAIKIND LEWIS PAGLIA PRYOR SIMPSON RIGBY - ---------------------------------------------------------------------------------------------------------------------------------- Large Cap Value - total 558 383 167 1,050 1,116 925 1,366 1,166 392 1,166 1,100 Amount deferred 0 383 167 525 0 0 341 674 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Limited Duration Bond - total 558 383 167 1,050 1,116 925 1,366 1,166 392 1,166 1,100 Amount deferred 0 0 167 525 0 0 341 674 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ---------------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt - total N/A 1,079 1,205 808 1,405 N/A 1,557 867 N/A 900 1,200 Amount deferred 1,079 1,205 300 0 583 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Diversified Bond - total 2,838 2,938 2,308 3,188 N/A 3,339 2,517 2,683 2,983 Amount deferred N/A 2,838 2,938 975 0 1,196 0 N/A 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Massachusetts Tax-Exempt - total N/A 1,079 1,205 808 1,405 N/A 1,557 867 N/A 900 1,200 Amount deferred 1,079 1,205 300 0 583 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Michigan Tax-Exempt - total N/A 1,079 1,205 808 1,405 N/A 1,557 867 N/A 900 1,200 Amount deferred 1,079 1,205 300 0 583 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt - total N/A 1,279 1,405 925 1,605 N/A 1,757 1,000 N/A 1,100 1,400 Amount deferred 1,279 1,405 300 0 583 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt - total N/A 1,079 1,205 808 1,405 N/A 1,557 867 N/A 900 1,200 Amount deferred 1,079 1,205 300 0 583 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Ohio Tax-Exempt - total 1,079 1,205 808 1,405 N/A 1,557 867 900 1,200 Amount deferred N/A 1,079 1,205 300 0 583 0 N/A 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ---------------------------------------------------------------------------------------------------------------------------------- Balanced - total 1,304 1,454 1,300 1,704 N/A 1,905 1,425 1,200 1,500 Amount deferred N/A 1,304 1,454 538 0 660 0 N/A 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Income - total N/A 1,779 1,929 1,708 2,179 N/A 2,380 1,867 N/A 1,675 1,975 Amount deferred 1,779 1,929 725 0 829 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value - total 1,279 1,429 1,292 1,679 N/A 1,880 1,408 1,175 1,475 Amount deferred N/A 1,279 1,429 538 0 652 0 N/A 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation - 1,204 1,354 1,217 1,604 N/A 1,805 1,333 1,100 1,400 total Amount N/A 1,204 1,354 500 0 625 0 N/A 0 0 deferred - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ---------------------------------------------------------------------------------------------------------------------------------- Absolute Return Currency and Income**** - ---------------------------------------------------------------------------------------------------------------------------------- Disciplined International Equity**** - ---------------------------------------------------------------------------------------------------------------------------------- Emerging Markets - total 1,104 1,246 1,192 1,504 N/A 1,655 1,300 950 1,300 Amount deferred N/A 1,104 1,246 492 0 569 0 N/A 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Bond - ---------------------------------------------------------------------------------------------------------------------------------- European Equity - total 1,104 1,246 1,192 1,504 N/A 1,655 1,300 950 1,300 Amount deferred N/A 1,104 1,246 492 0 569 0 N/A 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Global Bond - total 1,104 1,246 1,192 1,504 N/A 1,655 1,300 950 1,300 Amount deferred N/A 1,104 1,246 492 0 569 0 N/A 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Global Equity - total 1,104 1,246 1,192 1,504 N/A 1,655 1,300 950 1,300 Amount deferred N/A 1,104 1,246 492 0 569 0 N/A 0 0 - ----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 171
- ---------------------------------------------------------------------------------------------------------------------------------- AGGREGATE COMPENSATION FROM FUND -------------------------------------------------------------------------------------------------------- FUND TAUNTON- BLATZ CARROLL DESIMONE FLYNN JONES LAIKIND LEWIS PAGLIA PRYOR SIMPSON RIGBY - ---------------------------------------------------------------------------------------------------------------------------------- Global Technology - 1,004 1,154 1,100 1,404 N/A 1,555 1,200 850 1,200 total Amount N/A 1,004 1,154 450 0 534 0 N/A 0 0 deferred - ---------------------------------------------------------------------------------------------------------------------------------- International Aggressive Growth - total N/A 1,304 1,429 1,375 1,704 N/A 1,855 1,500 N/A 1,150 1,500 Amount deferred 1,304 1,429 575 0 638 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- International Equity - 1,104 1,246 1,192 1,504 N/A 1,655 1,300 950 1,300 total Amount N/A 1,104 1,246 492 0 569 0 N/A 0 0 deferred - ---------------------------------------------------------------------------------------------------------------------------------- International Opportunity - total N/A 1,304 1,429 1,375 1,704 N/A 1,855 1,500 N/A 1,150 1,500 Amount deferred 1,304 1,429 575 0 638 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- International Select Value - total N/A 1,154 1,296 1,217 1,554 N/A 1,705 1,350 N/A 1,000 1,350 Amount deferred 1,154 1,296 492 0 585 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- International Small Cap - total N/A 1,104 1,246 1,192 1,504 N/A 1,655 1,300 N/A 950 1,300 Amount deferred 1,104 1,246 492 0 569 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ---------------------------------------------------------------------------------------------------------------------------------- Intermediate Tax-Exempt - total N/A 1,254 1,038 1,142 1,304 158 1,605 1,300 N/A 900 1,300 Amount deferred 1,254 1,038 571 0 0 539 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth - total 2,554 2,121 2,333 2,604 267 2,905 2,600 2,200 2,600 Amount deferred N/A 2,554 2,121 1,667 0 0 981 0 N/A 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond - total 1,654 1,371 1,508 1,704 192 2,005 1,700 1,300 1,700 Amount deferred N/A 1,654 1,371 754 0 0 675 0 N/A 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt High Income - total N/A 2,154 1,788 1,967 2,204 233 2,505 2,200 N/A 1,800 2,200 Amount deferred 2,154 1,788 983 0 0 845 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market - total N/A 1,196 979 1,200 1,304 217 1,605 1,350 N/A 950 1,350 Amount deferred 1,196 979 600 0 0 535 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Arne H. Carlson, Chair of the Board, is compensated by Board Services Corporation. Mr. Carroll retired as a member of the Board, effective Nov. 10, 2005. Mr. DeSimone retired as a Board member, effective Sept. 8, 2005. Mr. Simpson retired as a member of the Board, effective Sept. 14, 2006. 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. No fees or expenses are paid to Board members until the assets of a fund reach $20 million.
Statement of Additional Information - Sept. 29, 2006 Page 172 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
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING JANUARY 31 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab & Co., Inc. 84.12% Aggressive (Charles Schwab) a brokerage Firm in San Francisco, CA --------------------------------------------------------------------------------------------------------- Ameriprise Financial, Inc. 15.88% Minneapolis, MN - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab 55.17% Conservative --------------------------------------------------------------------------------------------------------- Ameriprise Financial 44.83% - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab 68.55% Moderate --------------------------------------------------------------------------------------------------------- Ameriprise Financial 31.45% - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab 84.70% Moderate Aggressive --------------------------------------------------------------------------------------------------------- Ameriprise Financial 15.30% - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab 60.34% Moderate --------------------------------------------------------------------------------------------------------- Conservative Ameriprise Financial 39.66% - ------------------------------------------------------------------------------------------------------------------------------- Portfolio Builder Charles Schwab 93.53% Total Equity --------------------------------------------------------------------------------------------------------- Ameriprise Financial 6.47% - ------------------------------------------------------------------------------------------------------------------------------- Small Company Index Charles Schwab 9.81% --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company 85.60% Minneapolis, MN --------------------------------------------------------------------------------------------------------- Met Life 11.39% Jersey City, NJ - ------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index Charles Schwab --------------------------------------------------------------------------------------------------------- Ameriprise Financial - ------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING MARCH 31 - ------------------------------------------------------------------------------------------------------------------------------- Equity Value Ameriprise Financial 100.00% --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company 98.35% --------------------------------------------------------------------------------------------------------- John C. Mullarkey 6.84% Willowbrook, IL - ------------------------------------------------------------------------------------------------------------------------------- Precious Metals Charles Schwab 14.56% 97.62% --------------------------------------------------------------------------------------------------------- John E. Bridgman 6.78% Minneapolis, MN --------------------------------------------------------------------------------------------------------- Richard L. Venable and 8.42% Susan Angela Venable Argyle, TX --------------------------------------------------------------------------------------------------------- Ameriprise Financial 100.00% - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 173
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Advantage Charles Schwab 16.61% 99.64% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 19.94% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 19.68% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 32.28% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5.30% Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 21.13% Fund - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Charles Schwab 14.59% 42.27% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 20.04% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 19.78% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 31.91% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5.41% Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 21.14% Fund --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company 57.15% - ------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING APRIL 30 - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2015 N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2025 N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2035 N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A - ------------------------------------------------------------------------------------------------------------------------------- Retirement Plus 2045 N/A - ------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING MAY 31 - ------------------------------------------------------------------------------------------------------------------------------- Aggressive Growth Charles Schwab N/A N/A N/A N/A 82.98% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 19.89% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 19.82% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 32.06% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 5.40% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 21.27% N/A Fund --------------------------------------------------------------------------------------------------------- Ameriprise Financial N/A N/A N/A N/A 17.02% - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 174
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- Fundamental Charles Schwab 5.16% N/A N/A N/A 70.33% Growth --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 19.91% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 19.80% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 32.05% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 5.40% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 21.30% N/A Fund --------------------------------------------------------------------------------------------------------- Taylor Ambe-Crain Partnership, N/A N/A 24.66% N/A N/A Westlake Vlg, CA --------------------------------------------------------------------------------------------------------- Ameriprise Financial N/A N/A N/A N/A 29.67% 83.16% - ------------------------------------------------------------------------------------------------------------------------------- Fundamental Value Charles Schwab 14.83% N/A N/A N/A 98.43% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 19.90% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 19.82% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 32.08% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 5.38% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 21.27% N/A Fund - ------------------------------------------------------------------------------------------------------------------------------- High Yield Bond Charles Schwab 10.83% N/A N/A N/A 57.14% --------------------------------------------------------------------------------------------------------- Income Builder Basic Income N/A N/A N/A 14.23% N/A --------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income N/A N/A N/A 45.78% N/A --------------------------------------------------------------------------------------------------------- Income Builder Moderate Income N/A N/A N/A 39.81% N/A --------------------------------------------------------------------------------------------------------- Met Life Securities, Jersey City, N/A N/A N/A N/A 42.86% NJ - ------------------------------------------------------------------------------------------------------------------------------- Income Builder Charles Schwab 27.44% N/A N/A N/A 81.68% Basic Income --------------------------------------------------------------------------------------------------------- Eugene L. and Tempie C. Drawdy, N/A N/A 8.71% N/A N/A Hortense, GA --------------------------------------------------------------------------------------------------------- Janice C. Jones, Towson, MD N/A N/A 8.51% N/A N/A --------------------------------------------------------------------------------------------------------- Paulette Bogdanoff/Daniel Cohen N/A N/A 8.45% N/A N/A Irrev. Income Trust, Manalapan, NJ --------------------------------------------------------------------------------------------------------- Robert D. and Helen F. Galusha, N/A N/A 5.76% N/A N/A Fonda, NY --------------------------------------------------------------------------------------------------------- Frederick Bond Christie, Memphis, N/A N/A 5.53% N/A N/A TN --------------------------------------------------------------------------------------------------------- Dennis Anderson, Londonderry, NH N/A N/A 5.16% N/A N/A --------------------------------------------------------------------------------------------------------- Ameriprise Financial N/A N/A N/A N/A 18.32% - ------------------------------------------------------------------------------------------------------------------------------- Income Builder Charles Schwab 40.35% N/A N/A N/A 69.18% Enhanced Income --------------------------------------------------------------------------------------------------------- Ameriprise Financial N/A N/A N/A N/A 30.82% - ------------------------------------------------------------------------------------------------------------------------------- Income Builder Charles Schwab 41.15% N/A N/A N/A 83.56% Moderate Income --------------------------------------------------------------------------------------------------------- Alan and Shirley Hodder, N/A N/A 7.21% N/A N/A Portland, ME --------------------------------------------------------------------------------------------------------- Ameriprise Financial N/A N/A N/A N/A 16.44% - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 175
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- Select Value Charles Schwab 9.56% N/A N/A N/A 78.83% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 19.85% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 19.71% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 32.30% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 5.31% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 21.24% N/A Fund --------------------------------------------------------------------------------------------------------- Ameriprise Financial N/A N/A N/A N/A 21.17% - ------------------------------------------------------------------------------------------------------------------------------- Short Duration Charles Schwab 9.93% N/A N/A N/A N/A U.S. Gov't --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 9.42% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder N/A N/A N/A 30.12% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 5.14% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 16.30% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 39.00% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company N/A N/A N/A N/A 94.03% - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Equity Charles Schwab 12.04% N/A N/A N/A 16.65% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 19.88% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 19.74% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 32.03% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 5.39% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 21.38% N/A Fund --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company N/A N/A N/A N/A 83.03% - ------------------------------------------------------------------------------------------------------------------------------- Small Cap Value Charles Schwab 19.99% N/A N/A N/A 94.53% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 19.84% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 19.70% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 32.29% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 5.31% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 21.24% N/A Fund --------------------------------------------------------------------------------------------------------- Ameriprise Financial N/A N/A N/A N/A 5.47% - ------------------------------------------------------------------------------------------------------------------------------- U.S. Gov't Mortgage Charles Schwab 16.60% N/A N/A N/A N/A --------------------------------------------------------------------------------------------------------- Wells Fargo Bank, Minneapolis, MN N/A N/A N/A N/A 99.83% --------------------------------------------------------------------------------------------------------- Income Builder Basic Income N/A N/A N/A 54.44% N/A --------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income N/A N/A N/A 17.66% N/A --------------------------------------------------------------------------------------------------------- Income Builder Moderate Income N/A N/A N/A 27.81% N/A - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 176
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- Value Charles Schwab 12.25% N/A N/A N/A 90.86% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 19.90% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 19.81% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 32.07% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 5.40% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 21.30% N/A Fund --------------------------------------------------------------------------------------------------------- Ameriprise Financial N/A N/A N/A N/A 9.14% - ------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING JUNE 30 - ------------------------------------------------------------------------------------------------------------------------------- Dividend Opportunity Charles Schwab 12.41% N/A N/A N/A 100.00% --------------------------------------------------------------------------------------------------------- Income Builder Basic Income N/A N/A N/A 10.26% N/A --------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income N/A N/A N/A 13.68% N/A --------------------------------------------------------------------------------------------------------- Income Builder Moderate Income N/A N/A N/A 29.02% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 9.24% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 9.57% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 15.04% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 9.99% N/A Fund - ------------------------------------------------------------------------------------------------------------------------------- Real Estate Charles Schwab 12.86% N/A N/A N/A 93.49% --------------------------------------------------------------------------------------------------------- Ameriprise Financial N/A N/A N/A N/A 6.51% 29.63% --------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income N/A N/A N/A 5.60% N/A --------------------------------------------------------------------------------------------------------- Income Builder Moderate Income N/A N/A N/A 5.84% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 14.75% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 23.74% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 29.55% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 12.99% N/A Fund - ------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING JULY 31 - ------------------------------------------------------------------------------------------------------------------------------- Cash Management Ameriprise Trust Company N/A N/A N/A N/A 96.52% --------------------------------------------------------------------------------------------------------- Income Builder Basic Income N/A N/A N/A 19.72% N/A --------------------------------------------------------------------------------------------------------- Income Builder Moderate Income N/A N/A N/A 28.22% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative N/A N/A N/A 22.71% N/A Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 24.18% N/A Conservative Fund - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 177
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- Core Bond IDS Life Insurance Company, N/A N/A N/A N/A 9.30% Minneapolis, MN --------------------------------------------------------------------------------------------------------- Charles Schwab 12.60% N/A N/A N/A 90.70% --------------------------------------------------------------------------------------------------------- Jack L. and Joy A. Hershberger, N/A N/A 8.03% N/A N/A Grand Blanc, MI --------------------------------------------------------------------------------------------------------- Frank S. Gregory, Derry, NH N/A N/A 6.99% N/A N/A --------------------------------------------------------------------------------------------------------- Constance T. Gerardi, N/A N/A 6.74% N/A N/A Libertyville, IL --------------------------------------------------------------------------------------------------------- Dorothy J. Hostetler, Hobart, IN N/A N/A 5.37% N/A N/A --------------------------------------------------------------------------------------------------------- Troy Crow, Yakima, WA N/A N/A 5.32% N/A N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative N/A N/A N/A 16.88% N/A 78.86% Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 42.21% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 26.93% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 9.67% N/A Conservative Fund - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Equity Portfolio Builder Aggressive Fund N/A N/A N/A 17.27% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 17.20% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 28.01% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 18.79% N/A Fund --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company N/A N/A N/A N/A 99.24% - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Ameriprise Financial 93.90% 16.02% 100.00% N/A 85.93% 93.60% and Mid Cap Equity --------------------------------------------------------------------------------------------------------- Charles Schwab N/A N/A N/A N/A 14.07% --------------------------------------------------------------------------------------------------------- Caroline and Frank Milano, N/A 13.08% N/A N/A N/A Massapequa, NY --------------------------------------------------------------------------------------------------------- Davida M. Pearson, La Habra, CA N/A 12.93% N/A N/A N/A --------------------------------------------------------------------------------------------------------- William R. and Mary R. Nordstrom, N/A 11.95% N/A N/A N/A Omaha, NE --------------------------------------------------------------------------------------------------------- Lynn M. Mc Nish, Eau Claire, WI N/A 8.89% N/A N/A N/A --------------------------------------------------------------------------------------------------------- Mario and Vincenza Scotto, N/A 5.58% N/A N/A N/A Du Bois, PA --------------------------------------------------------------------------------------------------------- Harold D. and Charlene R. Vote, N/A 5.38% N/A N/A N/A Evansville, IN --------------------------------------------------------------------------------------------------------- Sandra E. Gibson, Hollywood, FL N/A 5.33% N/A N/A N/A --------------------------------------------------------------------------------------------------------- Thomas E. and Gail A. Kushka, N/A 5.22% N/A N/A N/A Springfield, MA --------------------------------------------------------------------------------------------------------- Retirement Plus 2010 N/A N/A N/A 8.78% N/A --------------------------------------------------------------------------------------------------------- Retirement Plus 2020 N/A N/A N/A 15.61% N/A --------------------------------------------------------------------------------------------------------- Retirement Plus 2030 N/A N/A N/A 13.36% N/A --------------------------------------------------------------------------------------------------------- Retirement Plus 2040 N/A N/A N/A 51.70% N/A - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 178
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- Disciplined Small Ameriprise Financial 84.33% N/A 33.71% N/A 100.00% 86.91% Cap Value --------------------------------------------------------------------------------------------------------- Brenda W. and David N. Moses, N/A 6.64% N/A N/A N/A Minneapolis, MN --------------------------------------------------------------------------------------------------------- Robert K. and Sandra L. Orr, N/A 5.36% N/A N/A N/A Springvale, ME --------------------------------------------------------------------------------------------------------- Kenneth and Donna Oaks, Bedford, N/A 5.24% N/A N/A N/A NH --------------------------------------------------------------------------------------------------------- Jack M. and Marsha H. Clark, N/A N/A 35.25% N/A N/A Apple Valley, CA --------------------------------------------------------------------------------------------------------- Ernest E. and Carol A. Boyce, N/A N/A 15.73% N/A N/A Southfield, MI --------------------------------------------------------------------------------------------------------- Robert and Lynn M. Schuster, N/A N/A 15.31% N/A N/A Richardson, TX --------------------------------------------------------------------------------------------------------- Income Builder Basic Income N/A N/A N/A 18.60% N/A --------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income N/A N/A N/A 35.78% N/A --------------------------------------------------------------------------------------------------------- Income Builder Moderate Income N/A N/A N/A 45.36% N/A - ------------------------------------------------------------------------------------------------------------------------------- Floating Rate Charles Schwab 65.26% N/A N/A N/A 83.11% --------------------------------------------------------------------------------------------------------- Ameriprise Financial N/A N/A N/A N/A 16.89% --------------------------------------------------------------------------------------------------------- Earl and Sue Ellen Barton, N/A N/A 5.01% N/A N/A Temperance, MI --------------------------------------------------------------------------------------------------------- Income Builder Basic Income N/A N/A N/A 11.40% N/A --------------------------------------------------------------------------------------------------------- Income Builder Enhanced Income N/A N/A N/A 29.15% N/A --------------------------------------------------------------------------------------------------------- Income Builder Moderate Income N/A N/A N/A 34.10% N/A --------------------------------------------------------------------------------------------------------- Income Builder Aggressive Income N/A N/A N/A 5.14% N/A --------------------------------------------------------------------------------------------------------- Income Builder Moderate Fund N/A N/A N/A 6.65% N/A --------------------------------------------------------------------------------------------------------- Income Builder Moderate N/A N/A N/A 11.35% N/A Aggressive Fund - ------------------------------------------------------------------------------------------------------------------------------- Growth Charles Schwab 8.01% N/A N/A N/A N/A --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company N/A N/A N/A N/A 98.77% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 19.90% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 19.67% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 32.17% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 5.19% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 21.17% N/A Fund - ------------------------------------------------------------------------------------------------------------------------------- Income Opportunities Charles Schwab 17.46% N/A N/A N/A 96.85% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 12.12% N/A 27.36% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 59.30% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 20.80% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 7.77% N/A Conservative Fund - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 179
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- Inflation Protected Charles Schwab 17.95% N/A N/A N/A N/A Securities --------------------------------------------------------------------------------------------------------- IDS Life Insurance Company, N/A N/A N/A N/A 100.00% Minneapolis, MN --------------------------------------------------------------------------------------------------------- Income Builder Moderate N/A N/A N/A 5.67% N/A 53.97% Income Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 5.15% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative N/A N/A N/A 5.03% N/A Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 31.08% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 37.88% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 10.97% N/A Conservative Fund - ------------------------------------------------------------------------------------------------------------------------------- Large Cap Equity Ameriprise Trust Company N/A N/A N/A N/A 91.29% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 19.89% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 19.70% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 32.25% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 5.16% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 21.64% N/A Fund - ------------------------------------------------------------------------------------------------------------------------------- Large Cap Value Charles Schwab 14.49% N/A N/A N/A 65.23% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund N/A N/A N/A 19.71% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund N/A N/A N/A 19.64% N/A --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 32.18% N/A Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 5.15% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity N/A N/A N/A 21.86% N/A Fund --------------------------------------------------------------------------------------------------------- Ameriprise Financial N/A N/A N/A N/A 34.77% - ------------------------------------------------------------------------------------------------------------------------------- Limited Charles Schwab 20.06% N/A N/A N/A 83.70% Duration Bond --------------------------------------------------------------------------------------------------------- John W. and Cecelia E. Kramar, N/A N/A 14.35% N/A N/A Hacienda Hgts, CA --------------------------------------------------------------------------------------------------------- Michael N. Stanley, N/A N/A 6.62% N/A N/A Palm Springs, CA --------------------------------------------------------------------------------------------------------- Rita R. and Lawrence E. Dale, N/A N/A 5.48% N/A N/A Barstow, CA --------------------------------------------------------------------------------------------------------- Donald and Elizabeth L. Snow, N/A N/A 5.30% N/A N/A Derry, NH --------------------------------------------------------------------------------------------------------- Portfolio Builder Conservative N/A N/A N/A 41.92% N/A Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate N/A N/A N/A 57.56% N/A Conservative Fund --------------------------------------------------------------------------------------------------------- Amerprise Financial N/A N/A N/A N/A 100.00% 43.28% - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 180
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING AUGUST 31 - ------------------------------------------------------------------------------------------------------------------------------- California Arthur Mendel and 6.50% Tax-Exempt Dorothy Mendel as the Trustees of the Dorothy M. Mendel Irrevocable Trust, Richmond, CA - ------------------------------------------------------------------------------------------------------------------------------- Diversified Bond Charles Schwab 6.35% --------------------------------------------------------------------------------------------------------- Ameriprise Financial 100.00% --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company 96.62% - ------------------------------------------------------------------------------------------------------------------------------- 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 7.14% Claire G. Simard, Ipswich, MA --------------------------------------------------------------------------------------------------------- Alphonse A. Di Nardo and 6.30% Linda Di Nardo, Leominster, MA --------------------------------------------------------------------------------------------------------- Harvey W. Levin and Phyllis 6.10% Levin, Swampscott, MA --------------------------------------------------------------------------------------------------------- Rita Hashem, Tewksbury, MA 5.18% - ------------------------------------------------------------------------------------------------------------------------------- Michigan Charles Schwab 5.39% Tax-Exempt --------------------------------------------------------------------------------------------------------- Chester V. Mysliwiec and 7.02% Rose M. Mysliwiec as the Trustees of the Rose M. Mysliwiec Living Trust, Grand Rapids, MI --------------------------------------------------------------------------------------------------------- Barry J. Fishman and 10.96% Teresa A. McMahon, as Trustees for the Barry J. Fishman Living Trust, AnnArbor, MI --------------------------------------------------------------------------------------------------------- Ray W. Butler and 7.04% Gertrude E. Butler, Clarkston, MI --------------------------------------------------------------------------------------------------------- R. Paul Minger and Diane 5.55% E. Minger, Huntley, IL - ------------------------------------------------------------------------------------------------------------------------------- New York Charles Schwab 5.11% Tax-Exempt --------------------------------------------------------------------------------------------------------- Dana Brandwein and 7.80% Daniel Oates, Sharon, CT --------------------------------------------------------------------------------------------------------- Arthur Ezersky and 7.28% Sandra Ezersky, Woodbury, NY --------------------------------------------------------------------------------------------------------- Charles D. Adler and 5.91% Judith E. 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% - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 181
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------- Balanced Ameriprise Trust Company 99.75% - ------------------------------------------------------------------------------------------------------------------------------- Diversified Equity Charles Schwab 14.71% Income --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 19.55% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 20.65% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 32.82% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5.94% Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 19.24% Fund --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company 48.32% --------------------------------------------------------------------------------------------------------- Wells Fargo Bank, Minneapolis, MN 26.69% --------------------------------------------------------------------------------------------------------- Holland American Life, 18.68% Minneapolis, MN - ------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Charles Schwab 23.23% 98.04% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 19.70% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 20.63% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 32.79% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5.89% Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 19.15% Fund - ------------------------------------------------------------------------------------------------------------------------------- Strategic Allocation Ameriprise Trust Company 86.71% --------------------------------------------------------------------------------------------------------- Charles Schwab 10.88% - ------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31 - ------------------------------------------------------------------------------------------------------------------------------- Absolute Return N/A Currency and Income - ------------------------------------------------------------------------------------------------------------------------------- Disciplined N/A International Equity - ------------------------------------------------------------------------------------------------------------------------------- Emerging Markets Charles Schwab & Co., Inc. 12.32% 21.62% a brokerage firm --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 19.93% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 20.98% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 33.61% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5.86% Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 19.56% Fund --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company 78.38% - ------------------------------------------------------------------------------------------------------------------------------- Emerging Markets N/A Bond - ------------------------------------------------------------------------------------------------------------------------------- European Equity Charles Schwab & Co., Inc. 13.65% 83.54% a brokerage firm --------------------------------------------------------------------------------------------------------- Ameriprise Financial 100.00% 16.46% --------------------------------------------------------------------------------------------------------- Marilyn O. Matthews Trust, 6.66% Pasadena, CA - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 182
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- Global Bond Charles Schwab & Co., Inc. 17.78% 100.00% a brokerage firm --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 7.35% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 33.94% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 43.77% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 13.63% Conservative Fund - ------------------------------------------------------------------------------------------------------------------------------- Global Equity Charles Schwab & Co., Inc. 9.77% a brokerage firm --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company 91.14% --------------------------------------------------------------------------------------------------------- Met Life Securities, Inc., 6.60% Jersey City, NJ - ------------------------------------------------------------------------------------------------------------------------------- Global Technology Charles Schwab & Co., Inc. 11.28% 8.47% a brokerage firm --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company 91.41% --------------------------------------------------------------------------------------------------------- Ameriprise Financial 100.00% - ------------------------------------------------------------------------------------------------------------------------------- International Charles Schwab & Co., Inc. 12.26% 96.77% Aggressive Growth a brokerage firm --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 19.54% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 20.56% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 32.71% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5.89% Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 19.36% Fund - ------------------------------------------------------------------------------------------------------------------------------- International Ameriprise Financial 10.60% 16.12% 34.62%* Equity --------------------------------------------------------------------------------------------------------- Charles Schwab & Co., Inc. 9.95% 83.88% a brokerage firm --------------------------------------------------------------------------------------------------------- Daniel and Linda L. Miklovic, 5.64% St. Louis, MO --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 19.54% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 20.72% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 32.85% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5.85% Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 19.18% Fund - ------------------------------------------------------------------------------------------------------------------------------- International Charles Schwab & Co., Inc. 13.25% 91.29% Opportunity a brokerage firm --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 19.62% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 20.37% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 32.56% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5.91% Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 19.55% Fund --------------------------------------------------------------------------------------------------------- Met Life, Jersey City, NJ 8.71% - -------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Sept. 29, 2006 Page 183
- ------------------------------------------------------------------------------------------------------------------------------- PERCENT OF FUND SHAREHOLDER NAME, (if greater FUND CITY AND STATE CLASS A CLASS B CLASS C CLASS I CLASS Y than 25%) - ------------------------------------------------------------------------------------------------------------------------------- International Charles Schwab & Co., Inc. 18.74% 98.10% Select Value a brokerage firm --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 19.50% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 20.58% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 32.74% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5.89% Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 19.34% Fund - ------------------------------------------------------------------------------------------------------------------------------- International Small Charles Schwab & Co., Inc. 14.80% 79.44% Cap a brokerage firm --------------------------------------------------------------------------------------------------------- Ameriprise Financial 15.62% 20.56% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 19.35% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 20.51% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 32.44% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 6.15% Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 19.20% Fund - ------------------------------------------------------------------------------------------------------------------------------- FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30 - ------------------------------------------------------------------------------------------------------------------------------- Intermediate Charles Schwab 10.63% Tax-Exempt --------------------------------------------------------------------------------------------------------- Ameriprise Financial 100.00% - ------------------------------------------------------------------------------------------------------------------------------- Mid Cap Growth Charles Schwab 6.39% --------------------------------------------------------------------------------------------------------- Ameriprise Trust Company 92.43% --------------------------------------------------------------------------------------------------------- Portfolio Builder Aggressive Fund 19.67% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate Fund 20.48% --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 32.47% Aggressive Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Moderate 5.81% Conservative Fund --------------------------------------------------------------------------------------------------------- Portfolio Builder Total Equity 19.81% Fund - ------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Bond 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 and affiliated funds-of-funds' investments in Class I shares. Charles Schwab holds of record 100% of Class D shares and 16.67% of Class E shares and Ameriprise Trust Company holds 83.25% of Class E shares.
Statement of Additional Information - Sept. 29, 2006 Page 184 A fund may serve as an underlying investment of funds-of-funds that principally invest in shares of other RiverSource funds (the underlying funds). The underlying funds and the funds-of-funds share the same officers, directors, and investment manager, RiverSource Investments. The funds-of-funds do not invest in an underlying fund for the purpose of exercising management or control; however, from time to time, investments by the funds-of-funds in a fund may represent a significant portion of a fund. Because the funds-of-funds may own a substantial portion of the shares of a fund, procedures have been put into place to assure that public shareholders will determine the outcome of all actions taken at underlying fund shareholder meetings. In proxy voting, the funds-of-funds will vote on each proposal in the same proportion that other shareholders vote on the proposal. In addition, 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 funds-of-funds, may be deemed a beneficial owner of the shares of an underlying fund held by the funds-of-funds, and such shares, together with any initial capital investment by 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 - Sept. 29, 2006 Page 185 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. 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 Statement of Additional Information - Sept. 29, 2006 Page 186 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. 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. Statement of Additional Information - Sept. 29, 2006 Page 187 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. 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. Statement of Additional Information - Sept. 29, 2006 Page 188 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: 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. Statement of Additional Information - Sept. 29, 2006 Page 189 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 - Sept. 29, 2006 Page 190 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 - Sept. 29, 2006 Page 191 APPENDIX B STATE TAX-EXEMPT FUNDS STATE RISK FACTORS California Tax-Exempt Fund, Massachusetts Tax-Exempt Fund, Michigan Tax-Exempt Fund, Minnesota Tax-Exempt Fund, New York Tax-Exempt Fund and Ohio Tax-Exempt Fund invest primarily in the municipal securities issued by a single state and political sub-divisions that state. Each Fund will be particularly affected by political and economic conditions and developments in the state in which it invests. This vulnerability to factors affecting the state's tax-exempt investments will be significantly greater than that of more geographically diversified funds, which may result in greater losses and volatility. Because of the relatively small number of issuers of tax-exempt securities, the Fund may invest a higher percentage of assets in a single issuer and, therefore, be more exposed to the risk of loss by investing in a few issuers than a fund that invests more broadly. At times, the Fund and other accounts managed by the investment manager may own all or most of the debt of a particular issuer. This concentration of ownership may make it more difficult to sell, or to determine the fair value of, these investments. In addition, a Fund may concentrate in a segment of the tax-exempt debt market, such as revenue bonds for health care facilities, housing or airports. These investments may cause the value of a fund's shares to change more than the values of funds' shares that invest in more diversified investments. The yields on the securities in which the Fund invests generally are dependent on a variety of factors, including the financial condition of the issuer or other obligor, the revenue source from which the debt service is payable, general economic and monetary conditions, conditions in the relevant market, the size of a particular issue, the maturity of the obligation, and the rating of the issue. In addition to such factors, geographically concentrated securities will experience particular sensitivity to local conditions, including political and economic changes, adverse conditions to an industry significant to the area, and other developments within a particular locality. Because many tax-exempt bonds may be revenue or general obligations of local governments or authorities, ratings on tax-exempt bonds may be different from the ratings given to the general obligation bonds of a particular state. Certain events may adversely affect all investments within a particular market segment of the market. Examples include litigation, legislation or court decisions, concerns about pending or contemplated litigation, legislation or court decisions, or lower demand for the services or products provided by a particular market segment. Investing mostly in state-specific tax-exempt investments makes the Fund more vulnerable to that state's economy and to factors affecting tax-exempt issuers in that state than would be true for more geographically diversified funds. These risks include, among others: o the inability or perceived inability of a government authority to collect sufficient tax or other revenues to meet its payment obligations; o natural disasters and ecological or environmental concerns; o the introduction of constitutional or statutory limits on a tax-exempt issuer's ability to raise revenues or increase taxes; o the inability of an issuer to pay interest on or repay principal or securities in which the funds invest during recessionary periods; and o economic or demographic factors that may cause a decrease in tax or other revenues for a government authority or for private operators of publicly financed facilities. More information about state specific risks may be available from official state resources. Statement of Additional Information - Sept. 29, 2006 Page 192 APPENDIX C S&P 500 INDEX FUND ADDITIONAL INFORMATION ABOUT THE S&P 500 INDEX The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the shareholders of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the Fund is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index, which are determined, composed and calculated by S&P without regard to the Fund. S&P has no obligation to take the needs of the Fund or its shareholders into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Fund or the timing of the issuance or sale of the Fund or in the determination or calculation of the equation by which the Fund's shares are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of Fund shares. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN (THE S&P INDEX) AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, ITS SHAREHOLDERS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. S-6500 M (9/06) Statement of Additional Information - Sept. 29, 2006 Page 193 -----END PRIVACY-ENHANCED MESSAGE-----