STATEMENT OF ADDITIONAL INFORMATION
Oct. 3, 2005
AXP(R) California Tax-Exempt Trust
RiverSource(SM) California Tax-Exempt Fund
AXP Dimensions Series, Inc.
RiverSource(SM) New Dimensions Fund(R)
AXP Discovery Series, Inc.
RiverSource Core Bond Fund
RiverSource Discovery Fund
RiverSource Income Opportunities Fund
RiverSource Inflation Protected Securities Fund
RiverSource Limited Duration Bond Fund
AXP Equity Series, Inc.
RiverSource Mid Cap Growth Fund
AXP Fixed Income Series, Inc.
RiverSource Diversified Bond Fund
AXP Global Series, Inc.
RiverSource Emerging Markets Fund
RiverSource Global Balanced Fund
RiverSource Global Bond Fund
RiverSource Global Equity Fund
RiverSource Global Technology Fund
AXP Government Income Series, Inc.
RiverSource Short Duration U.S. Government Fund
RiverSource U.S. Government Mortgage Fund
AXP Growth Series, Inc.
RiverSource Disciplined Equity Fund RiverSource Growth Fund
RiverSource Large Cap Equity Fund
RiverSource Large Cap Value Fund
AXP High Yield Income Series, Inc.
RiverSource High Yield Bond Fund
AXP High Yield Tax-Exempt Series, Inc.
RiverSource Tax-Exempt High Income Fund
AXP Income Series, Inc.
RiverSource Selective Fund
AXP International Series, Inc.
RiverSource European Equity Fund
RiverSource International Opportunity Fund
AXP Investment Series, Inc.
RiverSource Balanced Fund
RiverSource Diversified Equity Income Fund
RiverSource Mid Cap Value Fund
AXP Managed Series, Inc.
RiverSource Strategic Allocation Fund
AXP Market Advantage Series, Inc.
RiverSource Portfolio Builder Aggressive Fund
RiverSource Portfolio Builder Conservative Fund
RiverSource Portfolio Builder Moderate Fund
RiverSource Portfolio Builder Moderate Aggressive Fund
RiverSource Portfolio Builder Moderate Conservative Fund
RiverSource Portfolio Builder Total Equity Fund
RiverSource S&P 500 Index Fund
RiverSource Small Company Index Fund
AXP Money Market Series, Inc.
RiverSource Cash Management Fund
AXP Partners International Series, Inc.
RiverSource International Aggressive Growth Fund
RiverSource International Equity Fund
RiverSource International Select Value Fund
RiverSource International Small Cap Fund
AXP Partners Series, Inc.
RiverSource Aggressive Growth Fund
RiverSource Fundamental Growth Fund
RiverSource Fundamental Value Fund
RiverSource Select Value Fund
RiverSource Small Cap Equity Fund
RiverSource Small Cap Value Fund
RiverSource Value Fund
AXP Sector Series, Inc.
RiverSource Dividend Opportunity Fund
RiverSource Real Estate Fund
AXP Selected Series, Inc.
RiverSource Precious Metals Fund
AXP Special Tax-Exempt Series Trust
RiverSource Insured Tax-Exempt Fund
RiverSource Massachusetts Tax-Exempt Fund
RiverSource Michigan Tax-Exempt Fund
RiverSource Minnesota Tax-Exempt Fund
RiverSource New York Tax-Exempt Fund
RiverSource Ohio Tax-Exempt Fund
AXP Stock Series, Inc.
RiverSource Stock Fund
AXP Strategy Series, Inc.
RiverSource Equity Value Fund
RiverSource Small Cap Advantage Fund
RiverSource Small Cap Growth Fund
RiverSource Strategy Aggressive Fund
AXP Tax-Exempt Series, Inc.
RiverSource Intermediate Tax-Exempt Fund
RiverSource Tax-Exempt Bond Fund
AXP Tax-Free Money Series, Inc.
RiverSource Tax-Exempt Money Market Fund
This is the Statement of Additional Information (SAI) for each of the funds
listed above. This SAI is not a prospectus. It should be read together with the
appropriate current prospectus that may be obtained, without charge, from your
financial advisor or investment professional or by writing to RiverSource
Service Corporation, 70100 Ameriprise Financial Center, Minneapolis, MN 55474 or
by calling (800) 862-7919.
Each fund's financial statements for its most recent fiscal period are contained
in the fund's Annual or Semiannual Report to shareholders. The Independent
Registered Public Accounting Firm's Report and the Financial Statements,
including Notes to the Financial Statements and the Schedule of Investments in
Securities and any applicable Schedule of Affiliated Funds, contained in the
Annual Report, are incorporated in this SAI by reference. No other portion of
the Annual Report is incorporated by reference. The current prospectus for each
of the funds also is incorporated in this SAI by reference.
Each fund is governed by a Board of Directors/Trustees (Board) that meets
regularly to review a wide variety of matters affecting the funds. Detailed
information about fund governance, the funds' investment manager, RiverSource
Investments, LLC (the investment manager or RiverSource Investments), a
wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial),
and other aspects of fund management can be found by referencing the Table of
Contents below.
Table of Contents
Mutual Fund Checklist ......................................................................................p. 4
Fundamental and Nonfundamental Investment Policies..........................................................p. 7
Investment Strategies and Types of Investments ............................................................p. 18
Information Regarding Risks and Investment Strategies .....................................................p. 20
Securities Transactions ...................................................................................p. 46
Brokerage Commissions Paid to Brokers Affiliated with the Investment Manager ..............................p. 55
Valuing Fund Shares .......................................................................................p. 58
Portfolio Holdings Disclosure .............................................................................p. 65
Proxy Voting ..............................................................................................p. 67
Investing in a Fund .......................................................................................p. 68
Selling Shares ............................................................................................p. 72
Pay-out Plans .............................................................................................p. 73
Capital Loss Carryover.....................................................................................p. 74
Taxes .....................................................................................................p. 76
Agreements.................................................................................................p. 80
Organizational Information ...............................................................................p. 129
Board Members and Officers ...............................................................................p. 133
Control Persons and Principal Holders of Securities.......................................................p. 142
Independent Registered Public Accounting Firm.............................................................p. 149
Appendix A: Description of Ratings.......................................................................p. 150
Appendix B: State Risk Factors...........................................................................p. 156
Appendix C: Insured Tax-Exempt Fund......................................................................p. 160
Appendix D: Additional Information about the S&P 500 Index...............................................p. 162
Statement of Additional Information - Oct. 3, 2005 Page 2
List of Tables
1. Fund Fiscal Year Ends and Investment Categories......................5
1A. Master/Feeder Funds..................................................6
2. Fundamental Policies.................................................7
3. Nonfundamental Policies.............................................12
4. Investment Strategies and Types of Investments......................18
5. Total Brokerage Commissions.........................................47
6. Brokerage Directed for Research and Turnover Rates..................49
7. Securities of Regular Brokers or Dealers............................51
8. Brokerage Commissions Paid to Investment Manager or Affiliates......55
9. Valuing Fund Shares.................................................58
10. Class A Sales Charge................................................68
11. Public Offering Price...............................................69
12. Capital Loss Carryover..............................................74
13. Corporate Deduction and Qualified Dividend Income...................77
14. Investment Management Services Agreement Fee Schedule...............80
15. Lipper Indexes......................................................84
16. Performance Incentive Adjustment Calculation........................85
17. Management Fees and Nonadvisory Expenses............................86
18. Subadvisers and Subadvisory Agreement Fee Schedules.................88
19. Subadvisory Fees....................................................90
20. Portfolio Managers..................................................92
21. Administrative Services Agreement Fee Schedule.....................120
22. Administrative Fees................................................122
23. Sales Charges Paid to Distributor..................................125
24. 12b-1 Fees.........................................................128
25. Fund History Table for All Publicly Offered RiverSource Funds......130
26. Board Members......................................................133
27. Fund Officers......................................................134
28. Committee Meetings.................................................135
29. Board Member Holdings - All Funds..................................136
30. Board Member Holdings - Individual Funds...........................136
31. Board Member Compensation - All Funds..............................138
32. Board Member Compensation - Individual Funds.......................139
32A. Board Member Compensation - Master Portfolios......................141
33. Control Persons and Principal Holders of Securities................142
Statement of Additional Information - Oct. 3, 2005 Page 3
Mutual Fund Checklist
o Mutual funds are NOT guaranteed or insured by any bank or government
agency. You can lose money.
o Mutual funds ALWAYS carry investment risks. Some types carry more risk than
others.
o A higher rate of return typically involves a higher risk of loss.
o Past performance is not a reliable indicator of future performance.
o ALL mutual funds have costs that lower investment return.
o You can buy some mutual funds by contacting them directly. Others, like
these, are sold mainly through brokers, banks, financial planners, or
insurance agents. If you buy through these financial professionals, you
generally will pay a sales charge.
o Shop around. Compare a mutual fund with others of the same type before you
buy.
OTHER IDEAS FOR SUCCESSFUL MUTUAL FUND INVESTING
Develop a Financial Plan
Have a plan -- even a simple plan can help you take control of your financial
future. Review your plan with your financial advisor or investment professional
at least once a year or more frequently if your circumstances change.
Dollar-Cost Averaging
An investment technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is dollar-cost
averaging. Dollar-cost averaging involves building a portfolio through the
investment of fixed amounts of money on a regular basis regardless of the price
or market condition. This may enable an investor to smooth out the effects of
the volatility of the financial markets. By using this strategy, more shares
will be purchased when the price is low and less when the price is high. As the
accompanying chart illustrates, dollar-cost averaging tends to keep the average
price paid for the shares lower than the average market price of shares
purchased, although there is no guarantee.
While this does not ensure a profit and does not protect against a loss if the
market declines, it is an effective way for many shareholders who can continue
investing through changing market conditions to accumulate shares to meet
long-term goals.
Regular Market price Shares
investment of a share acquired
$100 $ 6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
- -----------------------------------------------------------------------
$500 $25.00 103.4
Average market price of a share over 5 periods: $5.00 ($25.00 divided by 5)
The average price you paid for each share: $4.84 ($500 divided by 103.4)
Diversify
Diversify your portfolio. By investing in different asset classes and different
economic environments you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
Understand Your Investment
Know what you are buying. Make sure you understand the potential risks, rewards,
costs, and expenses associated with each of your investments.
Statement of Additional Information - Oct. 3, 2005 Page 4
The table that follows lists each fund's fiscal year end and investment
category. The information can be used to identify groups of funds that are
referenced throughout this SAI.
Table 1. Fund Fiscal Year Ends and Investment Categories
- ----------------------------------------- ------------------------ --------------------------
Fund Fiscal Year End Fund Investment Category
- ----------------------------------------- ------------------------ --------------------------
Aggressive Growth May 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Balanced September 30 Balanced
- ----------------------------------------- ------------------------ --------------------------
California Tax-Exempt June 30 State tax-exempt bond
- ----------------------------------------- ------------------------ --------------------------
Cash Management July 31 Taxable money market
- ----------------------------------------- ------------------------ --------------------------
Core Bond July 31 Taxable bond
- ----------------------------------------- ------------------------ --------------------------
Disciplined Equity July 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Discovery July 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Diversified Bond August 31 Taxable bond
- ----------------------------------------- ------------------------ --------------------------
Diversified Equity Income September 30 Equity
- ----------------------------------------- ------------------------ --------------------------
Dividend Opportunity June 30 Equity
- ----------------------------------------- ------------------------ --------------------------
Emerging Markets October 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Equity Value March 31 Equity
- ----------------------------------------- ------------------------ --------------------------
European Equity October 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Fundamental Growth May 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Fundamental Value May 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Global Balanced October 31 Balanced
- ----------------------------------------- ------------------------ --------------------------
Global Bond October 31 Taxable bond
- ----------------------------------------- ------------------------ --------------------------
Global Equity October 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Global Technology October 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Growth July 31 Equity
- ----------------------------------------- ------------------------ --------------------------
High Yield Bond May 31 Taxable bond
- ----------------------------------------- ------------------------ --------------------------
Income Opportunities July 31 Taxable bond
- ----------------------------------------- ------------------------ --------------------------
Inflation Protected Securities July 31 Taxable bond
- ----------------------------------------- ------------------------ --------------------------
Insured Tax-Exempt June 30 Tax-exempt bond
- ----------------------------------------- ------------------------ --------------------------
Intermediate Tax-Exempt Bond November 30 Tax-exempt bond
- ----------------------------------------- ------------------------ --------------------------
International Aggressive Growth October 31 Equity
- ----------------------------------------- ------------------------ --------------------------
International Equity October 31 Equity
- ----------------------------------------- ------------------------ --------------------------
International Opportunity October 31 Equity
- ----------------------------------------- ------------------------ --------------------------
International Select Value October 31 Equity
- ----------------------------------------- ------------------------ --------------------------
International Small Cap October 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Large Cap Equity July 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Large Cap Value July 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Limited Duration Bond July 31 Taxable bond
- ----------------------------------------- ------------------------ --------------------------
Massachusetts Tax-Exempt June 30 State tax-exempt bond
- ----------------------------------------- ------------------------ --------------------------
Michigan Tax-Exempt June 30 State tax-exempt bond
- ----------------------------------------- ------------------------ --------------------------
Mid Cap Growth November 30 Equity
- ----------------------------------------- ------------------------ --------------------------
Mid Cap Value September 30 Equity
- ----------------------------------------- ------------------------ --------------------------
Minnesota Tax-Exempt June 30 State tax-exempt bond
- ----------------------------------------- ------------------------ --------------------------
New Dimensions July 31 Equity
- ----------------------------------------- ------------------------ --------------------------
New York Tax-Exempt June 30 State tax-exempt bond
- ----------------------------------------- ------------------------ --------------------------
Ohio Tax-Exempt June 30 State tax-exempt bond
- ----------------------------------------- ------------------------ --------------------------
Portfolio Builder Aggressive January 31 Funds-of-funds - equity
- ----------------------------------------- ------------------------ --------------------------
Portfolio Builder Conservative January 31 Funds-of-funds - bond
- ----------------------------------------- ------------------------ --------------------------
Portfolio Builder Moderate January 31 Funds-of-funds - equity
- ----------------------------------------- ------------------------ --------------------------
Portfolio Builder Moderate Aggressive January 31 Funds-of-funds - equity
- ----------------------------------------- ------------------------ --------------------------
Portfolio Builder Moderate Conservative January 31 Funds-of-funds - bond
- ----------------------------------------- ------------------------ --------------------------
Portfolio Builder Total Equity January 31 Funds-of-funds - equity
- ----------------------------------------- ------------------------ --------------------------
Precious Metals March 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Real Estate June 30 Equity
- ----------------------------------------- ------------------------ --------------------------
S&P 500 Index January 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Select Value May 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Selective May 31 Taxable bond
- ----------------------------------------- ------------------------ --------------------------
Statement of Additional Information - Oct. 3, 2005 Page 5
- ----------------------------------------- ------------------------ --------------------------
Fund Fiscal Year End Fund Investment Category
- ----------------------------------------- ------------------------ --------------------------
Short Duration U.S. Government May 31 Taxable bond
- ----------------------------------------- ------------------------ --------------------------
Small Cap Advantage March 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Small Cap Equity May 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Small Cap Growth March 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Small Cap Value May 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Small Company Index January 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Stock September 30 Equity
- ----------------------------------------- ------------------------ --------------------------
Strategic Allocation September 30 Balanced
- ----------------------------------------- ------------------------ --------------------------
Strategy Aggressive March 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Tax-Exempt Bond November 30 Tax-exempt bond
- ----------------------------------------- ------------------------ --------------------------
Tax-Exempt High Income November 30 Tax-exempt bond
- ----------------------------------------- ------------------------ --------------------------
Tax-Exempt Money Market December 31 Tax-exempt money market
- ----------------------------------------- ------------------------ --------------------------
U.S. Government Mortgage May 31 Taxable bond
- ----------------------------------------- ------------------------ --------------------------
Value May 31 Equity
- ----------------------------------------- ------------------------ --------------------------
Master/Feeder Funds
Each fund listed in the following table pursues its investment objective by
investing all of its assets in a separate investment company (a portfolio) as
shown in the table, rather than investing directly in and managing its own
portfolio of securities. The portfolio has the same investment objectives,
policies, and restrictions as the fund. References in this SAI, where
applicable, refer to the fund and portfolio, collectively; to the fund,
singularly; or to the portfolio, singularly.
The Board of each feeder fund has determined that it is in the best interests of
shareholders to withdraw the fund's assets from the master/feeder structure. The
necessary steps to finalize the withdrawal are expected to be completed in late
2005 or early 2006. After that date, each feeder fund will invest directly in
and manage its own portfolio of securities rather than investing in a master
portfolio. RiverSource Investments, the investment adviser to the master
portfolio, will continue to serve as investment adviser to the fund under the
same terms and conditions.
Table 1A. Master/Feeder Funds
- -------------------------------------------- -----------------------------------
Feeder Fund Master Portfolio
- -------------------------------------------- -----------------------------------
Balanced Balanced
- -------------------------------------------- -----------------------------------
Diversified Equity Income Equity Income
- -------------------------------------------- -----------------------------------
Emerging Markets Emerging Markets
- -------------------------------------------- -----------------------------------
Global Bond World Income
- -------------------------------------------- -----------------------------------
Global Equity World Growth
- -------------------------------------------- -----------------------------------
Global Technology World Technologies
- -------------------------------------------- -----------------------------------
Growth Growth
- -------------------------------------------- -----------------------------------
High Yield Bond High Yield
- -------------------------------------------- -----------------------------------
New Dimensions Growth Trends
- -------------------------------------------- -----------------------------------
Selective Quality Income
- -------------------------------------------- -----------------------------------
Short Duration U.S. Government Government Income
- -------------------------------------------- -----------------------------------
Stock Equity
- -------------------------------------------- -----------------------------------
Strategic Allocation Total Return
- -------------------------------------------- -----------------------------------
Tax-Exempt High Income Tax-Free High Yield
- -------------------------------------------- -----------------------------------
Funds-of-Funds
Funds-of-funds invest in a combination of underlying funds. These underlying
funds have their own investment policies that may be more or less restrictive
than the policies of the funds-of-funds. The policies of the underlying funds
may permit a funds-of-funds to engage in investment strategies indirectly that
would otherwise be prohibited under the investment restrictions of the
funds-of-funds.
Statement of Additional Information - Oct. 3, 2005 Page 6
Fundamental and Nonfundamental Investment Policies
Fundamental investment policies adopted by a fund cannot be changed without the
approval of a majority of the outstanding voting securities of the fund as
defined in the Investment Company Act of 1940, as amended (the 1940 Act).
Nonfundamental investment policies may be changed by the Board at any time.
Notwithstanding any of a fund's other investment policies, each fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies, and restrictions as the fund for the
purpose of having those assets managed as part of a combined pool.
Fundamental policies
Fundamental policies are policies that can be changed only with shareholder
approval. The chart below shows fundamental policies that are in addition to any
fundamental policy described in the prospectus. The chart indicates whether or
not the fund has a policy on a particular topic. The specific policy is stated
in the paragraphs that follow the table.
Table 2. Fundamental Policies Unless holders of a majority of the
outstanding voting securities agree to make the change, the fund will not:
- ------------------------------------------------------------------------------------------------------------------------------------
A B C D E F G H I J K L M N
- ------------------------------------------------------------------------------------------------------------------------------------
Buy Invest Buy
more more Concen on
Buy Buy than than trate margin
Fund Act or or Lend Issue 10% 5% in or Buy Invest
as Make sell sell fund senior of in any sell stocks, less
under- cash real commode securit securit an an Borrow one Loan short bonds, than
writer loans estate ties ies ies issuer issuer money industry assets (i) etc. 80%
- ------------------------------------------------------------------------------------------------------------------------------------
Aggressive A1 B1 C1 D1 E1 F1 G1 H1 I1 J1
Growth
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced A1 B1 C1 D1 E1 G2 H2 I3 J1 K1
- ------------------------------------------------------------------------------------------------------------------------------------
California A1 B1 C1 D1 E1 I3 K1 N1
Tax-Exempt
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Management A1 C3 C3 E1 H3 I3 L2 M1
- ------------------------------------------------------------------------------------------------------------------------------------
Core Bond A1 B1 C1 D1 E1 F1 G1 H2 I2 J1
- ------------------------------------------------------------------------------------------------------------------------------------
Disciplined A1 B1 C1 D1 E1 F1 G1 H1 I1 J1 K1
Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Discovery A1 B1 C1 D1 E1 G2 H2 I3(v) J1 K1
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified A1 B1 C1 D1 E1 G2 H2 I3 J1
Bond
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified A1 B1 C1 D1 E1 G2 H2 I3 J1
Equity Income
- ------------------------------------------------------------------------------------------------------------------------------------
Dividend A1 B1 C1 D1 E1 G2 H2 I3
Opportunity
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1
Markets
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Value A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1
- ------------------------------------------------------------------------------------------------------------------------------------
European Equity A1 B1 C1 D1 E1 F1 I3 J1 K1
- ------------------------------------------------------------------------------------------------------------------------------------
Fundamental A1 B1 C1 D1 E1 F1 G1 H1 I1 J1
Growth
- ------------------------------------------------------------------------------------------------------------------------------------
Fundamental A1 B1 C1 D3 E1 F1 G1 H1 I1 J1
Value
- ------------------------------------------------------------------------------------------------------------------------------------
Global Balanced A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1
- ------------------------------------------------------------------------------------------------------------------------------------
Global Bond A1 B1 C1 D1 E1 F1 G2 I3 J1 K1
- ------------------------------------------------------------------------------------------------------------------------------------
Global Equity A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1
- ------------------------------------------------------------------------------------------------------------------------------------
Global A1 B1 C1 D1 E1 F1 I3 K1
Technology
- ------------------------------------------------------------------------------------------------------------------------------------
Growth A1 B1 C1 D1 E1 G2 H2 I3 J1 K1
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Bond A1 B1 C1 D1 E1 F1 G2 H2 I3 J1
- ------------------------------------------------------------------------------------------------------------------------------------
Income A1 B1 C1 D1 E1 F1 G1 H2 I2 J1
Opportunities
- --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 7
- ------------------------------------------------------------------------------------------------------------------------------------
A B C D E F G H I J K L M N
- ------------------------------------------------------------------------------------------------------------------------------------
Buy Invest Buy
more more Concen on
Buy Buy than than trate margin
Fund Act or or Lend Issue 10% 5% in or Buy Invest
as Make sell sell fund senior of in any sell stocks, less
under- cash real commode securit securit an an Borrow one Loan short bonds, than
writer loans estate ties ies ies issuer issuer money industry assets (i) etc. 80%
- ------------------------------------------------------------------------------------------------------------------------------------
Inflation A1 B1 C1 D1 E1 F1 I2 J1
Protected
Securities
- --------------------------------------------------------------------------------------------------------------------------------
Insured A1 B1 C1 D1 E1 H2 I3 K1 N3
Tax-Exempt
- --------------------------------------------------------------------------------------------------------------------------------
Intermediate A1 B1 C1 D1 E1 H2(ii) I3 N4(iii)
Tax-Exempt Bond
- --------------------------------------------------------------------------------------------------------------------------------
International A1 B1 C1 D3 E1 F1 G1 H1 I1 J1 K1
Aggressive
Growth
- --------------------------------------------------------------------------------------------------------------------------------
International A1 B1 C1 D3 E1 F1 G1 H1 I1 J1 K1
Equity
- --------------------------------------------------------------------------------------------------------------------------------
International A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1
Opportunity
- --------------------------------------------------------------------------------------------------------------------------------
International A1 B1 C1 D3 E1 F1 G1 H1 I1 J1 K1
Select Value
- --------------------------------------------------------------------------------------------------------------------------------
International A1 B1 C1 D3 E1 F1 G1 H1 I1 J1 K1
Small Cap
- --------------------------------------------------------------------------------------------------------------------------------
Large Cap A1 B1 C1 D1 E1 F1 G1 H2 I2 J1
Equity
- --------------------------------------------------------------------------------------------------------------------------------
Large Cap Value A1 B1 C1 D3 E1 F1 G1 H1 I2 J1
- --------------------------------------------------------------------------------------------------------------------------------
Limited A1 B1 C1 D1 E1 F1 G1 H2 I2 J1
Duration Bond
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts A1 B1 C1 D1 E1 I3 K1 N1
Tax-Exempt
- --------------------------------------------------------------------------------------------------------------------------------
Michigan A1 B1 C1 D1 E1 I3 K1 N1
Tax-Exempt
- --------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth A1 B1 C1 D1 E1 G2 H2 I3 J1
- --------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value A1 B1 C1 D1 E1 F1 G1 H2 I2 J1
- --------------------------------------------------------------------------------------------------------------------------------
Minnesota A1 B1 C1 D1 E1 I3 K1 N1
Tax-Exempt
- --------------------------------------------------------------------------------------------------------------------------------
New Dimensions A1 B1 C1 D1 E1 G2 H2 I3 J1 K1
- --------------------------------------------------------------------------------------------------------------------------------
New York A1 B1 C1 D1 E1 I3 K1 N1
Tax-Exempt
- --------------------------------------------------------------------------------------------------------------------------------
Ohio A1 B1 C1 D1 E1 I3 K1 N1
Tax-Exempt
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio A1 B1 C1 D1 E1 F1 I2 J2
Builder
Aggressive
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio A1 B1 C1 D1 E1 F1 I2 J2
Builder
Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio A1 B1 C1 D1 E1 F1 I2 J2
Builder
Moderate
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio A1 B1 C1 D1 E1 F1 I2 J2
Builder
Moderate
Aggressive
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio A1 B1 C1 D1 E1 F1 I2 J2
Builder
Moderate
Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 8
- ------------------------------------------------------------------------------------------------------------------------------------
A B C D E F G H I J K L M N
- ------------------------------------------------------------------------------------------------------------------------------------
Buy Invest Buy
more more Concen on
Buy Buy than than trate margin
Fund Act or or Lend Issue 10% 5% in or Buy Invest
as Make sell sell fund senior of in any sell stocks, less
under- cash real commode securit securit an an Borrow one Loan short bonds, than
writer loans estate ties ies ies issuer issuer money industry assets (i) etc. 80%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio A1 B1 C1 D1 E1 F1 I2 J2
Builder Total
Equity
- --------------------------------------------------------------------------------------------------------------------------------
Precious Metals A1 B1 C1 D1(vi) E1 F1 I3 J3 K1
- --------------------------------------------------------------------------------------------------------------------------------
Real Estate A1 B1 C1 D1 E1 F1 I2
- --------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index A1 B1 C1 D1 E1 F1 I3 J4 K1
- --------------------------------------------------------------------------------------------------------------------------------
Select Value A1 B1 C1 D3 E1 F1 G2 H1 I1 J1 K1
- --------------------------------------------------------------------------------------------------------------------------------
Selective A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1
- --------------------------------------------------------------------------------------------------------------------------------
Short Duration A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1
U.S. Government
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap A1 B1 C1 D1 E1 F1 G2 H2 I3 J1
Advantage
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap A1 B1 C1 D3 E1 F1 G1 H1 I1 J1
Equity
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap A1 B1 C1 D1 E1 F1 G2 H2 I3 J1
Growth
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap Value A1 B1 C1 D3 E1 F1 I1 J1
- --------------------------------------------------------------------------------------------------------------------------------
Small Company A1 B1 C1 D1 E1 G2 H2 I3 J1 K1
Index
- --------------------------------------------------------------------------------------------------------------------------------
Stock A1 B1 C1 D1 E1 G2 H2 I3 J1
- --------------------------------------------------------------------------------------------------------------------------------
Strategic A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1
Allocation
- --------------------------------------------------------------------------------------------------------------------------------
Strategy A1 B1 C1 D1 E1 F1 G2 H2 I3 J1 K1
Aggressive
- --------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond A1 B1 C1 D1 E1 H2(ii) I3 N4(iv)
- --------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt A1 B1 C1 D1 E1 H2(ii) I3 N2
High Income
- --------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt A1 B2 C2 D2 E1 H3(ii) I3 L1 N4
Money Market
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Gov't A1 B1 C1 D1 E1 F1 G1 H2 I2 J1 K1
Mortgage
- --------------------------------------------------------------------------------------------------------------------------------
Value A1 B1 C1 D3 E1 F1 G1 H1 I1 J1
- --------------------------------------------------------------------------------------------------------------------------------
(i) Nonfundamental policy for all funds except Cash Management and Tax-Exempt
Money Market.
(ii) For purposes of this policy, the terms of a municipal security determine
the issuer.
(iii) For purposes of this policy, the fund will not include any investments
subject to the alternative minimum tax.
(iv) The fund does not intend to purchase bonds or other debt securities the
interest from which is subject to the alternative minimum tax.
(v) For purposes of this policy, borrowing property does not include the
borrowing of securities in connection with short sales.
(vi) Additionally, the fund may purchase gold, silver, or other precious
metals, strategic metals or other metals occurring naturally with such
metals.
A. Act as underwriter
A1 - Act as an underwriter (sell securities for others). However, under
the securities laws, the fund may be deemed to be an underwriter when
it purchases securities directly from the issuer and later resells
them.
B. Make cash loans
B1 - Make cash loans if the total commitment amount exceeds 5% of the
fund's total assets.
B2 - Make cash loans. The fund, however, does make investments in debt
securities where the sellers agree to repurchase the securities at
cost plus an agreed-upon interest rate within a specified time.
Statement of Additional Information - Oct. 3, 2005 Page 9
C. Buy or sell real estate
C1 - Buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the
fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business
or real estate investment trusts. For purposes of this policy, real
estate includes real estate limited partnerships.
C2 - Invest in real estate, but the fund can invest in municipal bonds
and notes secured by real estate or interest therein. For purposes of
this policy, real estate includes real estate limited partnerships.
C3 - Buy or sell real estate, commodities or commodity contracts. For
purposes of this policy, real estate includes real estate limited
partnerships.
D. Buy or sell physical commodities
D1 - Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the fund from buying or selling options and futures contracts
or from investing in securities or other instruments backed by, or
whose value is derived from, physical commodities.
D2 - Invest in commodities or commodity contracts.
D3 - Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the fund from buying or selling options, futures contracts and
foreign currency or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
E. Lend fund securities
E1 - Lend fund securities in excess of 30% of its net assets.
F. Issue senior securities
F1 - Issue senior securities, except as permitted under the 1940 Act.
G. Buy more than 10% of an issuer
G1 - Purchase more than 10% of the outstanding voting securities of an
issuer, except that up to 25% of the fund's assets may be invested
without regard to this 10% limitation.
G2 - Purchase more than 10% of the outstanding voting securities of an
issuer.
H. Invest more than 5% in an issuer
H1 - Invest more than 5% of its total assets in securities of any one
company, government, or political subdivision thereof, except the
limitation will not apply to investments in securities issued by the
U.S. government, its agencies, or instrumentalities, or other
registered investment companies and except up to 25% of the fund's
total assets may be invested without regard to this 5% limitation.
H2 - Invest more than 5% of its total assets in securities of any one
company, government, or political subdivision thereof, except the
limitation will not apply to investments in securities issued by the
U.S. government, its agencies, or instrumentalities, and except up to
25% of the fund's total assets may be invested without regard to this
5% limitation.
H3 - Invest more than 5% of its total assets in securities of any one
company, government, or political subdivision thereof, except the
limitation will not apply to investments in securities issued by the
U.S. government, its agencies, or instrumentalities.
I. Borrow money
I1 - Borrow money in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities
(other than borrowings) immediately after the borrowing. Under current
Board policy, the fund has no current intention to borrow to a
material extent.
Statement of Additional Information - Oct. 3, 2005 Page 10
I2 - Borrow money except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities
(other than borrowings) immediately after the borrowing. The fund has
no current intention to borrow to a material extent.
I3 - Borrow money or property, except as a temporary measure for
extraordinary or emergency purposes, in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately after
the borrowing. The fund has no current intention to borrow to a
material extent.
J. Concentrate
J1 - Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC), this
means that up to 25% of the fund's total assets, based on current
market value at time of purchase, can be invested in any one industry.
J2 - Concentrate in any one industry. According to the present
interpretation by the SEC, this means that up to 25% of the fund's
total assets, based on current market value at time of purchase, can
be invested in any one industry. The fund itself does not intend to
concentrate, however the aggregation of holdings of the underlying
funds may result in the fund indirectly investing more than 25% of its
assets in a particular industry. The fund does not control the
investments of the underlying funds and any indirect concentration
will occur only as a result of the fund following its investment
objectives by investing in the underlying funds.
J3 - Invest less than 25% of its total assets in the precious metals
industry, based on current market value at the time of purchase,
unless market conditions temporarily require a defensive investment
strategy.
J4 - Concentrate in any one industry unless that industry represents more
than 25% of the index tracked by the fund. For all other industries,
in accordance with the current interpretation by the SEC, this means
that up to 25% of the fund's total assets, based on current market
value at time of purchase, can be invested in any one industry.
K. Loan assets
K1 - Make a loan of any part of its assets to the investment manager, to
the board members and officers of the investment manager or to its own
board members and officers.
L. Buy on margin or sell short
L1 - Buy on margin or sell short.
L2 - Buy on margin or sell short or deal in options to buy or sell
securities.
M. Buy stocks, bonds, etc.
M1 - Purchase common stocks, preferred stocks, warrants, other equity
securities, corporate bonds or debentures, state bonds, municipal
bonds, or industrial revenue bonds.
N. Invest less than 80%
N1 - Under normal market conditions, invest less than 80% of its net
assets in municipal obligations that are generally exempt from federal
income tax as well as respective state and local income tax.
N2 - Under normal market conditions, invest less than 80% of its net
assets in bonds and notes issued by or on behalf of state and local
governmental units whose interest, in the opinion of counsel for the
issuer, is exempt from federal income tax and is not subject to the
alternative minimum tax.
N3 - Under normal market conditions, invest less than 80% of its net
assets in securities generally exempt from federal income tax, with
principal and interest either fully insured by private insurers or
guaranteed by an agency or instrumentality of the U.S. government
N4 - Under normal market conditions, invest less than 80% of its net
assets in bonds and other debt securities issued by or on behalf of
state or local governmental units whose interest, in the opinion of
counsel for the issuer, is exempt from federal income tax.
Statement of Additional Information - Oct. 3, 2005 Page 11
Nonfundamental policies
Nonfundamental policies are policies that can be changed by the Board without
shareholder approval. The chart below shows nonfundamental policies that are in
addition to those described in the prospectus. The chart indicates whether or
not the fund has a policy on a particular topic. The specific policy is stated
in the paragraphs that follow the table.
Table 3. Nonfundamental Policies
The following are guidelines that may be changed by the Board at any time:
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
A B C D E F G H
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Fund Investing
Invest to
Deposit Illiquid ment Margin, Money control Foreign
on securities; compan selling Market or securities Debt
futures bullion ies short securities manage (G-1) securities
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Aggressive Growth A1 B1 C1 D7 E1 F1 G1-15% H8
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Balanced A1 B1 C1 D3 E1 F1 G1-25%
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
California A1 B1 D6 H18
Tax-Exempt
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Cash Management B2 C1 See H17
Table 2
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Core Bond A1 B1 C1 D3 E1 F1 G1-15%
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Disciplined Equity A1 B1 C1 D7 E1 F1 G1-20% H7
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Discovery A1 B1 C1 D8 E1 F1 G1-25%(i) H7
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Diversified Bond A1 B1 C1 D7 E1 F1
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Diversified A1 B1 C1 D3 E1 F1 G1-25% H12
Equity Income
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Dividend A1 B1 C1 D3 E1 F1 G1-25% H5
Opportunity
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Emerging Markets A1 B1 C1 D1 E1 F1 H1, H8
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Equity Value A1 B1 C1 D3 E1 F1 G1-25% H13, H15
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
European Equity A1 B1 D7
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Fundamental Growth A1 B1 C1 D7 E1 F1 G1-15% H8
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Fundamental Value A1 B1 C1 D1 E1
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Global Balanced A1 B1 C1 D1 E1 F1 H15(ii)
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Global Bond A1 B1 C1 D1 E1 F1 H15
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Global Equity A1 B1 C1 D1 E1 F1 H1, H7
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Global Technology A1 B1 C1 D1 E1 F1 H1, H7
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Growth A1 B1 C1 D7 E1 F1 G1-25% H5
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
High Yield Bond A1 B1 C1 D6 E1 F1 G1-25%
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Income A1 B1 C1 D3 E1 F1 G1-25%
Opportunities
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Inflation A1 B1 C1 D3 G1-15%
Protected
Securities
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Insured Tax-Exempt A1 B1 J2 D6 H2, H18,
H19, H20
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
Intermediate A1 B1 J2 D2 H11
Tax-Exempt Bond
- ------------------- --------- ------------ -------- -------- ------------ ---------- ------------ -----------
- ------------------- ------------ ------------ -------- --------
I J K L
- ------------------- ------------ ------------ -------- --------
Fund
Invest
while Divers
Tax-exempt Equity borrow Ifica
securities Securities ing tion
- ------------------- ------------ ------------ -------- --------
Aggressive Growth
- ------------------- ------------ ------------ -------- --------
Balanced
- ------------------- ------------ ------------ -------- --------
California I1, I4, I7
Tax-Exempt
- ------------------- ------------ ------------ -------- --------
Cash Management
- ------------------- ------------ ------------ -------- --------
Core Bond
- ------------------- ------------ ------------ -------- --------
Disciplined Equity
- ------------------- ------------ ------------ -------- --------
Discovery
- ------------------- ------------ ------------ -------- --------
Diversified Bond
- ------------------- ------------ ------------ -------- --------
Diversified
Equity Income
- ------------------- ------------ ------------ -------- --------
Dividend
Opportunity
- ------------------- ------------ ------------ -------- --------
Emerging Markets
- ------------------- ------------ ------------ -------- --------
Equity Value
- ------------------- ------------ ------------ -------- --------
European Equity L1, L2
- ------------------- ------------ ------------ -------- --------
Fundamental Growth
- ------------------- ------------ ------------ -------- --------
Fundamental Value K1
- ------------------- ------------ ------------ -------- --------
Global Balanced
- ------------------- ------------ ------------ -------- --------
Global Bond
- ------------------- ------------ ------------ -------- --------
Global Equity
- ------------------- ------------ ------------ -------- --------
Global Technology
- ------------------- ------------ ------------ -------- --------
Growth
- ------------------- ------------ ------------ -------- --------
High Yield Bond J1
- ------------------- ------------ ------------ -------- --------
Income
Opportunities
- ------------------- ------------ ------------ -------- --------
Inflation
Protected
Securities
- ------------------- ------------ ------------ -------- --------
Insured Tax-Exempt I1, I5, J2
I7, I8, I9
- ------------------- ------------ ------------ -------- --------
Intermediate I2, I3, J2
Tax-Exempt Bond I6, I7
- ------------------- ------------ ------------ -------- --------
Statement of Additional Information - Oct. 3, 2005 Page 12
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
A B C D E F G H
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Fund Investing
Invest to
Deposit Illiquid ment Margin, Money control Foreign
on securities; compan selling Market or securities Debt
futures bullion ies short securities manage (G-1) securities
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
International A1 B1 C1 D1 E1
Aggressive Growth
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
International A1 B1 C1 D1 E1
Equity
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
International A1 B1 C1 D1 E1 F1
Opportunity
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
International A1 B1 C1 D1 E1
Select Value
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
International A1 B1 C1 D1 E1
Small Cap
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Large Cap Equity A1 B1 C1 D7 E1 F1 G1-20% H7
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Large Cap Value A1 B1 C1 D1 E1 F1 G1-20% H8
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Limited Duration A1 B1 C1 D3 E1 F1 G1-15%
Bond
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Massachusetts A1 B1 D6 H18
Tax-Exempt
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Michigan A1 B1 D6 H18
Tax-Exempt
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Mid Cap Growth A1 B1 C1 D1 E1 F1 G1-15% H6
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Mid Cap Value A1 B1 C1 D3 E1 F1 G1-25% H9
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Minnesota A1 B1 D6 H18
Tax-Exempt
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
New Dimensions A1 B1 C1 D7 E1 F1 G1-30% H7
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
New York A1 B1 D6 H18
Tax-Exempt
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Ohio Tax-Exempt A1 B1 D6 H18
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Portfolio Builder A1 B1 D7
Aggressive*
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Portfolio Builder A1 B1 D7
Conservative*
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Portfolio Builder A1 B1 D7
Moderate *
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Portfolio Builder A1 B1 D7
Moderate
Aggressive*
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Portfolio Builder A1 B1 D7
Moderate
Conservative*
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Portfolio Builder A1 B1 D7
Total Equity*
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Precious Metals A1 B1 C1 D7 E1 F1 G2, G4 H7(ii),
H21
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
Real Estate A1 B1 C1 D7 G1-10%
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
S&P 500 Index A1 B1 D3
- ------------------- -------- ------------ -------- -------- ---------- ----------- --------- ----------
- ------------------- ---------- --------- -------- --------
I J K L
- ------------------- ---------- --------- -------- --------
Fund
Invest
while Divers
Tax-exempt Equity borrow Ifica
securities Securities ing tion
- ------------------- ---------- --------- -------- --------
International
Aggressive Growth
- ------------------- ---------- --------- -------- --------
International
Equity
- ------------------- ---------- --------- -------- --------
International
Opportunity
- ------------------- ---------- --------- -------- --------
International K1
Select Value
- ------------------- ---------- --------- -------- --------
International
Small Cap
- ------------------- ---------- --------- -------- --------
Large Cap Equity
- ------------------- ---------- --------- -------- --------
Large Cap Value
- ------------------- ---------- --------- -------- --------
Limited Duration
Bond
- ------------------- ---------- --------- -------- --------
Massachusetts I1, I4,
Tax-Exempt I7
- ------------------- ---------- --------- -------- --------
Michigan I1, I4,
Tax-Exempt I7
- ------------------- ---------- --------- -------- --------
Mid Cap Growth
- ------------------- ---------- --------- -------- --------
Mid Cap Value
- ------------------- ---------- --------- -------- --------
Minnesota I1, I4,
Tax-Exempt I7
- ------------------- ---------- --------- -------- --------
New Dimensions
- ------------------- ---------- --------- -------- --------
New York I1, I4,
Tax-Exempt I7
- ------------------- ---------- --------- -------- --------
Ohio Tax-Exempt I1, I4,
I7
- ------------------- ---------- --------- -------- --------
Portfolio Builder
Aggressive*
- ------------------- ---------- --------- -------- --------
Portfolio Builder
Conservative*
- ------------------- ---------- --------- -------- --------
Portfolio Builder
Moderate *
- ------------------- ---------- --------- -------- --------
Portfolio Builder
Moderate
Aggressive*
- ------------------- ---------- --------- -------- --------
Portfolio Builder
Moderate
Conservative*
- ------------------- ---------- --------- -------- --------
Portfolio Builder
Total Equity*
- ------------------- ---------- --------- -------- --------
Precious Metals L1
- ------------------- ---------- --------- -------- --------
Real Estate
- ------------------- ---------- --------- -------- --------
S&P 500 Index L1, L2
- ------------------- ---------- --------- -------- --------
Statement of Additional Information - Oct. 3, 2005 Page 13
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
A B C D E F G H
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Fund Investing
Invest to
Deposit Illiquid ment Margin, Money control Foreign
on securities; compan selling Market or securities Debt
futures bullion ies short securities manage (G-1) securities
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Select Value A1 B1 C1 D1 E1 G1-20% H4
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Selective A1 B1 C1 D6 E1 F1 G1-25% H5
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Short Duration A1 B1 C1 D9 E1 F1
U.S. Government
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Small Cap A1 B1 C1 D1 E1
Advantage
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Small Cap Equity A2 B1 C1 D1 E1 G1-15%
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Small Cap Growth A1 B1 C1 D1 E1
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Small Cap Value A1 B1 C1 D1 E1
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Small Company A1 B1 C1 D4 E1 F1
Index
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Stock A1 B1 C1 D7 E1 F1 G1-25% H7, H16
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Strategic A1 B1 C1 D3 F1 G1-50% H3, H10
Allocation
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Strategy A1 B1 C1 D3 E1 F1 G1-25% H13,
Aggressive H15(ii)
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Tax-Exempt Bond A1 B1 CJ2 D2 H22
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Tax-Exempt High A1 B1 D2
Income
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Tax-Exempt Money B1(iii)
Market
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
U.S. Gov't A1 B1 C1 D9 E1 F1
Mortgage
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
Value A1 B1 C2 D1 E1 G1-25% H14
- ------------------- -------- ----------- -------- -------- ---------- ----------- --------- -----------
- ------------------- --------- ---------- ------- --------
I J K L
- ------------------- --------- ---------- ------- --------
Fund
Invest
while Divers
Tax-exempt Equity borrow Ifica
securitiesSecurities ing tion
- ------------------- --------- ---------- ------- --------
Select Value
- ------------------- --------- ---------- ------- --------
Selective
- ------------------- --------- ---------- ------- --------
Short Duration
U.S. Government
- ------------------- --------- ---------- ------- --------
Small Cap
Advantage
- ------------------- --------- ---------- ------- --------
Small Cap Equity K1
- ------------------- --------- ---------- ------- --------
Small Cap Growth
- ------------------- --------- ---------- ------- --------
Small Cap Value K1 L1, L2
- ------------------- --------- ---------- ------- --------
Small Company
Index
- ------------------- --------- ---------- ------- --------
Stock
- ------------------- --------- ---------- ------- --------
Strategic
Allocation
- ------------------- --------- ---------- ------- --------
Strategy
Aggressive
- ------------------- --------- ---------- ------- --------
Tax-Exempt Bond I2 J2
- ------------------- --------- ---------- ------- --------
Tax-Exempt High I2, I3
Income
- ------------------- --------- ---------- ------- --------
Tax-Exempt Money
Market
- ------------------- --------- ---------- ------- --------
U.S. Gov't
Mortgage
- ------------------- --------- ---------- ------- --------
Value K1
- ------------------- --------- ---------- ------- --------
* The fund invests in a combination of underlying funds. These underlying
funds have adopted their own investment policies that may be more or less
restrictive than those of the fund. The policies of the underlying funds
may permit a fund to engage in investment strategies indirectly that would
otherwise be prohibited under the fund's investment restrictions.
(i) The fund has no current intention of investing more than 5% of its total
assets in foreign securities.
(ii) Securities that are subsequently downgraded in quality may continue to be
held and will be sold only when the investment manager believes it is
advantageous to do so.
(iii) In determining the liquidity of municipal lease obligations, the
investment manager, under guidelines established by the Board, will
consider the essential nature of the leased property, the likelihood that
the municipality will continue appropriating funding for the leased
property, and other relevant factors related to the general credit quality
of the municipality and the marketability of the municipal lease
obligation.
A. Deposit on futures/premiums on options
A1 - No more than 5% of the fund's net assets can be used at any one time
for good faith deposits on futures and premiums for options on futures
that do not offset existing investment positions.
A2 - No more than 5% of the fund's net assets can be used at any one time
for good faith deposits on futures and premiums for options on futures
other than for bona fide hedging purposes (within the meaning of the
rules of the Commodities Futures Trading Commission).
Statement of Additional Information - Oct. 3, 2005 Page 14
B. Illiquid securities
B1 - No more than 10% of the fund's net assets will be held in securities
and other instruments that are illiquid.
B2 - The fund will not invest more than 10% of its net assets in
securities that are illiquid whether or not registration or the filing
of a notification under the Securities Act of 1933 or the taking of
similar action under other securities laws relating to the sale of
securities is required. A risk of any such investment is that it might
not be able to be easily liquidated. For the purpose of this policy,
repurchase agreements with maturities greater than seven days and
non-negotiable fixed time deposits will be treated as illiquid
securities.
C. Investment companies
C1 - The fund will not invest more than 10% of its total assets in the
securities of investment companies.
C2 - The fund will not invest more than 10% of its total assets in the
securities of investment companies, unless a higher amount is
permitted under an SEC exemptive order.
D. Margin/selling short
D1 - The fund will not buy on margin or sell securities short, except the
fund may make margin payments in connection with transactions in
derivative instruments.
D2 - The fund will not buy on margin or sell short, except that the fund
may use derivative instruments.
D3 - The fund will not buy on margin or sell securities short, except the
fund may make margin payments in connection with transactions in
futures contracts.
D4 - The fund will not buy on margin or sell short, except the fund may
make margin payments in connection with transactions in options,
futures contracts and other financial instruments.
D5 - The fund will not buy on margin or sell securities short, except the
fund may make margin payments in connection with transactions in
interest rate futures contracts.
D6 - The fund will not buy on margin or sell short, except the fund may
enter into interest rate futures contracts.
D7 - The fund will not buy on margin or sell securities short, except the
fund may make margin payments in connection with transactions in stock
index futures contracts.
D8 - The fund will not buy on margin, except the fund may make margin
payments in connection with transactions in stock index futures
contracts.
D9 - The fund will not buy on margin, except the fund may make margin
payments in connection with interest rate futures contracts.
E. Money market securities
E1 - Ordinarily, less than 25% of the fund's total assets are invested in
money market instruments.
F. Investing to control or manage
F1 - The fund will not invest in a company to control or manage it.
G. Foreign securities
G1 - The fund may invest its total assets, up to the amount shown, in
foreign investments.
G2 - Under normal market conditions, the fund intends to invest at least
50% of its total assets in foreign investments.
G3 - Investments in U.S. issuers generally will constitute less than 20%
of the fund's total assets.
Statement of Additional Information - Oct. 3, 2005 Page 15
G4 - The fund may invest up to 10% of its total assets in gold and silver
bullion, other precious metals, strategic metals and other metals
occurring naturally with such metals and securities convertible into
metals. The fund will invest only in metals and securities convertible
into metals that are readily marketable.
H. Debt securities
H1 - The fund may invest up to 20% of its net assets in bonds.
H2 - The fund may purchase short-term corporate notes and obligations
rated in the top two classifications by Moody's Investors Service,
Inc. (Moody's) or Standard & Poor's Corporation (S&P) or the
equivalent.
H3 - The fund may invest up to 30% of its total assets in short-term debt
securities rated in the top two grades or the equivalent.
H4 - The fund normally will purchase only investment grade convertible
debt securities with a rating of, or equivalent to, at least BBB by
S&P or, in the case of unrated securities, judged by the subadviser to
be of comparable quality. The fund may invest in more speculative
convertible debt securities, provided that such securities have a
rating of, or equivalent to, at least an S&P rating of B and provided
also that the total investment in such securities remains below 15% of
the fund's assets.
H5 - The fund may not purchase debt securities rated below investment
grade.
H6 - The fund only invests in bonds given the four highest ratings by
Moody's or by S&P or in bonds of comparable quality in the judgment of
the investment manager.
H7 - The fund will not invest more than 5% of its net assets in bonds
below investment grade.
H8 - The fund may invest up to 10% of its net assets in bonds rated below
investment grade
H9 - No more than 10% of the fund's net assets may be invested in bonds
below investment grade unless the bonds are convertible securities.
H10- No more than 15% of the fund's total assets will be invested in
below investment-grade debt securities.
H11- The fund may invest 20% of its net assets in bonds rated or
considered below investment grade (less than BBB/Baa).
H12- No more than 20% of the fund's net assets may be invested in bonds
below investment grade unless the bonds are convertible securities.
H13- The fund will not invest more than 5% of its net assets in bonds
rated BB or B, or in unrated bonds of equivalent quality.
H14- No more than 10% of the fund's assets will be held in debt
securities rated BB/Ba or lower.
H15- The fund may not invest in debt securities rated lower than B (or in
unrated bonds of comparable quality).
H16- The fund will not purchase securities rated below C by Moody's or
S&P, or the equivalent.
H17- The fund may invest in commercial paper rated in the highest rating
category by at least two nationally recognized statistical rating
organizations (or by one, if only one rating is assigned) and in
unrated paper determined by the Board to be of comparable quality. The
fund also may invest up to 5% of its total assets in commercial paper
receiving the second highest rating or in unrated paper determined to
be of comparable quality.
H18- No more than 10% of the fund's net assets will be held in inverse
floaters.
H19- The fund may purchase securities rated Aaa by Moody's or AAA by S&P.
In addition, the fund may purchase other securities, provided the
securities are insured.
H20- Under normal market conditions, at least 65% of the fund's total
assets will be invested in securities that are insured and have a
maturity of more than one year.
H21- In the event economic, political or financial conditions adverse to
gold or metals industries or the metals themselves occur, the fund
temporarily may invest over 75% of its total assets in U.S. government
securities or investment-grade short-term obligations (denominated
either in foreign currencies or U.S. dollars).
Statement of Additional Information - Oct. 3, 2005 Page 16
H22- At least 75% of the fund's investments in bonds and other debt
securities must be rated in the top four grades by Moody's, S&P, or
Fitch Investors Services, Inc. or be of comparable rating given by
other independent rating agencies. Up to 25% of the fund's remaining
investments may be in unrated bonds and other debt securities that, in
the investment manager'ss opinion, are of investment grade quality.
All industrial revenue bonds must be rated.
I. Tax- exempt securities
I1 - If, in the opinion of the investment manager, appropriate tax-exempt
securities are not available, the fund may invest up to 20% of its net
assets, or more on a temporary defensive basis, in taxable
investments.
I2 - Short-term tax-exempt debt securities rated in the top two grades or
the equivalent are used to meet daily cash needs and at various times
to hold assets until better investment opportunities arise. Under
extraordinary conditions, where, in the opinion of the investment
manager, appropriate short-term tax-exempt securities are not
available, the fund may invest up to 20% of its net assets in certain
taxable investments for temporary defensive purposes.
I3 - The fund may invest more than 25% of its total assets in industrial
revenue bonds, but it does not intend to invest more than 25% of its
total assets in industrial revenue bonds issued for companies in the
same industry or state.
I4 - The fund may invest more than 25% of its total assets in a
particular segment of the municipal securities market or in industrial
revenue bonds, but does not intend to invest more than 25% of its
total assets in industrial revenue bonds issued for companies in the
same industry.
I5 - The fund may invest more than 25% of its total assets in a
particular segment of the municipal securities market or in industrial
revenue bonds, but it does not intend to invest more than 25% of its
total assets in industrial revenue bonds issued for companies in the
same industry or state.
I6 - The fund may invest more than 25% of its total assets in a
particular segment of the municipal securities market or in securities
relating to a particular state. Such markets may include electric
revenue bonds, hospital bonds, housing bonds, industrial bonds,
airport bonds, or in securities the interest on which is paid from
revenues of a similar type of project.
I7 - A portion of the fund's assets may be invested in bonds whose
interest is subject to the alternative minimum tax computation. As
long as the staff of the SEC maintains its current position that a
fund calling itself a "tax-exempt" fund may not invest more than 20^%
of its net assets in these bonds, the fund will limit its investments
in these bonds to 20% of its net assets.
I8 - Pending investment in municipal securities maturing in more than one
year, or as a temporary defensive position, the fund may hold up to
35% of its net assets in short-term tax-exempt instruments that are
not insured or guaranteed. The fund will purchase these instruments
only if they are rated MIG-1 by Moody's or SP-1 by S&P or if the
long-term debt of such issuers is rated Aaa by Moody's or AAA by S&P
or the equivalent.
I9 - Except for securities guaranteed by the U.S. government, or an
agency thereof, and the short-term tax-exempt instruments rated MIG-1
by Moody's or SP-1 by S&P or if the long-term debt of such issuers is
rated Aaa by Moody's or AAA by S&P or the equivalent, each tax-exempt
security purchased by the fund will be insured either by a New Issue
Insurance Policy or by a Portfolio Insurance Policy issued by MBIA
Insurance Corporation, Financial Guaranty Insurance Company or a
comparable insurer as long as that insurer is rated Aaa by Moody's or
AAA by S&P or the equivalent.
J. Equity Securities
J1 - The fund may invest up to 10% of its total assets in common stocks,
preferred stocks that do not pay dividends and warrants to purchase
common stocks.
J2 - The fund will not invest in voting securities or securities of
investment companies.
Statement of Additional Information - Oct. 3, 2005 Page 17
K. Invest while Borrowing
K1 - The fund will not make additional investments while any borrowing
remains outstanding.
L. Diversification
L1 - Purchase more than 10% of the outstanding voting securities of an
issuer, except that up to 25% of the fund's assets may be invested
without regard to this 10% limitation.
L2 - Invest more than 5% of its total assets in securities of any one
company, government, or political subdivision thereof, except the
limitation will not apply to investments in securities issued by the
U.S. government, its agencies, or instrumentalities, or other
registered investment companies and except up to 25% of the fund's
total assets may be invested without regard to this 5% limitation.
Investment Strategies and Types of Investments
This table shows many of the various investment strategies and investments that
many funds are allowed to engage in and purchase. It is intended to show the
breadth of investments that the investment manager or subadviser (individually
and collectively, the "investment manager") may make on behalf of a fund. For a
description of principal risks for an individual fund, please see the applicable
prospectus for that fund. Notwithstanding a fund's ability to utilize these
strategies and techniques, the investment manager is not obligated to use them
at any particular time. For example, even though the investment manager is
authorized to adopt temporary defensive positions and is authorized to attempt
to hedge against certain types of risk, these practices are left to the
investment manager's sole discretion.
Investment strategies and types of investments: A black circle indicates that
the investment strategy or type of investment generally is authorized for a
category of funds. Exceptions are noted in the footnotes to the table. See Table
1 for fund categories.
Table 4. Investment Strategies and Types of Investments
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Investment strategy Balanced Equity Funds-of- Taxable Taxable Tax-exempt Tax-exempt State
funds - bond money money bond tax-exempt
equity market market bond
and bond
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Agency and government o o o o o o o o
securities
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Borrowing o o o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Cash/money market o o o o o o o o
instruments
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Collateralized bond o o A o o o
obligations
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Commercial paper o o o o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Common stock o o o B
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Convertible securities o o o C o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Corporate bonds o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Debt obligations o o o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Depositary receipts o o o D
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Derivative instruments o o o o o o
(including options and
futures)
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Exchange-traded funds o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Foreign currency o o o E o E
transactions
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Foreign securities o o o F o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Funding agreements o o o o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Statement of Additional Information - Oct. 3, 2005 Page 18
Table 4. Investment Strategies and Types of Investments
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Investment strategy Balanced Equity Funds-of- Taxable Taxable Tax-exempt Tax-exempt State
funds - bond money money bond tax-exempt
equity market market bond
and bond
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
High yield (high-risk) o o G o G o o
debt securities (junk
bonds)
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Illiquid and restricted o o o o o o o o
securities
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Indexed securities o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Inflation protected o o o o o
securities
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Inverse floaters o H o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Investment companies o o o o I
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Lending of portfolio o o o o o o o o
securities
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Loan participations o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Mortgage-and o o J o o o o o
asset-backed securities
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Mortgage dollar rolls o K o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Municipal obligations o o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Preferred stock o o o L o L o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Real estate investment o o o o o
trusts
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Repurchase agreements o o o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Reverse repurchase o o o o o o
agreements
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Short sales M M
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Sovereign debt o o N o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Structured investments o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Swap agreements P o P
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Variable- or o o o o o o o o
floating-rate securities
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Warrants o o o o o
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
When-issued securities o o o o o
and forward commitments
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
Zero-coupon, o o o o o
step-coupon and
pay-in-kind securities
- ------------------------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
A. The following funds are not authorized to invest in collateralized bond
obligations: International Aggressive Growth, International Equity,
International Select Value, International Small Cap, Select Value, Small
Cap Equity, Small Cap Growth,
Small Cap Value, and Small Cap Advantage.
B. The following funds are not authorized to invest in common stock: Short
Duration, U.S. Government Mortgage.
C. The following funds are not authorized to invest in convertible securities:
Short Duration, U.S. Government Mortgage.
D. The following funds are not authorized to invest in depositary receipts:
Short Duration, U.S. Government Mortgage.
E. The following funds are not authorized to engage in foreign currency
transactions: Insured Tax-Exempt Bond, U.S. Government Mortgage.
F. The following funds are not authorized to invest in foreign securities:
U.S. Government Mortgage.
G. The following funds may hold securities that are downgraded to junk bond
status, if the bonds were rated investment grade at the time of purchase:
Core Bond, Dividend
Opportunity, Mid Cap Growth, Growth, Inflation Protected Securities,
Limited Duration, International Aggressive Growth, International Equity,
International Select Value, International Small Cap, Small Cap Growth, Real
Estate, S&P 500 Index, Selective, Short Duration, Small Cap Advantage,
Small Company Index, Tax-Exempt Bond, European Equity, International
Opportunity, U.S. Government Mortgage.
H. The following funds are authorized to invest in inverse floaters: Real
Estate.
I. The following funds are authorized to invest in investment companies:
Intermediate Tax-Exempt Bond, Tax-Exempt Bond.
J. The following funds are not authorized to invest in mortgage-and
asset-backed securities: Small Cap Growth, Value, S&P 500 Index, Small Cap
Advantage, Small Company Index.
K. The following funds are authorized to invest in mortgage dollar rolls: Real
Estate.
Statement of Additional Information - Oct. 3, 2005 Page 19
L. The following funds are not authorized to invest in preferred stock:
Tax-Exempt High Income, Intermediate Tax-Exempt Bond, Tax-Exempt Bond,
Short Duration, U.S. Government Mortgage.
M. The following funds are authorized to engage in short sales: S&P 500 Index,
Short Duration, U.S. Government Mortgage.
N. The following funds are not authorized to invest in sovereign debt: Select
Value, Small Cap Equity, Small Cap Growth, Small Cap Value, Small Cap
Advantage.
P. The following funds are authorized to invest in swap agreements:
International Select Value. Tax-exempt bond funds may invest in interest
rate swap agreements.
Information Regarding Risks and Investment Strategies
RISKS
The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). A mutual fund's
risk profile is largely defined by the fund's primary securities and investment
strategies. However, most mutual funds are allowed to use certain other
strategies and investments that may have different risk characteristics.
Accordingly, one or more of the following types of risk may be associated with a
fund at any time (for a description of principal risks for an individual fund,
please see that fund's prospectus):
Active Management Risk. The fund is actively managed and its performance
therefore will reflect in part the ability of the portfolio managers to make
investment decisions that are suited to achieving the fund's investment
objective. Due to its active management, the fund could underperform other
mutual funds with similar investment objectives.
Affiliated Fund Risk. For funds-of-funds the risk that the investment manager
may have potential conflicts of interest in selecting underlying funds because
the fees paid to it by some underlying funds are higher than the fees paid by
other underlying funds. However, the investment manager is a fiduciary to the
funds and is legally obligated to act in their best interests when selecting
underlying funds, without taking fees into consideration.
Allocation Risk. The risk that the investment manager's evaluations regarding
asset classes or underlying funds may be incorrect. There is no guarantee that
the underlying funds will achieve their investment objectives. There is also a
risk that the selected underlying funds' performance may be lower than the
performance of the asset class they were selected to represent or may be lower
than the performance of alternative underlying funds that could have been
selected to represent the asset class.
Credit Risk. For Cash Management, Core Bond and Tax-Exempt Money Market. The
risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable or unwilling to honor a financial obligation,
such as payments due on a bond or a note. If the fund purchases unrated
securities, or if the rating of a security is reduced after purchase, the fund
will depend on the investment manager's analysis of credit risk more heavily
than usual.
For all Fixed Income Funds except Core Bond, all Balanced Funds, and Strategic
Allocation Fund. The risk that the issuer of a security, or the counterparty to
a contract, will default or otherwise become unable or unwilling to honor a
financial obligation, such as payments due on a bond or a note. If the Fund
purchases unrated securities, or if the rating of a security is reduced after
purchase, the Fund will depend on the investment manager's analysis of credit
risk more heavily than usual. Non-investment grade securities, commonly called
"high-yield" or "junk" bonds, may react more to perceived changes in the ability
of the issuing company to pay interest and principal when due than to changes in
interest rates. Non-investment grade securities have greater price fluctuations
and are more likely to experience a default than investment grade bonds.
Statement of Additional Information - Oct. 3, 2005 Page 20
Derivatives Risk. Derivatives are financial instruments where value depends
upon, or is derived from, the value of something else, such as one or more
underlying investments, pools of investments, options, futures, indexes or
currencies. Just as with securities in which the Fund invests directly,
derivatives are subject to a number of risks, including market, correlation,
liquidity, interest rate and credit risk. In addition, gains or losses involving
derivatives may be substantial, because a relatively small price movement in the
underlying security, currency or index may result in a substantial gain or loss
for the Fund. The Fund will suffer a loss in connection with the use of
derivative instruments if prices do not move in the direction anticipated by the
Fund's portfolio managers when entering into the derivative instrument.
Diversification Risk. A non-diversified fund may invest more of its assets in
fewer companies than if it were a diversified fund. Because each investment has
a greater effect on the fund's performance, the fund may be more exposed to the
risks of loss and volatility then a fund that invests more broadly.
For Portfolio Builder Funds. Although most of the underlying funds are
diversified funds, because the Fund invests in a limited number of underlying
funds, it is considered a non-diversified fund. A non-diversified fund may
invest more of its assets in fewer companies than if it were a diversified fund.
Because each investment has a greater effect on the Fund's performance, the Fund
may be more exposed to the risks of loss and volatility then a fund that invests
more broadly.
Foreign/Emerging Markets Risk. The following are all components of
foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of the
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets. The liquidity of foreign investments may be
more limited than for most U.S. investments, which means that, at times it may
be difficult to sell foreign securities at desirable prices.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
Emerging markets risk includes the dramatic pace of change (economic, social,
and political) in these countries as well as the other considerations listed
above. These markets are in early stages of development and are extremely
volatile. They can be marked by extreme inflation, devaluation of currencies,
dependence on trade partners, and hostile relations with neighboring countries.
Geographic Concentration Risk. Because state-specific tax-exempt funds invest
primarily in the municipal securities issued by the state and political
sub-divisions of the state, each fund will be particularly affected by political
and economic conditions and developments in the state in which it invests. This
vulnerability to factors affecting the state's tax-exempt investments will be
significantly greater than that of a more geographically diversified fund, which
may result in greater losses and volatility. See the Statement of Additional
Information for details. The value of municipal securities owned by a fund also
may be adversely affected by future changes in federal or state income tax laws.
Statement of Additional Information - Oct. 3, 2005 Page 21
In addition, because of the relatively small number of issuers of tax-exempt
securities, the fund may invest a higher percentage of assets in a single issuer
and, therefore, be more exposed to the risk of loss by investing in a few
issuers than a fund that invests more broadly. At times, the fund and other
accounts managed by investment manager may own all or most of the debt of a
particular issuer. This concentration of ownership may make it more difficult to
sell, or to determine the fair value of, these investments.
Indexing Risk. For funds that are managed to an index and the fund's performance
therefore will rise and fall as the performance of the index rises and falls.
Inflation Risk. Also known as purchasing power risk, inflation risk reflects the
effects of continually rising prices on investments. If an investment's return
is lower than the rate of inflation, your money will have less purchasing power
as time goes on.
Inflation Protected Securities Risk. Inflation-protected debt securities tend to
react to change in real interest rates. Real interest rates can be described as
nominal interest rates minus the expected impact of inflation. In general, the
price of an inflation-protected debt security falls when real interest rates
rise, and rises when real interest rates fall. Interest payments on
inflation-protected debt securities will vary as the principal and/or interest
is adjusted for inflation and may be more volatile than interest paid on
ordinary bonds. In periods of deflation, the fund may have no income at all.
Income earned by a shareholder depends on the amount of principal invested and
that principal will not grow with inflation unless the investor reinvests the
portion of fund distributions that comes from inflation adjustments.
Interest Rate Risk. The risk of losses attributable to changes in interest
rates. Interest rate risk is generally associated with bond prices: when
interest rates rise, bond prices fall. In general, the longer the maturity or
duration of a bond, the greater its sensitivity to changes in interest rates.
Issuer Risk. An issuer, or the value of its stocks or bonds, may perform poorly.
Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Liquidity Risk. The risk associated from a lack of marketability of securities
which may make it difficult or impossible to sell at desirable prices in order
to minimize loss. The Fund may have to lower the selling price, sell other
investments, or forego another, more appealing investment opportunity.
Market Risk. For Equity Funds and Balanced Funds. The market value of securities
may fall or fail to rise. Market risk may affect a single issuer, sector of the
economy, industry, or the market as a whole. The market value of securities may
fluctuate, sometimes rapidly and unpredictably. This risk is generally greater
for small and mid-sized companies, which tend to be more vulnerable to adverse
developments. In addition, focus on a particular style, for example, investment
in growth or value securities, may cause the Fund to underperform other mutual
funds if that style falls out of favor with the market.
Additionally for Disciplined Equity Fund. The quantitative methodology employed
by the investment manager has been extensively tested using historical
securities market data, but has only recently begun to be used to manage
open-end mutual funds. There can be no assurance that the methodology will
enable the Fund to achieve its objective.
For Fixed Income Funds (Taxable and Tax-Exempt). The market value of securities
may fall or fail to rise. Market risk may affect a single issuer, sector of the
economy, industry, or the market as a whole. The market value of securities may
fluctuate, sometimes rapidly and unpredictably.
Statement of Additional Information - Oct. 3, 2005 Page 22
Mid-Sized Company Risk. Investments in mid-sized companies often involve greater
risks than investments in larger, more established companies because mid-sized
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of mid-sized companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
Prepayment and Extension Risk. The risk that a bond or other security might be
called, or otherwise converted, prepaid, or redeemed, before maturity. This risk
is primarily associated with asset-backed securities, including mortgage backed
securities. If a security is converted, prepaid, or redeemed, before maturity,
particularly during a time of declining interest rates, the investment manager
may not be able to reinvest in securities providing as high a level of income,
resulting in a reduced yield to the fund. Conversely, as interest rates rise,
the likelihood of prepayment decreases. The investment manager may be unable to
capitalize on securities with higher interest rates because the Fund's
investments are locked in at a lower rate for a longer period of time.
Reinvestment Risk. The risk that an investor will not be able to reinvest income
or principal at the same rate it currently is earning.
Sector Risk. For Dividend Opportunities Fund, Global Bond Fund and Emerging
Markets Fund. Investments that are concentrated in a particular issuer,
geographic region, or sector will be more susceptible to changes in price. The
more a fund diversifies, the more it spreads risk and potentially reduces the
risks of loss and volatility.
For Global Technology Fund. The fund may invest a significant part of its total
assets in securities of companies primarily engaged in the technology, media or
telecommunications sectors. This may result in greater fluctuations in value
than would be the case for a fund invested in a wider variety of unrelated
industries. As these sectors increase or decrease in favor with the investing
public, the price of securities of companies that rely heavily on those sectors
could become increasingly sensitive to downswings in the economy.
For Mid Cap Value Fund. Companies that operate in different but closely related
industries are sometimes described as being in the same broad economic sector.
The values of stocks of many different companies in a market sector may be
similarly affected by particular economic or market events. Although the Fund
does not intend to focus on any particular sector, at times the Fund may have a
significant portion of its assets invested in a particular sector.
For Aggressive Growth Fund. Companies that operate in different but closely
related industries are sometimes described as being in the same broad economic
sector. The values of stocks of many different companies in a market sector may
be similarly affected by particular economic or market events. Although the
Fund's principal investment strategies do not involve focusing on any particular
sector, at times Columbia WAM's asset management strategy may cause the fund to
invest a large portion of its assets in a particular sector.
For Precious Metals Fund. The fund may invest a significant part of its total
assets in securities of companies primarily engaged in exploration, mining,
processing or distribution of gold and other precious metals and related
minerals. This may result in greater market fluctuations than would happen with
a fund invested in a wider variety of unrelated industries. As these sectors
increase or decrease in favor with the investing public, the price of securities
of companies that rely heavily on those sectors could become increasingly
sensitive to downswings in the economy.
Statement of Additional Information - Oct. 3, 2005 Page 23
For Real Estate Fund. Because of the fund's policy of concentrating its
investments in securities of companies operating in the real estate industry,
the Fund is more susceptible to risks associated with the ownership of real
estate and with the real estate industry in general. These risks can include
fluctuations in the value of the underlying properties, defaults by borrowers or
tenants, market saturation, decreases in market rates for rents, and other
economic, political, or regulatory occurrences affecting the real estate
industry.
REITs depend upon specialized management skills, may have limited financial
resources, may have less trading volume, and may be subject to more abrupt or
erratic price movements than the overall securities markets. REITs are also
subject to the risk of failing to qualify for tax-free pass-through of income.
Some REITs (especially mortgage REITs) are affected by risks similar to those
associated with investments in debt securities including changes in interest
rates and the quality of credit extended.
REITs often do no provide complete tax information until after the calendar
year-end. Consequently, because of the delay, it may be necessary for the Fund
to request permission to extend the deadline for issuance of Forms 1099-DIV
beyond January 31.
For Money Market funds. Investments that are concentrated in a particular
issuer, geographic region, or sector will be more susceptible to changes in
price. The more a fund diversifies, the more it spreads risk. For example, if
the fund concentrates its investments in banks, the value of these investments
may be adversely affected by economic or regulatory developments in the banking
industry.
Small and Mid-Sized Company Risk. Investments in small and medium companies
often involve greater risks than investments in larger, more established
companies because small and medium companies may lack the management experience,
financial resources, product diversification, experience, and competitive
strengths of larger companies. Additionally, in many instances the securities of
small and medium companies are traded only over-the-counter or on regional
securities exchanges and the frequency and volume of their trading is
substantially less and may be more volatile than is typical of larger companies.
Small Company Risk. Investments in small capitalization companies often involve
greater risks than investments in larger, more established companies because
small capitalization companies may lack the management experience, financial
resources, product diversification, experience, and competitive strengths of
larger companies. In addition, in many instances the securities of small
capitalization companies are traded only over-the-counter or on regional
securities exchanges and the frequency and volume of their trading is
substantially less and may be more volatile than is typical of larger companies.
Tracking Error Risk. For funds that are managed to an index, the fund may not
track the index perfectly because differences between the index and the fund's
portfolio can cause differences in performance. The investment manager purchases
securities and other instruments in an attempt to replicate the performance of
the index. However, the tools that the investment manager uses to replicate the
index are not perfect and the fund's performance is affected by factors such as
the size of the fund's portfolio, transaction costs, management fees and
expenses, brokerage commissions and fees, the extent and timing of cash flows in
and out of the fund and changes in the index.
In addition, the returns from a specific type of security (for example, mid-cap
stocks) may trail returns from other asset classes or the overall market. Each
type of security will go through cycles of doing better or worse than stocks or
bonds in general. These periods may last for several years.
Statement of Additional Information - Oct. 3, 2005 Page 24
INVESTMENT STRATEGIES
The following information supplements the discussion of each fund's investment
objectives, policies, and strategies that are described in the prospectus and in
this SAI. The following describes strategies that many mutual funds use and
types of securities that they purchase. Please refer to the table titled
Investment Strategies and Types of Investments to see which are applicable to
various categories of funds.
Agency and Government Securities
The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities, including mortgage pass
through certificates of the Government National Mortgage Association (GNMA), are
guaranteed by the U.S. government.
Other U.S. government securities are issued or guaranteed by federal agencies or
government-sponsored enterprises but are not guaranteed by the U.S. government.
This may increase the credit risk associated with these investments.
Government-sponsored entities issuing securities include privately owned,
publicly chartered entities created to reduce borrowing costs for certain
sectors of the economy, such as farmers, homeowners, and students. They include
the Federal Farm Credit Bank System, Farm Credit Financial Assistance
Corporation, Federal Home Loan Bank, Federal Home Loan Mortgage Corporation
(FHLMC), Federal National Mortgage Association (FNMA), Student Loan Marketing
Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored
entities may issue discount notes (with maturities ranging from overnight to 360
days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include: Active
Management Risk, Inflation Risk, Interest Rate Risk, Prepayment and Extension
Risk, and Reinvestment Risk.
Borrowing
A fund may borrow money for temporary or emergency purposes, to make other
investments or to engage in other transactions permissible under the 1940 Act
that may be considered a borrowing (such as derivative instruments). Borrowings
are subject to costs (in addition to any interest that may be paid) and
typically reduce a fund's total return. Except as qualified above, however, a
fund may not buy securities on margin.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Active Management Risk and
Inflation Risk.
Cash/Money Market Instruments
Cash-equivalent investments include short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable fixed-time
deposits, bankers' acceptances, and letters of credit of banks or savings and
loan associations having capital, surplus, and undivided profits (as of the date
of its most recently published annual financial statements) in excess of $100
million (or the equivalent in the instance of a foreign branch of a U.S. bank)
at the date of investment. A fund also may purchase short-term notes and
obligations of U.S. and foreign banks and corporations and may use repurchase
agreements with broker-dealers registered under the Securities Exchange Act of
1934 and with commercial banks. (See also Commercial Paper, Debt Obligations,
Repurchase Agreements, and Variable- or Floating-Rate Securities.) These types
of instruments generally offer low rates of return and subject a fund to certain
costs and expenses. See Appendix A for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Active
Management Risk, Credit Risk, and Inflation Risk.
Statement of Additional Information - Oct. 3, 2005 Page 25
Collateralized Bond Obligations
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of junk bonds. CBOs are similar in concept to collateralized mortgage
obligations (CMOs), but differ in that CBOs represent different degrees of
credit quality rather than different maturities. (See also Mortgage- and
Asset-Backed Securities.) Underwriters of CBOs package a large and diversified
pool of high-risk, high-yield junk bonds, which is then separated into "tiers."
Typically, the first tier represents the higher quality collateral and pays the
lowest interest rate; the second tier is backed by riskier bonds and pays a
higher rate; the third tier represents the lowest credit quality and instead of
receiving a fixed interest rate receives the residual interest payments -- money
that is left over after the higher tiers have been paid. CBOs, like CMOs, are
substantially overcollateralized and this, plus the diversification of the pool
backing them, earns them investment-grade bond ratings. Holders of third-tier
CBOs stand to earn high yields or less money depending on the rate of defaults
in the collateral pool. (See also High-Yield (High-Risk) Debt Securities (Junk
Bonds).)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Active Management Risk, Credit Risk,
Interest Rate Risk and Prepayment and Extension Risk.
Commercial Paper
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Active Management Risk,
Credit Risk, and Liquidity Risk.
Common Stock
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock. The price of common stock is generally determined by corporate
earnings, type of products or services offered, projected growth rates,
experience of management, liquidity, and general market conditions for the
markets on which the stock trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Active Management Risk,
Issuer Risk, Market Risk, and Small and Mid-sized Company Risk.
Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common, preferred or other securities of
the same or a different issuer within a particular period of time at a specified
price. Some convertible securities, such as preferred equity-redemption
cumulative stock (PERCs), have mandatory conversion features. Others are
voluntary. A convertible security entitles the holder to receive interest
normally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted, or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
Statement of Additional Information - Oct. 3, 2005 Page 26
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Active Management
Risk, Interest Rate Risk, Issuer Risk, Market Risk, Prepayment and Extension
Risk, and Reinvestment Risk.
Corporate Bonds
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Debt Securities (Junk Bonds).)
Corporate bonds may be either secured or unsecured. Unsecured corporate bonds
are generally referred to as "debentures." See Appendix A for a discussion of
securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Active Management Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and
Reinvestment Risk.
Debt Obligations
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a fixed, variable or floating rate on specified dates and to repay
principal on a specified maturity date. Certain debt obligations (usually
intermediate- and long-term bonds) have provisions that allow the issuer to
redeem or "call" a bond before its maturity. Issuers are most likely to call
these securities during periods of falling interest rates. When this happens, an
investor may have to replace these securities with lower yielding securities,
which could result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
Statement of Additional Information - Oct. 3, 2005 Page 27
As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and
High-Yield (High-Risk) Debt Securities (Junk Bonds).)
Generally, debt obligations that are investment grade are those that have been
rated in one of the top four credit quality categories by two out of the three
independent rating agencies. In the event that a debt obligation has been rated
by only two agencies, the most conservative, or lower, rating must be in one of
the top four credit quality categories in order for the security to be
considered investment grade. If only one agency has rated the debt obligation,
that rating must be in one of the top four credit quality categories for the
security to be considered investment grade. See Appendix A for a discussion of
securities ratings.
All ratings limitations are applied at the time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by a fund. Neither event will require
the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings change as a result of
changes in a rating agency or its rating system, a fund will attempt to use
comparable ratings as standards for selecting investments.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Active Management Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Prepayment and Extension Risk, and
Reinvestment Risk.
Depositary Receipts
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Active Management
Risk, Foreign/Emerging Markets Risk, Issuer Risk, and Market Risk.
Derivative Instruments
Derivative instruments are commonly defined to include securities or contracts
whose values depend, in whole or in part, on (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities. A
derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable percentage gain or loss in the price of
the derivative instrument.
Statement of Additional Information - Oct. 3, 2005 Page 28
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and
exchange-traded options on futures. Diverse types of derivatives may be created
by combining options or futures in different ways, and by applying these
structures to a wide range of underlying assets.
Options. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees for the length of the contract to sell the security at the set price when
the buyer wants to exercise the option, no matter what the market price of the
security is at that time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person who writes a
put option agrees to buy the security at the set price if the purchaser wants to
exercise the option during the length of the contract, no matter what the market
price of the security is at that time. An option is covered if the writer owns
the security (in the case of a call) or sets aside the cash or securities of
equivalent value (in the case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained whether or not the option is
exercised. A writer of a call option may have to sell the security for a
below-market price if the market price rises above the exercise price. A writer
of a put option may have to pay an above-market price for the security if its
market price decreases below the exercise price.
When an option is purchased, the buyer pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying security when
the option is exercised. For record keeping and tax purposes, the price obtained
on the sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Options on many securities are listed on options exchanges. If a fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a buyer
(holding the "long" position) and a seller (holding the "short" position) for an
asset with delivery deferred until a future date. The buyer agrees to pay a
fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Statement of Additional Information - Oct. 3, 2005 Page 29
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day a buyer
would pay out cash in an amount equal to any decline in the contract's value or
receive cash equal to any increase. At the time a futures contract is closed
out, a nominal commission is paid, which is generally lower than the commission
on a comparable transaction in the cash market.
Futures contracts may be based on various securities, securities indices (such
as the S&P 500 Index), foreign currencies and other financial instruments and
indices. A fund may engage in futures and related options transactions to
produce incremental earnings, to hedge existing positions, and to increase
flexibility. The fund intends to comply with Rule 4.5 of the Commodity Futures
Trading Commission (CFTC), under which a mutual fund is exempt from the
definition of a "commodity pool operator." The fund, therefore, is not subject
to registration or regulation as a pool operator, meaning that the fund may
invest in futures contracts without registering with the CFTC.
Options on Futures Contracts. Options on futures contracts give the holder a
right to buy or sell futures contracts in the future. Unlike a futures contract,
which requires the parties to the contract to buy and sell a security on a set
date (some futures are settled in cash), an option on a futures contract merely
entitles its holder to decide on or before a future date (within nine months of
the date of issue) whether to enter into a contract. If the holder decides not
to enter into the contract, all that is lost is the amount (premium) paid for
the option. Further, because the value of the option is fixed at the point of
sale, there are no daily payments of cash to reflect the change in the value of
the underlying contract. However, since an option gives the buyer the right to
enter into a contract at a set price for a fixed period of time, its value does
change daily.
One of the risks in buying an option on a futures contract is the loss of the
premium paid for the option. The risk involved in writing options on futures
contracts an investor owns, or on securities held in its portfolio, is that
there could be an increase in the market value of these contracts or securities.
If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. An investor could
enter into a closing transaction by purchasing an option with the same terms as
the one previously sold. The cost to close the option and terminate the
investor's obligation, however, might still result in a loss. Further, the
investor might not be able to close the option because of insufficient activity
in the options market. Purchasing options also limits the use of monies that
might otherwise be available for long-term investments.
Options on Stock Indexes. Options on stock indexes are securities traded on
national securities exchanges. An option on a stock index is similar to an
option on a futures contract except all settlements are in cash. A fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level.
Tax and Accounting Treatment. As permitted under federal income tax laws and to
the extent a fund is allowed to invest in futures contracts, a fund would intend
to identify futures contracts as mixed straddles and not mark them to market,
that is, not treat them as having been sold at the end of the year at market
value. If a fund is using short futures contracts for hedging purposes, the fund
may be required to defer recognizing losses incurred on short futures contracts
and on underlying securities.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether the option is a section
1256 contract. If the option is a non-equity option, a fund would either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term.
Statement of Additional Information - Oct. 3, 2005 Page 30
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (a fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the
last-quoted sales price on their primary exchange.
Other Risks of Derivatives. The primary risk of derivatives is the same as the
risk of the underlying asset, namely that the value of the underlying asset may
go up or down. Adverse movements in the value of an underlying asset can expose
an investor to losses. Derivative instruments may include elements of leverage
and, accordingly, the fluctuation of the value of the derivative instrument in
relation to the underlying asset may be magnified. The successful use of
derivative instruments depends upon a variety of factors, particularly the
investment manager's ability to predict movements of the securities, currencies,
and commodity markets, which requires different skills than predicting changes
in the prices of individual securities. There can be no assurance that any
particular strategy will succeed.
Another risk is the risk that a loss may be sustained as a result of the failure
of a counterparty to comply with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative instruments is generally less
than for privately-negotiated or OTC derivative instruments, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
instruments, there is no similar clearing agency guarantee. In all transactions,
an investor will bear the risk that the counterparty will default, and this
could result in a loss of the expected benefit of the derivative transaction and
possibly other losses.
When a derivative transaction is used to completely hedge another position,
changes in the market value of the combined position (the derivative instrument
plus the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged for any change in the price of the
underlying asset. With an imperfect hedge, the values of the derivative
instrument and its hedge are not perfectly correlated. For example, if the value
of a derivative instrument used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investment, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
Derivatives also are subject to the risk that they cannot be sold, closed out,
or replaced quickly at or very close to their fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction.
Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting various legal uncertainties
about certain derivative products. (See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Active Management
Risk, Derivatives Risk, and Liquidity Risk.
Statement of Additional Information - Oct. 3, 2005 Page 31
Exchange-Traded Funds
Exchange-traded funds (ETFs) represent shares of ownership in mutual funds, unit
investment trusts or depositary receipts. ETFs hold portfolios of securities
that closely track the performance and dividend yield of specific domestic or
foreign market indexes.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with ETFs include: Active Management Risk and Market
Risk.
Foreign Currency Transactions
Investments in foreign countries usually involve currencies of foreign
countries. In addition, a fund may hold cash and cash equivalent investments in
foreign currencies. As a result, the value of a fund's assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Also, a fund may incur costs in
connection with conversions between various currencies. Currency exchange rates
may fluctuate significantly over short periods of time causing a fund's NAV to
fluctuate. Currency exchange rates are generally determined by the forces of
supply and demand in the foreign exchange markets, actual or anticipated changes
in interest rates, and other complex factors. Currency exchange rates also can
be affected by the intervention of U.S. or foreign governments or central banks,
or the failure to intervene, or by currency controls or political developments.
Spot Rates and Derivative Instruments. A fund may conduct its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts). (See also Derivative Instruments.) These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such derivative instruments, a
fund could be disadvantaged by having to deal in the odd lot market for the
underlying foreign currencies at prices that are less favorable than for round
lots.
A fund may enter into forward contracts for a variety of reasons. A fund may
enter into forward contracts to settle a security transaction or handle dividend
and interest collection. When a fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency or has been notified of a
dividend or interest payment, it may desire to lock in the price of the security
or the amount of the payment in dollars. By entering into a forward contract, a
fund would be able to protect itself against a possible loss resulting from an
adverse change in the relationship between different currencies from the date
the security is purchased or sold to the date on which payment is made or
received or when the dividend or interest is actually received.
A fund may enter into forward contracts when management of the fund believes the
currency of a particular foreign country may decline in value relative to
another currency. When selling currencies forward in this fashion, a fund may
seek to hedge the value of foreign securities it holds against an adverse move
in exchange rates. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since the future
value of securities in foreign currencies more than likely will change between
the date the forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely difficult and
successful execution of a short-term hedging strategy is highly uncertain. A
fund would not enter into such forward contracts or maintain a net exposure to
such contracts when consummating the contracts would obligate it to deliver an
amount of foreign currency in excess of the value of its securities or other
assets denominated in that currency.
Statement of Additional Information - Oct. 3, 2005 Page 32
A fund may designate cash or securities in an amount equal to the value of the
fund's total assets committed to consummating forward contracts entered into
under the circumstance set forth immediately above. If the value of the
securities declines, additional cash or securities will be designated on a daily
basis so that the value of the cash or securities will equal the amount of the
fund's commitments on such contracts.
This method of protecting the value of the fund's securities against a decline
in the value of a currency does not eliminate fluctuations in the underlying
prices of the securities. It simply establishes a rate of exchange that can be
achieved at some point in time. Although forward contracts tend to minimize the
risk of loss due to a decline in value of hedged currency, they tend to limit
any potential gain that might result should the value of such currency increase.
A fund also may enter into forward contracts when its management believes the
currency of a particular country will increase in value relative to another
currency. A fund may buy currencies forward to gain exposure to a currency
without incurring the additional costs of purchasing securities denominated in
that currency.
At maturity of a forward contract, a fund may either deliver (if a contract to
sell) or take delivery of (if a contract to buy) the foreign currency or
terminate its contractual obligation by entering into an offsetting contract
with the same currency trader, the same maturity date, and covering the same
amount of foreign currency.
If a fund engages in an offsetting transaction, it would incur a gain or loss to
the extent there has been movement in forward contract prices. If a fund engages
in an offsetting transaction, it may subsequently enter into a new forward
contract to buy or sell the foreign currency.
Although a fund values its assets each business day in terms of U.S. dollars, it
may not intend to convert its foreign currencies into U.S. dollars on a daily
basis. It would do so from time to time, and shareholders should be aware of
currency conversion costs. Although foreign exchange dealers do not charge a fee
for conversion, they do realize a profit based on the difference (spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a fund at one rate, while
offering a lesser rate of exchange should a fund desire to resell that currency
to the dealer.
Options on Foreign Currencies. A fund may buy put and call options and write
covered call and cash-secured put options on foreign currencies for hedging
purposes and to gain exposure to foreign currencies. For example, a decline in
the dollar value of a foreign currency in which securities are denominated will
reduce the dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against the diminutions in the
value of securities, a fund may buy put options on the foreign currency. If the
value of the currency does decline, a fund would have the right to sell the
currency for a fixed amount in dollars and would offset, in whole or in part,
the adverse effect on its portfolio that otherwise would have resulted.
Conversely, where a change in the dollar value of a currency would increase the
cost of securities a fund plans to buy, or where a fund would benefit from
increased exposure to the currency, a fund may buy call options on the foreign
currency. The purchase of the options could offset, at least partially, the
changes in exchange rates.
As in the case of other types of options, however, the benefit to a fund derived
from purchases of foreign currency options would be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, a fund could
sustain losses on transactions in foreign currency options that would require it
to forego a portion or all of the benefits of advantageous changes in rates.
Statement of Additional Information - Oct. 3, 2005 Page 33
A fund may write options on foreign currencies for the same types of purposes.
For example, when a fund anticipates a decline in the dollar value of
foreign-denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option would most likely not be
exercised and the diminution in value of securities would be fully or partially
offset by the amount of the premium received.
Similarly, instead of purchasing a call option when a foreign currency is
expected to appreciate, a fund could write a put option on the relevant
currency. If rates move in the manner projected, the put option would expire
unexercised and allow the fund to hedge increased cost up to the amount of the
premium.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the fund would be required to buy or sell
the underlying currency at a loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the fund also may
be required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if a fund holds currency sufficient to cover the
option or has an absolute and immediate right to acquire that currency without
additional cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An option writer
could lose amounts substantially in excess of its initial investments, due to
the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting a fund to liquidate
open positions at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for that purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. A fund may enter into currency
futures contracts to buy or sell currencies. It also may buy put and call
options and write covered call and cash-secured put options on currency futures.
Currency futures contracts are similar to currency forward contracts, except
Statement of Additional Information - Oct. 3, 2005 Page 34
that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures call
for payment of delivery in U.S. dollars. A fund may use currency futures for the
same purposes as currency forward contracts, subject to CFTC limitations.
Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the value of
the fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect a fund
against price decline if the issuer's creditworthiness deteriorates. Because the
value of a fund's investments denominated in foreign currency will change in
response to many factors other than exchange rates, it may not be possible to
match the amount of a forward contract to the value of a fund's investments
denominated in that currency over time.
A fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The fund would not enter into an option
or futures position that exposes the fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient to cover its
potential obligations.
(See also Derivative Instruments and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign currency transactions include: Active
Management Risk, Derivatives Risk, Interest Rate Risk, and Liquidity Risk.
Foreign Securities
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. Additionally, many foreign stock markets, while growing in
volume of trading activity, have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than the volume and liquidity in
the U.S. and, at times, volatility of price can be greater than in the U.S.
Further, foreign markets have different clearance, settlement, registration, and
communication procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in such
procedures could result in temporary periods when assets are uninvested and no
return is earned on them. The inability of an investor to make intended security
purchases due to such problems could cause the investor to miss attractive
investment opportunities.
Payment for securities without delivery may be required in certain foreign
markets and, when participating in new issues, some foreign countries require
payment to be made in advance of issuance (at the time of issuance, the market
value of the security may be more or less than the purchase price). Some foreign
markets also have compulsory depositories (i.e., an investor does not have a
choice as to where the securities are held). Fixed commissions on some foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. Further, an investor may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts. There is generally
less government supervision and regulation of business and industry practices,
stock exchanges, brokers, and listed companies than in the U.S. It may be more
difficult for an investor's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S., thus increasing the risk of delays or
loss of certificates for portfolio securities. In addition, with respect to
certain foreign countries, there is the possibility of nationalization,
expropriation, the imposition of additional withholding or confiscatory taxes,
political, social, or economic instability,
Statement of Additional Information - Oct. 3, 2005 Page 35
diplomatic developments that could affect investments in those countries, or
other unforeseen actions by regulatory bodies (such as changes to settlement or
custody procedures).
The risks of foreign investing may be magnified for investments in emerging
markets, which may have relatively unstable governments, economies based on only
a few industries, and securities markets that trade a small number of
securities.
The introduction of a single currency, the euro, on Jan. 1, 1999 for
participating European nations in the Economic and Monetary Union (EU) presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after Jan. 1, 1999 that refer to existing currencies rather
than the euro; the establishment and maintenance of exchange rates; the
fluctuation of the euro relative to non-euro currencies; whether the interest
rate, tax or labor regimes of European countries participating in the euro will
converge over time; and whether the conversion of the currencies of other EU
countries such as the United Kingdom and Denmark into the euro and the admission
of other non-EU countries such as Poland, Latvia, and Lithuania as members of
the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Active Management
Risk, Foreign/Emerging Markets Risk, and Issuer Risk.
Funding Agreements
A fund may invest in funding agreements issued by domestic insurance companies.
Funding agreements are short-term, privately placed, debt obligations of
insurance companies that offer a fixed- or floating-rate of interest. These
investments are not readily marketable and therefore are considered to be
illiquid securities. (See also Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with funding agreements include: Credit Risk and
Liquidity Risk.
High-Yield (High-Risk) Debt Securities (Junk Bonds)
High yield (high-risk) debt securities are sometimes referred to as junk bonds.
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.
See Appendix A for a discussion of securities ratings. (See also Debt
Obligations.)
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of lower-quality securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecasts, or the unavailability of additional
financing. The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a lower quality security defaulted, an
investor might incur additional expenses to seek recovery.
Statement of Additional Information - Oct. 3, 2005 Page 36
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. The lack of a liquid
secondary market for certain securities also may make it more difficult for an
investor to obtain accurate market quotations. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield (high-risk) securities include: Active
Management Risk, Credit Risk, Interest Rate Risk, and Prepayment and Extension
Risk.
Illiquid and Restricted Securities
Illiquid securities are securities that are not readily marketable. These
securities may include, but are not limited to, certain securities that are
subject to legal or contractual restrictions on resale, certain repurchase
agreements, and derivative instruments. To the extent a fund invests in illiquid
or restricted securities, it may encounter difficulty in determining a market
value for the securities. Disposing of illiquid or restricted securities may
involve time-consuming negotiations and legal expense, and it may be difficult
or impossible for a fund to sell the investment promptly and at an acceptable
price.
In determining the liquidity of all securities and derivatives, such as Rule
144A securities, which are unregistered securities offered to qualified
institutional buyers, and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its agencies and
instrumentalities the investment manager, under guidelines established by the
Board, will consider any relevant factors including the frequency of trades, the
number of dealers willing to purchase or sell the security and the nature of
marketplace trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include: Active
Management Risk and Liquidity Risk.
Indexed Securities
The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile than the
underlying instrument itself and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Active Management
Risk, Liquidity Risk, and Market Risk.
Statement of Additional Information - Oct. 3, 2005 Page 37
Inflation Protected Securities
Inflation is a general rise in prices of goods and services. Inflation erodes
the purchasing power of an investor's assets. For example, if an investment
provides a total return of 7% in a given year and inflation is 3% during that
period, the inflation-adjusted, or real, return is 4%. Inflation protected
securities are debt securities whose principal and/or interest payments are
adjusted for inflation, unlike debt securities that make fixed principal and
interest payments. One type of inflation-protected debt security is issued by
the U.S. Treasury. The principal of these securities is adjusted for inflation
as indicated by the Consumer Price Index for Urban Consumers (CPI) and interest
is paid on the adjusted amount. The CPI is a measurement of changes in the cost
of living, made up of components such as housing, food, transportation and
energy.
If the CPI falls, the principal value of inflation-protected securities will be
adjusted downward, and consequently the interest payable on these securities
(calculated with respect to a smaller principal amount) will be reduced.
Conversely, if the CPI rises, the principal value of inflation-protected
securities will be adjusted upward, and consequently the interest payable on
these securities will be increased. Repayment of the original bond principal
upon maturity is guaranteed in the case of U.S. Treasury inflation protected
securities, even during a period of deflation. However, the current market value
of the inflation-protected securities is not guaranteed and will fluctuate.
Other inflation-indexed securities include inflation-related bonds, which may or
may not provide a similar guarantee. If a guarantee of principal is not
provided, the adjusted principal value of the bond repaid at maturity may be
less than the original principal.
Other issuers of inflation-protected debt securities include other U.S.
government agencies or instrumentalities, corporations and foreign governments.
There can be no assurance that the CPI or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.
If interest rates rise due to reasons other than inflation (for example, due to
changes in currency exchange rates), investors in these securities may not be
protected to the extent that the increase is not reflected in the bond's
inflation measure.
Any increase in principal for an inflation-protected security resulting from
inflation adjustments is considered by IRS regulations to be taxable income in
the year it occurs. For direct holders of an inflation-protected security, this
means that taxes must be paid on principal adjustments even though these amounts
are not received until the bond matures. By contrast, a fund holding these
securities distributes both interest income and the income attributable to
principal adjustments in the form of cash or reinvested shares, which are
taxable to shareholders.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inflation-protected securities include: Interest
Rate Risk and Market Risk.
Inverse Floaters
Inverse floaters are created by underwriters using the interest payment on
securities. A portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. The remainder, minus
a servicing fee, is paid to holders of inverse floaters. As interest rates go
down, the holders of the inverse floaters receive more income and an increase in
the price for the inverse floaters. As interest rates go up, the holders of the
inverse floaters receive less income and a decrease in the price for the inverse
floaters. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inverse floaters include: Active Management Risk
and Interest Rate Risk.
Statement of Additional Information - Oct. 3, 2005 Page 38
Investment Companies
Investing in securities issued by registered and unregistered investment
companies may involve the duplication of advisory fees and certain other
expenses.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the securities of other investment companies
include: Active Management Risk and Market Risk.
Lending of Portfolio Securities
A fund may lend certain of its portfolio securities. The current policy of the
Board is to make these loans, either long- or short-term, to broker-dealers. In
making loans, the lender receives the market price in cash, U.S. government
securities, letters of credit, or such other collateral as may be permitted by
regulatory agencies and approved by the Board. If the market price of the loaned
securities goes up, the lender will get additional collateral on a daily basis.
If the market price of the loaned securities goes down, the borrower may request
that some collateral be returned. The risks are that the borrower may not
provide additional collateral when required or return the securities when due.
During the existence of the loan, the lender receives cash payments equivalent
to all interest or other distributions paid on the loaned securities. The lender
may pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or money
market instruments held as collateral to the borrower or placing broker. The
lender will receive reasonable interest on the loan or a flat fee from the
borrower and amounts equivalent to any dividends, interest, or other
distributions on the securities loaned.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Active Management Risk and Credit Risk.
Loan Participations
Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Active Management
Risk and Credit Risk.
Mortgage- and Asset-Backed Securities
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement. Commercial
mortgage-backed securities (CMBS) are a specific type of mortgage-backed
security collateralized by a pool of mortgages on commercial real estate.
Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. Generally, there are two classes of stripped mortgage-backed
securities: Interest Only and Principal Only. IOs entitle the holder to receive
distributions consisting of all or a portion of the interest on the underlying
pool of mortgage loans or mortgage-backed securities. POs entitle the holder to
receive distributions consisting of all or a portion of
Statement of Additional Information - Oct. 3, 2005 Page 39
the principal of the underlying pool of mortgage loans or mortgage-backed
securities. The cash flows and yields on IOs and POs are extremely sensitive to
the rate of principal payments (including prepayments) on the underlying
mortgage loans or mortgage-backed securities. A rapid rate of principal payments
may adversely affect the yield to maturity of IOs. A slow rate of principal
payments may adversely affect the yield to maturity of POs. If prepayments of
principal are greater than anticipated, an investor in IOs may incur substantial
losses. If prepayments of principal are slower than anticipated, the yield on a
PO will be affected more severely than would be the case with a traditional
mortgage-backed security.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured into multiple
classes, often referred to as "tranches," with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal
and interest, including prepayments. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than its
stated maturity.
The yield characteristics of mortgage-backed securities differ from those of
other debt securities. Among the differences are that interest and principal
payments are made more frequently on mortgage-backed securities, usually
monthly, and principal may be repaid at any time. These factors may reduce the
expected yield.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on asset-backed
debt obligations may be supported by non-governmental credit enhancements
including letters of credit, reserve funds, overcollateralization, and
guarantees by third parties. The market for privately issued asset-backed debt
obligations is smaller and less liquid than the market for government sponsored
mortgage-backed securities. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage and asset-backed securities include:
Active Management Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and
Prepayment and Extension Risk.
Mortgage Dollar Rolls
Mortgage dollar rolls are investments in which an investor sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
purchase substantially similar securities on a specified future date. While an
investor foregoes principal and interest paid on the mortgage-backed securities
during the roll period, the investor is compensated by the difference between
the current sales price and the lower price for the future purchase as well as
by any interest earned on the proceeds of the initial sale. The investor also
could be compensated through the receipt of fee income equivalent to a lower
forward price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Active Management
Risk, Credit Risk, and Interest Rate Risk.
Municipal Obligations
Municipal obligations include debt obligations issued by or on behalf of states,
territories, possessions, or sovereign nations within the territorial boundaries
of the United States (including the District of Columbia and Puerto Rico). The
interest on these obligations is generally exempt from federal income tax.
Municipal obligations are generally classified as either "general obligations"
or "revenue obligations."
Statement of Additional Information - Oct. 3, 2005 Page 40
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of interest and principal. Revenue
bonds are payable only from the revenues derived from a project or facility or
from the proceeds of a specified revenue source. Industrial development bonds
are generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional, and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax and revenue
anticipation notes, construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes, and similar instruments.
Municipal lease obligations may take the form of a lease, an installment
purchase, or a conditional sales contract. They are issued by state and local
governments and authorities to acquire land, equipment, and facilities. An
investor may purchase these obligations directly, or it may purchase
participation interests in such obligations. Municipal leases may be subject to
greater risks than general obligation or revenue bonds. State constitutions and
statutes set forth requirements that states or municipalities must meet in order
to issue municipal obligations. Municipal leases may contain a covenant by the
state or municipality to budget for and make payments due under the obligation.
Certain municipal leases may, however, provide that the issuer is not obligated
to make payments on the obligation in future years unless funds have been
appropriated for this purpose each year.
Yields on municipal bonds and notes depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The municipal bond market has a large number of different issuers, many
having smaller sized bond issues, and a wide choice of different maturities
within each issue. For these reasons, most municipal bonds do not trade on a
daily basis and many trade only rarely. Because many of these bonds trade
infrequently, the spread between the bid and offer may be wider and the time
needed to develop a bid or an offer may be longer than other security markets.
See Appendix A for a discussion of securities ratings. (See also Debt
Obligations.)
Taxable Municipal Obligations. There is another type of municipal obligation
that is subject to federal income tax for a variety of reasons. These municipal
obligations do not qualify for the federal income exemption because (a) they did
not receive necessary authorization for tax-exempt treatment from state or local
government authorities, (b) they exceed certain regulatory limitations on the
cost of issuance for tax-exempt financing or (c) they finance public or private
activities that do not qualify for the federal income tax exemption. These
non-qualifying activities might include, for example, certain types of
multi-family housing, certain professional and local sports facilities,
refinancing of certain municipal debt, and borrowing to replenish a
municipality's underfunded pension plan.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with municipal obligations include: Credit Risk,
Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market Risk.
Preferred Stock
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Active Management Risk,
Issuer Risk, and Market Risk.
Statement of Additional Information - Oct. 3, 2005 Page 41
Real Estate Investment Trusts
Real estate investment trusts (REITs) are pooled investment vehicles that manage
a portfolio of real estate or real estate related loans to earn profits for
their shareholders. REITs are generally classified as equity REITs, mortgage
REITs or a combination of equity and mortgage REITs. Equity REITs invest the
majority of their assets directly in real property, such as shopping centers,
nursing homes, office buildings, apartment complexes, and hotels, and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs can be subject to extreme
volatility due to fluctuations in the demand for real estate, changes in
interest rates, and adverse economic conditions. Similar to investment
companies, REITs are not taxed on income distributed to shareholders provided
they comply with certain requirements under the tax law. The failure of a REIT
to continue to qualify as a REIT for tax purposes can materially affect its
value. A fund will indirectly bear its proportionate share of any expenses paid
by a REIT in which it invests.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with REITs include: Active Management Risk, Interest
Rate Risk, Issuer Risk and Market Risk.
Repurchase Agreements
Repurchase agreements may be entered into with certain banks or non-bank
dealers. In a repurchase agreement, the purchaser buys a security at one price,
and at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve certain risks in the event of a
default or insolvency of the other party to the agreement, including possible
delays or restrictions upon the purchaser's ability to dispose of the underlying
securities.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Active Management
Risk and Credit Risk.
Reverse Repurchase Agreements
In a reverse repurchase agreement, an investor sells a security and enters into
an agreement to repurchase the security at a specified future date and price.
The investor generally retains the right to interest and principal payments on
the security. Since the investor receives cash upon entering into a reverse
repurchase agreement, it may be considered a borrowing. (See also Derivative
Instruments.) Although one or more of the other risks described in this SAI may
apply, the largest risks associated with reverse repurchase agreements include:
Active Management Risk, Credit Risk, and Interest Rate Risk.
Short Sales
With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price at the time of replacement. The price at such
time may be more or less than the price at which the investor sold the security.
A fund that is allowed to engage in short sales will designate cash or liquid
securities to cover its open short positions. Those funds also may engage in
"short sales against the box," a form of short-selling that involves selling a
security that an investor owns (or has an unconditioned right to purchase) for
delivery at a specified date in the future. This technique allows an investor to
hedge protectively against anticipated declines in the market of its securities.
If the value of the securities sold short increased between the date of the
short sale and the date on which the borrowed security is replaced, the investor
loses the opportunity to participate in the gain. A "short sale against the box"
will result in a constructive sale of appreciated securities thereby generating
capital gains to a fund.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Active Management Risk and
Market Risk.
Statement of Additional Information - Oct. 3, 2005 Page 42
Sovereign Debt
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.
Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness. Sovereign debt includes Brady Bonds, which are securities
issued under the framework of the Brady Plan, an initiative announced by former
U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor
nations to restructure their outstanding external commercial bank indebtedness.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with sovereign debt include: Active Management Risk,
Credit Risk, and Foreign/Emerging Markets Risk.
Structured Investments
A structured investment is a security whose return is tied to an underlying
index or to some other security or pool of assets. Structured investments
generally are individually negotiated agreements and may be traded
over-the-counter. Structured investments are created and operated to restructure
the investment characteristics of the underlying security. This restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments, such as commercial bank loans, and the issuance
by that entity of one or more classes of debt obligations ("structured
securities") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured securities to create securities with different
investment characteristics, such as varying maturities, payment priorities, and
interest rate provisions. The extent of the payments made with respect to
structured securities is dependent on the extent of the cash flow on the
underlying instruments. Because structured securities typically involve no
credit enhancement, their credit risk generally will be equivalent to that of
the underlying instruments. Structured securities are often offered in different
classes. As a result a given class of a structured security may be either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured securities typically have higher yields and present
greater risks than unsubordinated structured securities. Structured securities
are typically sold in private placement transactions, and at any given time
there may be no active trading market for a particular structured security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with structured investments include: Active Management
Risk, Credit Risk, and Liquidity Risk.
Swap Agreements
Swap agreements obligate one party to make payments to the other party based on
the change in the market value of an index or other asset. In return, the other
party agrees to make payments to the first party based on the return of another
index or asset. Swap agreements entail the risk that a party will default on its
payment obligations.
Interest Rate Swaps. Interest rate swap agreements are used to obtain or
preserve a desired return or spread at a lower cost than through a direct
investment in an instrument that yields the desired return or spread. Swaps also
may protect against changes in the price of securities that an investor
anticipates buying or
Statement of Additional Information - Oct. 3, 2005 Page 43
selling at a later date. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
several years. In a standard interest rate swap transaction, two parties agree
to exchange their respective commitments to pay fixed or floating rates on a
predetermined notional amount. The swap agreement notional amount is the
predetermined basis for calculating the obligations that the swap counterparties
have agreed to exchange. Under most swap agreements, the obligations of the
parties are exchanged on a net basis. The two payment streams are netted out,
with each party receiving or paying, as the case may be, only the net amount of
the two payments.
Swap agreements are usually entered into at a zero net market value of the swap
agreement commitments. The market values of the underlying commitments will
change over time resulting in one of the commitments being worth more than the
other and the net market value creating a risk exposure for one counterparty to
the other.
Swap agreements may include embedded interest rate caps, floor and collars. In
interest rate cap transactions, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or cap. Interest rate floor transactions require one party, in exchange
for a premium to agree to make payments to the other to the extent that interest
rates fall below a specified level, or floor. In interest rate collar
transactions, one party sells a cap and purchases a floor, or vice versa, in an
attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels or collar amounts.
Swap agreements are traded in the over-the-counter market and may be considered
to be illiquid. A fund will enter into interest rate swap agreements only if the
claims-paying ability of the other party or its guarantor is considered to be
investment grade by the Advisor. Generally, the unsecured senior debt or the
claims-paying ability of the other party or its guarantor must be rated in one
of the three highest rating categories of at least one Nationally Recognized
Statistical Rating Organization (NRSRO) at the time of entering into the
transaction. If there is a default by the other party to such a transaction, a
fund will have to rely on its contractual remedies (which may be limited by
bankruptcy, insolvency or similar laws) pursuant to the agreements related to
the transaction. In certain circumstances, a fund may seek to minimize
counterparty risk by requiring the counterparty to post collateral.
CMBS Total Return Swaps. CMBS total return swaps are bilateral financial
contracts designed to replicate synthetically the total returns of
collateralized mortgage-backed securities.
Currency Swaps. Currency swaps are similar to interest rate swaps, except that
they involve currencies instead of interest rates.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with swaps include: Credit Risk and Liquidity Risk.
Variable- or Floating-Rate Securities
Variable-rate securities provide for automatic establishment of a new interest
rate at fixed intervals (e.g., daily, monthly, semiannually, etc.).
Floating-rate securities generally provide for automatic adjustment of the
interest rate whenever some specified interest rate index changes. Variable- or
floating-rate securities frequently include a demand feature enabling the holder
to sell the securities to the issuer at par. In many cases, the demand feature
can be exercised at any time. Some securities that do not have variable or
floating interest rates may be accompanied by puts producing similar results and
price characteristics. Variable-rate demand notes include master demand notes
that are obligations that permit the investor to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
the investor as lender, and the borrower. The interest rates on these notes
fluctuate from time to time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. Because
these obligations are direct lending arrangements between
Statement of Additional Information - Oct. 3, 2005 Page 44
the lender and borrower, it is not contemplated that such instruments generally
will be traded. There generally is not an established secondary market for these
obligations. Accordingly, where these obligations are not secured by letters of
credit or other credit support arrangements, the lender's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Such obligations frequently are not rated by credit rating agencies and
may involve heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Active Management Risk and Credit Risk.
Warrants
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Active Management Risk and
Market Risk.
When-Issued Securities and Forward Commitments
When-issued securities and forward commitments involve a commitment to purchase
or sell specific securities at a predetermined price or yield in which payment
and delivery take place after the customary settlement period for that type of
security. Normally, the settlement date occurs within 45 days of the purchase
although in some cases settlement may take longer. The investor does not pay for
the securities or receive dividends or interest on them until the contractual
settlement date. Such instruments involve the risk of loss if the value of the
security to be purchased declines prior to the settlement date and the risk that
the security will not be issued as anticipated. If the security is not issued as
anticipated, a fund may lose the opportunity to obtain a price and yield
considered to be advantageous.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities and forward commitments
include: Active Management Risk and Credit Risk.
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See Appendix A for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero-coupon, step-coupon, and pay-in-kind
securities include: Active Management Risk, Credit Risk, and Interest Rate Risk.
A fund cannot issue senior securities but this does not prohibit certain
investment activities for which assets of the fund are set aside, or margin,
collateral or escrow arrangements are established, to cover the related
obligations. Examples of those activities include borrowing money,
delayed-delivery and when-issued securities transactions, and contracts to buy
or sell options, derivatives, and hedging instruments.
Statement of Additional Information - Oct. 3, 2005 Page 45
Securities Transactions
Except as otherwise noted, the description of policies and procedures in this
section also applies to any fund subadviser. Subject to policies set by the
Board, as well as the terms of the investment management agreements, the
investment manager or subadviser for subadvised funds is authorized to
determine, consistent with a fund's investment goal and policies, which
securities will be purchased, held, or sold. In determining where the buy and
sell orders are to be placed, the investment manager has been directed to use
its best efforts to obtain the best available price and the most favorable
execution except where otherwise authorized by the Board. In selecting
broker-dealers to execute transactions, the investment manager may consider the
price of the security, including commission or mark-up, the size and difficulty
of the order, the reliability, integrity, financial soundness, and general
operation and execution capabilities of the broker, the broker's expertise in
particular markets, and research services provided by the broker.
Each fund, the investment manager, any subadviser and Ameriprise Financial
Services, Inc. (the distributor or Ameriprise Financial Services) has a strict
Code of Ethics that prohibits affiliated personnel from engaging in personal
investment activities that compete with or attempt to take advantage of planned
portfolio transactions for the fund.
A fund's securities may be traded on a principal rather than an agency basis. In
certain circumstances, the investment manager will trade directly with the
issuer or with a dealer who buys or sells for its own account, rather than
acting on behalf of another client. The investment manager does not pay the
dealer commissions. Instead, the dealer's profit, if any, is the difference, or
spread, between the dealer's purchase and sale price for the security.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
Board has adopted a policy authorizing the investment manager to do so to the
extent authorized by law, if the investment manager determines, in good faith,
that such commission is reasonable in relation to the value of the brokerage or
research services provided by a broker or dealer, viewed either in the light of
that transaction or the investment manager's overall responsibilities with
respect to a fund and the other RiverSource funds for which it acts as
investment manager (or by any fund subadviser to any other client of such
subadviser).
Research provided by brokers supplements the investment manager's own research
activities. Such services include economic data on, and analysis of, U.S. and
foreign economies; information on specific industries; information about
specific companies, including earnings estimates; purchase recommendations;
portfolio strategy services; political, economic, business, and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software, or personal contact by
telephone or at seminars or other meetings. The investment manager has obtained,
and in the future may obtain, computer hardware from brokers, including but not
limited to personal computers that will be used exclusively for investment
decision-making purposes, which include the research, portfolio management, and
trading functions and other services to the extent permitted under an
interpretation by the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, the investment manager must
follow procedures authorized by the Board. To date, three procedures have been
authorized. One procedure permits the investment manager to direct an order to
buy or sell a security traded on a national securities exchange to a specific
broker for research services it has provided. The second procedure permits the
investment manager, in order to obtain research, to direct an order on an agency
basis to buy or sell a security traded in the over-the-counter market to a firm
that does not make a market in that security. The commission paid generally
includes compensation for research services. The third procedure permits the
investment manager, in order to obtain research and brokerage services, to cause
a fund to pay a commission in excess of the amount another broker might have
Statement of Additional Information - Oct. 3, 2005 Page 46
charged. The investment manager has advised the funds that it is necessary to do
business with a number of brokerage firms on a continuing basis to obtain such
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but the investment manager believes it may
obtain better overall execution. The investment manager has represented that
under all three procedures the amount of commission paid will be reasonable and
competitive in relation to the value of the brokerage services performed or
research provided.
All other transactions will be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by the investment manager in providing
advice to all RiverSource funds (or by any fund subadviser to any other client
of such subadviser) even though it is not possible to relate the benefits to any
particular fund.
Each investment decision made for a fund is made independently from any decision
made for another portfolio, fund, or other account advised by the investment
manager. When a fund buys or sells the same security as another portfolio, fund,
or account, the investment manager carries out the purchase or sale in a way
believed to be fair to the fund. Although sharing in large transactions may
adversely affect the price or volume purchased or sold by the fund, the fund
hopes to gain an overall advantage in execution. On occasion, a fund may
purchase and sell a security simultaneously in order to profit from short-term
price disparities.
On a periodic basis, the investment manager makes a comprehensive review of the
broker-dealers and the overall reasonableness of their commissions. The review
evaluates execution, operational efficiency, and research services. The Board
has adopted a policy prohibiting the investment manager, or any subadviser, from
considering sales of shares of the funds as a factor in the selection of
broker-dealers through which to execute securities transactions.
The following table shows total brokerage commissions paid in the last three
fiscal periods. Substantially all firms through whom transactions were executed
provide research services. The table is organized by fiscal year end. You can
find your fund's fiscal year end in Table 1.
Table 5. Total Brokerage Commissions
- ----------------------------------------------------------------------------------------------------------------
Total Brokerage Commissions
- ----------------------------------------------------------------------------------------------------------------
Fund 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- ----------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive $0(a) N/A N/A
- -------------------------------------------------------- ------------------ ----------------- ------------------
Portfolio Builder Conservative 0(a) N/A N/A
- -------------------------------------------------------- ------------------ ----------------- ------------------
Portfolio Builder Moderate 0(a) N/A N/A
- -------------------------------------------------------- ------------------ ----------------- ------------------
Portfolio Builder Moderate Aggressive 0(a) N/A N/A
- -------------------------------------------------------- ------------------ ----------------- ------------------
Portfolio Builder Moderate Conservative 0(a) N/A N/A
- -------------------------------------------------------- ------------------ ----------------- ------------------
Portfolio Builder Total Equity 0(a) N/A N/A
- -------------------------------------------------------- ------------------ ----------------- ------------------
Small Company Index 37,118 23,893 50,976
- -------------------------------------------------------- ------------------ ----------------- ------------------
S&P 500 Index 49,048 24,729 43,486
- ----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- ----------------------------------------------------------------------------------------------------------------
Equity Value 858,846 1,852,684 2,826,803
- -------------------------------------------------------- ------------------ ----------------- ------------------
Precious Metals 1,245,421 956,649 1,290,528
- -------------------------------------------------------- ------------------ ----------------- ------------------
Small Cap Advantage 3,294,757 4,102,653 3,784,304
- -------------------------------------------------------- ------------------ ----------------- ------------------
Small Cap Growth 2,105,168 3,334,707 3,301,903
- -------------------------------------------------------- ------------------ ----------------- ------------------
Strategy Aggressive 933,213 1,563,638 1,954,985
- ----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- ----------------------------------------------------------------------------------------------------------------
Aggressive Growth 181,981 72,985 8,489(b)
- -------------------------------------------------------- ------------------ ----------------- ------------------
Fundamental Growth 180,023 46,313 7,136(b)
- -------------------------------------------------------- ------------------ ----------------- ------------------
Fundamental Value 314,501 162,856 205,143
- -------------------------------------------------------- ------------------ ----------------- ------------------
High Yield Bond 0 876 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
Statement of Additional Information - Oct. 3, 2005 Page 47
- ----------------------------------------------------------------------------------------------------------------
Total Brokerage Commissions
- -------------------------------------------------------- ------------------ ----------------- ------------------
Fund 2005 2004 2003
- -------------------------------------------------------- ------------------ ----------------- ------------------
Select Value 310,913 539,192 532,619
- -------------------------------------------------------- ------------------ ----------------- ------------------
Selective 45,224 77,261 317,778
- -------------------------------------------------------- ------------------ ----------------- ------------------
Short Duration U.S. Government 95,868 407,216 552,895
- -------------------------------------------------------- ------------------ ----------------- ------------------
Small Cap Equity 429,969 846,218 273,634
- -------------------------------------------------------- ------------------ ----------------- ------------------
Small Cap Value 2,439,209 3,185,306 2,505,457
- -------------------------------------------------------- ------------------ ----------------- ------------------
U.S. Government Mortgage 10,708 31,267 23,812
- -------------------------------------------------------- ------------------ ----------------- ------------------
Value 363,273 389,539 629,327
- ----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- ----------------------------------------------------------------------------------------------------------------
California Tax-Exempt 0 0 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
Dividend Opportunity 621,168 3,783,128 6,633,939
- -------------------------------------------------------- ------------------ ----------------- ------------------
Insured Tax-Exempt 0 0 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
Massachusetts Tax-Exempt 0 0 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
Michigan Tax-Exempt 0 0 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
Minnesota Tax-Exempt 0 0 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
New York Tax-Exempt 0 0 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
Ohio Tax-Exempt 0 0 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
Real Estate 185,877 34,975(c) 0
- ----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- ----------------------------------------------------------------------------------------------------------------
Cash Management 0 0 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
Core Bond 3,612 1,451 244(d)
- -------------------------------------------------------- ------------------ ----------------- ------------------
Disciplined Equity 35,948 5,731 1,574(e)
- -------------------------------------------------------- ------------------ ----------------- ------------------
Discovery 423,268 1,171,529 903,078
- -------------------------------------------------------- ------------------ ----------------- ------------------
Growth 15,623,111 22,702,374 38,887,668
- -------------------------------------------------------- ------------------ ----------------- ------------------
Income Opportunities 0 0 0(d)
- -------------------------------------------------------- ------------------ ----------------- ------------------
Inflation Protected Securities 0 0(f) -
- -------------------------------------------------------- ------------------ ----------------- ------------------
Large Cap Equity 6,832,334 1,306,601 311,242
- -------------------------------------------------------- ------------------ ----------------- ------------------
Large Cap Value 189,029 146,077 85,741
- -------------------------------------------------------- ------------------ ----------------- ------------------
Limited Duration Bond 3,268 839 40(d)
- -------------------------------------------------------- ------------------ ----------------- ------------------
New Dimensions 29,467,597 20,989,555 11,242,565
- -------------------------------------------------------- ------------------ ----------------- ------------------
2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- ----------------------------------------------------------------------------------------------------------------
Diversified Bond 160,646 319,860 146,984
- ----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- ----------------------------------------------------------------------------------------------------------------
Balanced 1,314,212 2,778,748 8,761,286
- -------------------------------------------------------- ------------------ ----------------- ------------------
Diversified Equity Income 2,416,265 2,987,610 3,970,853
- -------------------------------------------------------- ------------------ ----------------- ------------------
Mid Cap Value 365,435 345,711 226,161(g)
- -------------------------------------------------------- ------------------ ----------------- ------------------
Stock 4,128,770 5,096,474 6,450,898
- -------------------------------------------------------- ------------------ ----------------- ------------------
Strategic Allocation 279,233 379,561 1,112,766
- ----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- ----------------------------------------------------------------------------------------------------------------
Emerging Markets 2,022,969 2,106,670 2,989,019
- -------------------------------------------------------- ------------------ ----------------- ------------------
European Equity 324,079 783,457 979,690
- -------------------------------------------------------- ------------------ ----------------- ------------------
Global Balanced 189,252 175,551 323,220
- -------------------------------------------------------- ------------------ ----------------- ------------------
Global Bond 7,760 23,297 9,621
- -------------------------------------------------------- ------------------ ----------------- ------------------
Global Equity 1,992,985 1,582,657 3,706,450
- -------------------------------------------------------- ------------------ ----------------- ------------------
Global Technology 4,193,021 5,595,324 3,248,305
- -------------------------------------------------------- ------------------ ----------------- ------------------
International Aggressive Growth 598,644 495,189 509,926
- -------------------------------------------------------- ------------------ ----------------- ------------------
International Equity 315,047 144,417 16,699(h)
- -------------------------------------------------------- ------------------ ----------------- ------------------
International Opportunity 1,303,677 2,047,954 2,953,477
- -------------------------------------------------------- ------------------ ----------------- ------------------
International Select Value 839,270 411,763 399,835
- -------------------------------------------------------- ------------------ ----------------- ------------------
International Small Cap 179,076 66,511 8,184(h)
- ----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- ----------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt Bond 0 0 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
Mid Cap Growth 1,630,670 1,597,573 746,295
- -------------------------------------------------------- ------------------ ----------------- ------------------
Tax-Exempt Bond 0 0 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
Tax-Exempt High Income 0 0 2,507
- ----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 0 0 0
- -------------------------------------------------------- ------------------ ----------------- ------------------
Statement of Additional Information - Oct. 3, 2005 Page 48
(a) For the period from March 4, 2004 (when shares became publicly available)
to Jan. 31, 2005.
(b) For the period from April 24, 2003 (when shares became publicly available)
to May 31, 2003.
(c) For the period from March 4, 2004 (when shares became publicly available)
to June 30, 2004.
(d) For the period from June 19, 2003 (when shares became publicly available)
to July 31, 2003.
(e) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
(f) For the period from March 4, 2004 (when shares became publicly available)
to July 31, 2004.
(g) For the period from Feb. 14, 2002 (when shares became publicly available)
to Sept. 30, 2002.
(h) For the period from Oct. 3, 2002 (when shares became publicly available) to
Oct. 31, 2002.
For the last fiscal period, transactions were specifically directed to firms in
exchange for research services as shown in the following table. The table also
shows portfolio turnover rates for the last two fiscal periods. Higher turnover
rates may result in higher brokerage expenses and taxes. The table is organized
by fiscal year end. You can find your fund's fiscal year end in Table 1.
Table 6. Brokerage Directed for Research and Turnover Rates
- ------------------------------------------ ------------------------------------- --------------------------
Fund Brokerage directed for research Turnover rates
- ------------------------------------------ ----------------- ------------------- --------------------------
Amount of
Amount of commissions
transactions imputed or paid
- ------------------------------------------ ----------------- ------------------- --------------------------
2005 2004
- -------------------------------------------------------------------------------- ------------- ------------
For funds with fiscal period ending January 31
- -----------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive $0 $0 38%(a) N/A
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Portfolio Builder Conservative 0 0 51(a) N/A
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Portfolio Builder Moderate 0 0 28(a) N/A
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Portfolio Builder Moderate Aggressive 0 0 31(a) N/A
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Portfolio Builder Moderate Conservative 0 0 28(a) N/A
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Portfolio Builder Total Equity 0 0 39(a) N/A
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Small Company Index 0 0 12 10
- ------------------------------------------ ----------------- ------------------- ------------- ------------
S&P 500 Index 0 0 6 4
- -----------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- -----------------------------------------------------------------------------------------------------------
Equity Value 0 0 25 39
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Precious Metals 0 0 196 173
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Small Cap Advantage 43,909,384 121,834 101 110
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Small Cap Growth 46,579,305 115,768 153 224
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Strategy Aggressive 0 0 35 55
- -----------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- -----------------------------------------------------------------------------------------------------------
Aggressive Growth 4,034,256 6,709 218 189
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Fundamental Growth 206,318 221 122 66
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Fundamental Value 0 0 2 5
- ------------------------------------------ ----------------- ------------------- ------------- ------------
High Yield Bond 0 0 105 140
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Select Value 73,512,978 115,967 12 15
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Selective 0 0 297 292
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Short Duration U.S. Government 0 0 169 125
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Small Cap Equity 2,239,076 5,359 88 139
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Small Cap Value 107,548,552 94,171 70 97
- ------------------------------------------ ----------------- ------------------- ------------- ------------
U.S. Government Mortgage 0 0 137 163
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Value 0 0 40 34
- -----------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- -----------------------------------------------------------------------------------------------------------
California Tax-Exempt 0 0 28 30
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Dividend Opportunity 0 0 24 118
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Insured Tax-Exempt 0 0 34 23
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Massachusetts Tax-Exempt 0 0 9 14
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Michigan Tax-Exempt 0 0 9 32
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Minnesota Tax-Exempt 0 0 15 23
- ------------------------------------------ ----------------- ------------------- ------------- ------------
New York Tax-Exempt 0 0 30 36
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Ohio Tax-Exempt 0 0 33 17
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Real Estate 1,683,089 2,960 63 49(b)
- -----------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- -----------------------------------------------------------------------------------------------------------
Cash Management 0 0 N/A N/A
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Core Bond 0 0 313 310
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 49
- ------------------------------------------ ------------------------------------- --------------------------
Fund Brokerage directed for research Turnover rates
- ------------------------------------------ ----------------- ------------------- --------------------------
Amount of Amount of
transactions commissions
imputed or paid
- ------------------------------------------ ----------------- ------------------- --------------------------
2005 2004
- -------------------------------------------------------------------------------- ------------- ------------
Disciplined Equity 0 0 64 64
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Discovery 2,807,817 5,265 82 136
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Growth 112,613,001 257,216 136 171
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Income Opportunities 0 0 124 133
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Inflation Protected Securities 0 0 43 11(c)
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Large Cap Equity 55,693,151 112,862 128 99
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Large Cap Value 2,335,458 3,065 57 59
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Limited Duration Bond 0 0 316 317
- ------------------------------------------ ----------------- ------------------- ------------- ------------
New Dimensions 139,768,556 184,742 75 49
- -------------------------------------------------------------------------------- ------------- ------------
2004 2003
- -----------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- -----------------------------------------------------------------------------------------------------------
Diversified Bond 0 0 279 256
- -----------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- -----------------------------------------------------------------------------------------------------------
Balanced 25,916,512 38,380 131 130
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Diversified Equity Income 20,152,447 35,693 18 38
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Mid Cap Value 2,031,218 10,965 9 36
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Stock 76,937,816 106,000 76 68
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Strategic Allocation 0 0 127 196
- -----------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- -----------------------------------------------------------------------------------------------------------
Emerging Markets 0 0 128 174
- ------------------------------------------ ----------------- ------------------- ------------- ------------
European Equity 0 0 73 186
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Global Balanced 0 0 74 90
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Global Bond 0 0 92 117
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Global Equity 0 0 104 132
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Global Technology 21,309,491 84,503 349 546
- ------------------------------------------ ----------------- ------------------- ------------- ------------
International Aggressive Growth 114,966,759 202,719 87 116
- ------------------------------------------ ----------------- ------------------- ------------- ------------
International Equity 14,835,692 26,595 111 58
- ------------------------------------------ ----------------- ------------------- ------------- ------------
International Opportunity 0 0 98 147
- ------------------------------------------ ----------------- ------------------- ------------- ------------
International Select Value 544,373,529 831,282 23 18
- ------------------------------------------ ----------------- ------------------- ------------- ------------
International Small Cap 26,901,119 53,060 66 87
- -----------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- -----------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt Bond 0 0 25 59
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Mid Cap Growth 0 0 26 26
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Tax-Exempt Bond 0 0 21 92
- ------------------------------------------ ----------------- ------------------- ------------- ------------
Tax-Exempt High Income 0 0 22 44
- -----------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- -----------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 0 0 N/A N/A
- ------------------------------------------ ----------------- ------------------- ------------- ------------
(a) For the period from March 4, 2004 (when shares became publicly available)
to Jan. 31, 2005.
(b) For the period from March 4, 2004 (when shares became publicly available)
to June 30, 2004.
(c) For the period from March 4, 2004 (when shares became publicly available)
to July 31, 2004.
As of the end of the most recent fiscal period, the fund held securities of its
regular brokers or dealers or of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities as
presented below. The table is organized by fiscal year end. You can find your
fund's fiscal year end in Table 1.
Statement of Additional Information - Oct. 3, 2005 Page 50
Table 7. Securities of Regular Brokers or Dealers
- ------------------------------------------ --------------------------------------------- ----------------------
Fund Issuer Value of securities
owned at end of
fiscal period
- ---------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------ --------------------------------------------- ----------------------
Portfolio Builder Aggressive None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Portfolio Builder Conservative None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Portfolio Builder Moderate None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Portfolio Builder Moderate Aggressive None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Portfolio Builder Moderate Conservative None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Portfolio Builder Total Equity None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Small Company Index Investment Technology Group $2,067,454
Piper Jaffray Companies 1,947,534
- ------------------------------------------ --------------------------------------------- ----------------------
S&P 500 Index American Express 1,956,185
Bear Stearns Companies 304,797
Citigroup 7,436,421
Citigroup Global Markets Holdings 9,999,306
E*TRADE Financial 149,325
Franklin Resources 494,360
Goldman Sachs Group 1,525,107
Lehman Brothers Holdings 717,392
JP Morgan Chase & Co. 3,884,971
Merrill Lynch & co. 1,634,204
Morgan Stanley 1,789,097
PNC Financial Services Group 444,589
Charles Schwab 442,316
- ---------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------ --------------------------------------------- ----------------------
Equity Value Citigroup 39,340,476
JP Morgan Chase & Co. 8,513,814
Lehman Brothers Holdings 20,705,784
Merrill Lynch & Co. 17,608,260
Morgan Stanley 18,497,475
- ------------------------------------------ --------------------------------------------- ----------------------
Precious Metals None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Small Cap Advantage Investment Technology Group 361,165
Jefferies Group 1,948,056
Knight Trading Group 186,659
- ------------------------------------------ --------------------------------------------- ----------------------
Small Cap Growth Affiliated Managers Group 1,111,267
Citigroup 3,399,731
Investment Technology Group 378,175
Jefferies Group 438,595
- ------------------------------------------ --------------------------------------------- ----------------------
Strategy Aggressive None N/A
- ---------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------ --------------------------------------------- ----------------------
Aggressive Growth Affiliated Managers Group 532,933
Jefferies Group 160,761
Legg Mason 478,863
- ------------------------------------------ --------------------------------------------- ----------------------
Fundamental Growth Schwab (Charles) 979,889
- ------------------------------------------ --------------------------------------------- ----------------------
Fundamental Value Citigroup 30,305,863
JP Morgan Chase & Co. 44,370,754
Morgan Stanley 6,771,168
- ------------------------------------------ --------------------------------------------- ----------------------
High Yield Bond LaBranche & Co. 16,010,175
- ------------------------------------------ --------------------------------------------- ----------------------
Select Value Bear Stearns Companies 693,280
BKF Capital Group 181,500
Merrill Lynch & Co. 1,899,100
- ------------------------------------------ --------------------------------------------- ----------------------
Statement of Additional Information - Oct. 3, 2005 Page 51
- ------------------------------------------ --------------------------------------------- ----------------------
Fund Issuer Value of securities
owned at end of
fiscal period
- ------------------------------------------ --------------------------------------------- ----------------------
Selective Bear Stearns Adjustable Rate Mtge Trust 2,191,863
Bear Stearns Commercial Mtge Securities 5,347,849
Citigroup 8,545,622
Citigroup Commercial Mtge Trust 4,490,508
CS First Boston Mtge Securities 4,628,259
Goldman Sachs Group 2,106,773
J.P. Morgan Chase & Co. 2,428,993
J.P. Morgan Chase Commercial Mtge Securities 9,413,657
LB-UBS Commercial Mtge Trust 18,947,351
Morgan Stanley 928,881
Morgan Stanley Capital 1 7,691,766
Morgan Stanley, Dean Witter Capital 1 2,426,912
- ------------------------------------------ --------------------------------------------- ----------------------
Short Duration U.S. Government Bears Stearns Alternative Trust 8,575,000
LB-UBS Commercial Mtge Trust 6,128,195
Morgan Stanley Capital I 12,092,686
Morgan Stanley Mtge Loan Trust 3,549,817
- ------------------------------------------ --------------------------------------------- ----------------------
Small Cap Equity Affiliated Managers Group 546,940
Investment Technology Group 1,103,466
- ------------------------------------------ --------------------------------------------- ----------------------
Small Cap Value Affiliated Managers Group 1,855,928
Investment Technology Group 1,304,814
Options Xpress Holdings 271,188
- ------------------------------------------ --------------------------------------------- ----------------------
U.S. Government Mortgage CS First Boston Mtge Securities 367,506
- ------------------------------------------ --------------------------------------------- ----------------------
Value Citigroup 7,141,876
Goldman Sachs Group 4,182,750
Merrill Lynch & Co. 4,134,612
JP Morgan Chase & Co. 10,167,157
- ---------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------ --------------------------------------------- ----------------------
California Tax-Exempt None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Dividend Opportunity Citigroup 27,770,361
Friedman, Billings, Ramsey Group CIA 2,562,560
JP Morgan Chase & Co. 9,822,492
- ------------------------------------------ --------------------------------------------- ----------------------
Insured Tax-Exempt None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Massachusetts Tax-Exempt None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Michigan Tax-Exempt None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Minnesota Tax-Exempt None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
New York Tax-Exempt None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Ohio Tax-Exempt None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Real Estate None N/A
- ---------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------ --------------------------------------------- ----------------------
Cash Management Bear Stearns Companies 78,410,961
Credit Suisse First Boston NY 79,971,289
Goldman Sachs Group 75,000,000
Lehman Brothers Holdings 42,000,000
Morgan Stanley & Co. 44,105,490
- ------------------------------------------ --------------------------------------------- ----------------------
Core Bond Bear Stearns Commercial Mtge Securities 1,608,803
Bear Stearns Adjustable Rate Mortgage Trust 899,429
Citigroup 2,480,986
Citigroup Commercial Mortgage Trust 757,003
CS First Boston Mtge Securities 643,161
GS Mtg Securities 370,305
LB-UBS Commercial Mtge Trust 3,135,156
JP Morgan Chase Commercial Mtge Securities 2,160,054
Merrill Lynch Mtge Trust 323,480
Morgan Stanley Capital 1 406,481
- ------------------------------------------ --------------------------------------------- ----------------------
Disciplined Equity Bear Stearns Companies 303,981
Citigroup 2,851,817
Franklin Resources 890,557
Lehman Brothers Holdings 691,019
Merrill Lynch & Co. 226,597
Morgan Stanley 120,264
PNC Financial Services Group 554,285
- ------------------------------------------ --------------------------------------------- ----------------------
Statement of Additional Information - Oct. 3, 2005 Page 52
- ------------------------------------------ --------------------------------------------- ----------------------
Fund Issuer Value of securities
owned at end of
fiscal period
- ------------------------------------------ --------------------------------------------- ----------------------
Discovery Affiliated Managers Group 424,235
Investment Technology Group 928,520
- ------------------------------------------ --------------------------------------------- ----------------------
Growth Franklin Resources 10,555,092
- ------------------------------------------ --------------------------------------------- ----------------------
Income Opportunities LaBranche & Co. 1,892,550
- ------------------------------------------ --------------------------------------------- ----------------------
Inflation Protected Securities None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Large Cap Equity Citigroup 25,890,939
Citigroup Funding 19,794,538
E*Trade Financial 1,660,097
Franklin Resources 6,005,007
Legg Mason 1,157,564
Lehman Brothers Holdings 5,310,957
Merrill Lynch & Co. 3,107,522
JP Morgan Chase & Co. 14,572,909
Morgan Stanley 10,152,019
PNC Financial Services Group 4,508,671
- ------------------------------------------ --------------------------------------------- ----------------------
Large Cap Value Citigroup 4,454,096
E*Trade Financial 147,128
Franklin Resources 531,068
Legg Mason 317,891
Lehman Brothers Holdings 814,758
Merrill Lynch & Co. 883,405
JP Morgan Chase & Co. 2,588,131
Morgan Stanley 1,703,860
PNC Financial Services Group 683,386
- ------------------------------------------ --------------------------------------------- ----------------------
Limited Duration Bond Bear Stearns Commercial Mtge Securities 1,393,235
Bear Stearns Adjustable Rate Mortgage Trust 956,758
Citigroup 2,476,073
Citigroup Commercial Mortgage Trust 851,629
CS First Boston Mtge Securities 881,742
GS Mtg Securities 419,679
LB-UBS Commercial Mtge Trust 3,651,486
JP Morgan Chase Commercial Mtge Securities 2,884,355
Merrill Lynch Mtge Trust 362,690
Morgan Stanley Capital 1 509,109
- ------------------------------------------ --------------------------------------------- ----------------------
New Dimensions Citigroup 191,123,340
Schwab (Charles) 236,626,414
- ---------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------ --------------------------------------------- ----------------------
Diversified Bond Bear Stearns Commercial Mtge Securities 5,960,760
CS First Boston Mtge Securities 15,098,075
LB-UBS Commercial Mtge Trust 100,675,087
J.P. Morgan Chase 5,009,840
J.P. Morgan Chase Commercial Mtge Securities 28,372,181
Merrill Lynch Mtge Trust 4,144,448
Morgan Stanley Auto Loan Trust 4,300,000
Morgan Stanley Capital 1 20,394,595
Morgan Stanley, Dean Witter Capital 1 6,453,149
Morgan Stanley Mtge Loan Trust 14,255,772
- ---------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------ --------------------------------------------- ----------------------
Balanced Bear Stearns Commercial Mtge Securities 990,750
Citigroup 38,981,627
Citigroup Global Markets Holdings Inc. 3,294,432
CS First Boston Mtge Securities 2,590,447
Franklin Resources 1,053,864
JPMorgan Chase 24,018,900
JPMorgan Chase Commercial Mtge Securities 3,931,377
LB-UBS Commercial Mtge Trust 13,683,500
Merrill Lynch & Co. 11,032,868
Morgan Stanley 12,433,460
Morgan Stanley Capital 1 4,323,123
Morgan Stanley Dean Witter Capital 1 908,380
PNC Financial Services Group 4,257,670
- ------------------------------------------ --------------------------------------------- ----------------------
Statement of Additional Information - Oct. 3, 2005 Page 53
- ------------------------------------------ --------------------------------------------- ----------------------
Fund Issuer Value of securities
owned at end of
fiscal period
- ------------------------------------------ --------------------------------------------- ----------------------
Diversified Equity Income Citigroup 105,305,616
JP Morgan Chase & Co. 30,890,393
Lehman Brothers Holdings 11,487,652
Merrill Lynch & Co. 23,144,660
Morgan Stanley 23,915,430
- ------------------------------------------ --------------------------------------------- ----------------------
Mid Cap Value Bear Stearns Companies 6,525,135
- ------------------------------------------ --------------------------------------------- ----------------------
Stock Citigroup 52,944,000
Goldman Sachs Group 18,648,000
Morgan Stanley 14,790,000
- ------------------------------------------ --------------------------------------------- ----------------------
Strategic Allocation Bear Stearns Companies 1,252,037
Citigroup 550,684
CS First Boston Mtge Securities 244,748
Investment Technology Group Inc. 262,028
JPMorgan Chase 5,723,301
JPMorgan Chase Commercial Mtge Securities 259,953
Knight Trading Group 69,908
LaBranche 180,250
LB-UBS Commercial Mtge Trust 2,293,968
PNC Financial Services Group 195,085
Schwab (Charles) 2,138,917
- ---------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------ --------------------------------------------- ----------------------
Emerging Markets None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
European Equity Credit Suisse Group 906,216
- ------------------------------------------ --------------------------------------------- ----------------------
Global Balanced Ameritrade Holding 209,622
Bear Stearns Companies 592,661
Citigroup 1,725,816
Goldman Sachs Group 540,599
- ------------------------------------------ --------------------------------------------- ----------------------
Global Bond Bear Stearns Commercial Mtge Securities 2,268,820
Citigroup 3,380,448
CS First Boston Mtge Securities 248,320
Goldman Sachs Group 557,710
LB-UBS Commercial Mtge Trust 2,269,733
J.P. Morgan Chase & Co. 1,793,898
Morgan Stanley Capital 1 1,016,380
Morgan Stanley Group 3,181,144
- ------------------------------------------ --------------------------------------------- ----------------------
Global Equity Ameritrade Holding 5,251,617
Bear Stearns Companies 3,564,211
Citigroup 18,148,572
Goldman Sachs Group 6,145,996
- ------------------------------------------ --------------------------------------------- ----------------------
Global Technology None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
International Aggressive Growth Pargesa Holdings 617,420
- ------------------------------------------ --------------------------------------------- ----------------------
International Equity None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
International Opportunity Credit Suisse Group 2,135,848
- ------------------------------------------ --------------------------------------------- ----------------------
International Select Value Credit Suisse Group 10,302,663
- ------------------------------------------ --------------------------------------------- ----------------------
International Small Cap None N/A
- ---------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------ --------------------------------------------- ----------------------
Intermediate Tax-Exempt Bond None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Mid Cap Growth Legg Mason 51,786,400
- ------------------------------------------ --------------------------------------------- ----------------------
Tax-Exempt Bond None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Tax-Exempt High Income None N/A
- ---------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------ --------------------------------------------- ----------------------
Tax-Exempt Money Market None N/A
- ------------------------------------------ --------------------------------------------- ----------------------
Statement of Additional Information - Oct. 3, 2005 Page 54
Brokerage Commissions Paid to Brokers Affiliated with the Investment Manager
Affiliates of RiverSource Investments may engage in brokerage and other
securities transactions on behalf of a fund according to procedures adopted by
the Board and to the extent consistent with applicable provisions of the federal
securities laws. Subject to approval by the Board, the same conditions apply to
transactions with broker-dealer affiliates of any subadviser. The investment
manager will use an affiliate only if (i) the investment manager determines that
the fund will receive prices and executions at least as favorable as those
offered by qualified independent brokers performing similar brokerage and other
services for the fund and (ii) the affiliate charges the fund commission rates
consistent with those the affiliate charges comparable unaffiliated customers in
similar transactions and if such use is consistent with terms of the Investment
Management Services Agreement.
Information about any brokerage commissions paid by a fund in the last three
fiscal periods to brokers affiliated with the fund's investment manager is
contained in the following table. The table is organized by fiscal year end. You
can find your fund's fiscal year end in Table 1.
Table 8. Brokerage Commissions Paid to Investment Manager or Affiliates
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Percent of
aggregate
Aggregate dollar Aggregate Aggregate
dollar Percent of amount of dollar dollar
Fund amount of aggregate transactions amount of amount of
Nature of commissions brokerage involving commissions commissions
Broker affiliation paid to commissions payment of paid to paid to
broker commissions broker broker
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
2005 2004 2003
- ----------------------- ------------------------------------------------------------------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- -----------------------------------------------------------------------------------------------------------------------------
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Portfolio Builder None 0 0
Aggressive
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Portfolio Builder None 0 0
Conservative
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Portfolio Builder None 0 0
Moderate
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Portfolio Builder None 0 0
Moderate Aggressive
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Portfolio Builder None 0 0
Moderate Conservative
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Portfolio Builder None 0 0
Total Equity
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Small Company Index None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
S&P 500 Index None 0 0
- -----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- -----------------------------------------------------------------------------------------------------------------------------
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Equity Value American 1 10,142* 1.18 1.64 14,787* 5,415*
Enterprise
Investment
Services,
Inc. (AEIS)
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Precious Metals AEIS 1 3,614* 0.29 0.65 24,650* 67,515*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Small Cap Advantage AEIS 1 0 0 0 360* 683*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Small Cap Growth SBCI 4 0 0 0 757* 0
Securities
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Neuberger 5 0 0 0 0 40,332*
Berman
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Strategy Aggressive AEIS 1 7,880* 0.84 2.51 5,432* 41,748
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Statement of Additional Information - Oct. 3, 2005 Page 55
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Percent of
aggregate
Aggregate dollar Aggregate Aggregate
dollar Percent of amount of dollar dollar
Fund amount of aggregate transactions amount of amount of
Nature of commissions brokerage involving commissions commissions
Broker affiliation paid to commissions payment of paid to paid to
broker commissions broker broker
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
2005 2004 2003
- ----------------------- ------------------------------------------------------------------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- -----------------------------------------------------------------------------------------------------------------------------
Aggressive Growth JP Morgan 2 27* 0.01 0.02 103 50(a)
Chase
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Fundamental Value None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Fundamental Growth Goldman Sachs 6 38 0.02 0.01 0 0
& Co.
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Raymond James 7 0 0 0 15 0(a)
Financial
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
High Yield Bond None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Selective None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Select Value Gabelli & Co. 8 143,463 46.14 43.33 464,895 264,461
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Short Duration None 0 0
U.S. Government
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Small Cap Equity None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Small Cap Value Goldman Sachs 6 1,943 0.08 0.09 46,047 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Janney 9 0 0 0 5,130 0
Montgomery
Scott
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Legg Mason 9 2,700 0.11 0.13 0 0
Wood Walker,
Inc.
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
M.J. Whitman 10 0 0 0 425,573 286,906
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
U.S. Gov't Mortgage None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Value None 0 0
- -----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- -----------------------------------------------------------------------------------------------------------------------------
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
California Tax-Exempt None
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Dividend Opportunity AEIS 1 20,898* 3.36 7.33 217,347* 753,855*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Insured Tax-Exempt None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Massachusetts None 0 0
Tax-Exempt
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Michigan Tax-Exempt None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Minnesota Tax-Exempt None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
New York Tax-Exempt None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Ohio Tax-Exempt None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Real Estate None 0 0
- -----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- -----------------------------------------------------------------------------------------------------------------------------
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Cash Management None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Core Bond None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Disciplined Equity None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Discovery None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Growth AEIS 1 13,720* 0.09 0.31 336,098* 745,620*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Income Opportunities None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Inflation Protected None 0 0
Securities
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Large Cap Equity AEIS 1 10,214* 0.15 0.33 6,644* 353*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Large Cap Value AEIS 1 276* 0.15 0.17 595* 1,577*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Limited Duration Bond None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
New Dimensions AEIS 1 108,435* 0.37 0.77 1,018,149* 324,088*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Statement of Additional Information - Oct. 3, 2005 Page 56
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Percent of
aggregate
Aggregate dollar Aggregate Aggregate
dollar Percent of amount of dollar dollar
Fund amount of aggregate transactions amount of amount of
Nature of commissions brokerage involving commissions commissions
Broker affiliation paid to commissions payment of paid to paid to
broker commissions broker broker
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
2004 2003 2002
- ----------------------- ------------------------------------------------------------------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- -----------------------------------------------------------------------------------------------------------------------------
Diversified Bond None 0 0
- -----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- -----------------------------------------------------------------------------------------------------------------------------
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Balanced AEIS 1 8,440* 0.64 0.70 82,086* 209,163*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Diversified Equity AEIS 1 73,448* 3.04 6.97 73,410* 53,400*
Income
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Mid Cap Value AEIS 1 39,552* 10.82 19.40 23,417* 16,706*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Stock AEIS 1 514,423* 12.46 22.44 329,816* 527,433*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Strategic Allocation AEIS 1 0 0 0 0 6,461*
- -----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- -----------------------------------------------------------------------------------------------------------------------------
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Emerging Markets None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
European Equity None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Global Balanced None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Global Bond None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Global Equity None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Global Technology AEIS 1 97,718* 2.33 4.97 495,249* 202,910*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
International J. P. Morgan 2 22,343 3.73 3.25 0 0
Aggressive Growth Securities,
Inc.
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
J.P. Morgan 2 0 0 0 0 9,567
Chase
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
International Equity None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
International None 0 0
Opportunity
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
International Select Sanford C. 3 20,637 2.46 1.07 0 0
Value Bernstein &
Co. LLC
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
International Small None 0 0
Cap
- -----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- -----------------------------------------------------------------------------------------------------------------------------
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Intermediate None 0 0
Tax-Exempt Bond
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Mid Cap Growth AEIS 1 17,994* 1.10 1.67 48,993* 56,544*
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Tax-Exempt Bond None 0 0
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Tax-Exempt High Income None 0 0
- -----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- -----------------------------------------------------------------------------------------------------------------------------
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
Tax-Exempt Money None 0 0
Market
- ----------------------- --------------- ------------- ------------- -------------- -------------- ------------- -------------
*Represents brokerage clearing fees.
(1) American Enterprise Investment Services, Inc., a wholly-owned subsidiary
of Ameriprise Financial.
(2) Affiliate of American Century, a subadviser.
(3) Affiliate of Alliance Capital, a subadviser.
(4) Affiliate of UBS, a subadviser.
(5) Affiliate of Neuberger Berman Management, Inc., a former subadviser,
terminated July 24, 2003.
(6) Affiliate of Goldman Sachs Asset Management, L.P.
(7) Affiliate of Eagle Asset Management, Inc., a former subadviser, terminated
April 2005.
(8) Affiliate of GAMCO Investors, Inc.
(9) Affiliate of Royce & Associates, LLC.
(10) Affiliate of Third Avenue Management, LLC.
(a) For the period from April 24, 2003 (when shares became publicly available)
to May 31, 2003.
Statement of Additional Information - Oct. 3, 2005 Page 57
Valuing Fund Shares
As of the end of the most recent fiscal period, the computation of net asset
value was based on net assets divided by shares outstanding as shown in the
following table. The table is organized by fiscal year end. You can find your
fund's fiscal year end in Table 1.
Table 9. Valuing Fund Shares
- --------------------------------------- --------------------- ----------------------- -------------------------------
Fund Net assets Shares outstanding Net asset value of one share
- --------------------------------------- --------------------- ----------------------- -------------------------------
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive
Class A $119,627,607 $11,362,951 $10.53
Class B 35,834,966 3,418,749 10.48
Class C 3,083,372 294,292 10.48
Class Y 47,631 4,524 10.53
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Portfolio Builder Conservative
Class A 39,897,123 3,898,848 10.23
Class B 20,554,920 2,013,651 10.21
Class C 4,481,347 439,018 10.21
Class Y 10,201 1,000 10.20
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Portfolio Builder Moderate
Class A 189,888,226 18,140,369 10.47
Class B 71,814,179 6,883,820 10.43
Class C 7,955,750 761,900 10.44
Class Y 40,620 3,879 10.47
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Portfolio Builder Moderate Aggressive
Class A 245,769,977 23,417,138 10.50
Class B 67,228,623 6,423,185 10.47
Class C 6,552,993 626,119 10.47
Class Y 33,480 3,188 10.50
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Portfolio Builder Moderate Conservative
Class A 77,638,291 7,502,281 10.35
Class B 33,819,808 3,276,549 10.32
Class C 5,954,341 576,615 10.33
Class Y 10,338 1,000 10.34
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Portfolio Builder Total Equity
Class A 92,091,638 8,732,306 10.55
Class B 28,227,386 2,688,269 10.50
Class C 2,332,601 222,136 10.50
Class Y 83,553 7,917 10.55
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Small Company Index
Class A 844,467,080 102,911,670 8.21
Class B 433,644,981 57,128,419 7.59
Class Y 19,752,240 2,373,075 8.32
- ----------------------------------------- --------------------- ----------------------- -------------------------------
S&P 500 Index
Class D 69,204,754 15,205,187 4.55
Class E 301,359,081 65,939,676 4.57
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- -----------------------------------------------------------------------------------------------------------------------
Equity Value
Class A 864,772,364 85,483,171 10.12
Class B 275,043,516 27,137,439 10.14
Class C 3,418,344 339,746 10.06
Class I 10,834 1,070 10.13
Class Y 7,588,846 749,495 10.13
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Precious Metals
Class A 62,278,310 6,936,541 8.98
Class B 16,662,847 1,947,682 8.56
Class C 1,639,458 193,412 8.48
Class I 8,918 989 9.02
Class Y 43,718 4,837 9.04
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Small Cap Advantage
Class A 621,674,455 87,943,516 7.07
Class B 234,464,316 34,760,836 6.75
Class C 12,376,977 1,834,812 6.75
Class I 5,533,930 771,966 7.17
Class Y 558,895 78,327 7.14
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 58
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Fund Net assets Shares outstanding Net asset value of one share
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Small Cap Growth
Class A 153,495,002 36,595,831 4.19
Class B 70,741,549 17,412,915 4.06
Class C 6,481,577 1,595,042 4.06
Class I 5,507,843 1,300,608 4.23
Class Y 115,147 27,301 4.22
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Strategy Aggressive
Class A 453,020,526 39,643,036 11.43
Class B 150,640,501 14,822,706 10.16
Class C 1,837,142 180,759 10.16
Class I 10,749 919 11.70
Class Y 1,740,559 149,294 11.66
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth
Class A 25,011,144 3,432,844 7.29
Class B 6,887,053 959,077 7.18
Class C 441,567 61,518 7.18
Class I 39,475,546 5,390,829 7.32
Class Y 35,231 4,821 7.31
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Fundamental Growth
Class A 18,325,202 3,167,522 5.79
Class B 6,916,701 1,216,017 5.69
Class C 318,666 55,965 5.69
Class I 62,881,753 10,805,834 5.82
Class Y 20,924 3,597 5.82
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Fundamental Value
Class A 641,156,030 117,692,649 5.45
Class B 293,904,772 55,227,068 5.32
Class C 17,116,872 3,204,289 5.34
Class I 38,341,137 6,987,269 5.49
Class Y 513,806 93,892 5.47
- ----------------------------------------- --------------------- ----------------------- -------------------------------
High Yield Bond
Class A 1,734,607,908 606,766,116 2.86
Class B 628,996,597 220,191,985 2.86
Class C 36,119,894 12,717,550 2.84
Class I 10,072 3,521 2.86
Class Y 510,977 178,795 2.86
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Select Value
Class A 525,317,144 79,034,723 6.65
Class B 202,624,816 31,180,806 6.50
Class C 11,856,832 1,824,372 6.50
Class I 13,938,125 2,079,347 6.70
Class Y 66,312 9,928 6.68
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Selective
Class A 591,107,900 68,029,020 8.69
Class B 124,736,789 14,357,845 8.69
Class C 4,242,590 488,313 8.69
Class I 143,290,359 16,490,222 8.69
Class Y 50,484,935 5,815,214 8.68
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Short Duration U.S. Government
Class A 894,085,093 186,727,963 4.79
Class B 588,209,128 122,837,566 4.79
Class C 23,606,429 4,929,965 4.79
Class I 31,332,182 6,535,370 4.79
Class Y 99,574,002 20,793,917 4.79
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Small Cap Equity
Class A 122,560,969 21,107,913 5.81
Class B 46,071,722 8,146,718 5.66
Class C 3,743,293 662,650 5.65
Class I 7,041,819 1,202,122 5.86
Class Y 135,399 23,158 5.85
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 59
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Fund Net assets Shares outstanding Net asset value of one share
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Small Cap Value
Class A 746,569,553 112,761,101 6.62
Class B 347,749,645 53,888,572 6.45
Class C 21,382,301 3,306,736 6.47
Class I 9,252,001 1,384,674 6.68
Class Y 237,915 35,744 6.66
- ----------------------------------------- --------------------- ----------------------- -------------------------------
U.S. Government Mortgage
Class A 159,223,769 31,128,293 5.12
Class B 97,863,453 19,124,334 5.12
Class C 10,556,978 2,062,750 5.12
Class I 9,924 1,942 5.11
Class Y 34,968 6,838 5.11
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Value
Class A 266,775,559 49,757,191 5.36
Class B 145,697,978 27,768,947 5.25
Class C 9,149,580 1,739,170 5.26
Class I 48,010,163 8,894,177 5.40
Class Y 158,895 29,513 5.38
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- ---------------------------------------------------------------------------------------------------------------------
California Tax-Exempt
Class A 189,684,740 35,995,218 5.27
Class B 16,159,650 3,068,100 5.27
Class C 3,056,044 579,245 5.28
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Dividend Opportunity
Class A 808,056,488 110,670,374 7.30
Class B 297,235,931 40,987,439 7.25
Class C 11,875,411 1,638,182 7.25
Class I 11,068 1,513 7.32
Class Y 168,909 23,085 7.32
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Insured Tax-Exempt
Class A 323,488,272 58,836,401 5.50
Class B 46,534,461 8,464,126 5.50
Class C 5,852,002 1,062,313 5.51
Class Y 1,443 263 5.49
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Massachusetts Tax-Exempt
Class A 56,077,745 10,296,587 5.45
Class B 17,522,009 3,217,293 5.45
Class C 1,368,946 251,459 5.44
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Michigan Tax-Exempt
Class A 53,273,688 9,955,048 5.35
Class B 5,477,255 1,023,070 5.35
Class C 1,841,153 343,994 5.35
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Minnesota Tax-Exempt
Class A 341,393,866 63,764,004 5.35
Class B 48,659,135 9,087,318 5.35
Class C 9,005,026 1,681,783 5.35
- ----------------------------------------- --------------------- ----------------------- -------------------------------
New York Tax-Exempt
Class A 72,589,870 14,013,395 5.18
Class B 10,908,968 2,105,995 5.18
Class C 1,372,838 265,013 5.18
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Ohio Tax-Exempt
Class A 51,047,773 9,547,336 5.35
Class B 8,148,165 1,523,978 5.35
Class C 1,913,283 357,731 5.35
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Real Estate
Class A 61,688,427 4,590,743 13.44
Class B 18,120,502 1,355,604 13.37
Class C 930,923 69,635 13.37
Class I 52,785,478 3,922,401 13.46
Class Y 35,779 2,669 13.41
- -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 60
- -----------------------------------------------------------------------------------------------------------------------
Fund Net assets Shares outstanding Net asset value of one share
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- ---------------------------------------------------------------------------------------------------------------------
Cash Management
Class A 3,053,596,963 3,053,389,372 1.00
Class B 129,253,208 129,443,572 1.00
Class C 2,169,631 2,169,977 1.00
Class I 12,099,006 12,099,403 1.00
Class Y 139,530,681 139,596,472 1.00
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Core Bond
Class A 39,922,457 4,107,510 9.72
Class B 11,959,070 1,230,,225 9.72
Class C 595,484 61,240 9.72
Class I 113,058,521 11,642,707 9.71
Class Y 100,477 10,341 9.72
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Disciplined Equity
Class A 28,058,336 4,189,337 6.70
Class B 9,287,787 1,402,057 6.62
Class C 188,938 28,519 6.62
Class I 81,805,703 12,152,084 6.73
Class Y 34,351 5,118 6.71
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Discovery
Class A 150,554,497 16,143,047 9.33
Class B 12,996,095 1,539,633 8.44
Class C 26,679 3,168 8.42
Class Y 2,778,376 293,582 9.46
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Growth
Class A 2,101,095,913 74,131,468 28.34
Class B 578,073,340 22,222,644 26.01
Class C 14,995,769 576,446 26.01
Class I 146,738,136 5,072,507 28.93
Class Y 304,157,098 10,557,701 28.81
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Income Opportunities
Class A 196,563,730 18,663,072 10.53
Class B 79,198,259 7,522,267 10.53
Class C 6,860,418 651,716 10.53
Class I 68,574,958 6,502,225 10.55
Class Y 406,041 38,524 10.54
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Inflation Protected Securities
Class A 86,210,888 8,606,293 10.02
Class B 48,510,793 4,844,943 10.01
Class C 3,772,778 376,805 10.01
Class I 51,702,672 5,161,341 10.02
Class Y 10,016 1,000 10.02
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Large Cap Equity
Class A 1,030,109,387 195,824,050 5.26
Class B 471,864,336 91,616,485 5.15
Class C 9,284,115 1,799,299 5.16
Class I 42,610,172 8,026,676 5.31
Class Y 208,437 39,442 5.28
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Large Cap Value
Class A 74,114,932 12,713,655 5.83
Class B 28,468,201 4,935,011 5.77
Class C 1,392,159 241,376 5.77
Class I 37,827,081 6,453,226 5.86
Class Y 140,096 23,947 5.85
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Limited Duration Bond
Class A 83,392,570 8,517,001 9.79
Class B 25,023,689 2,555,305 9.79
Class C 1,611,885 164,656 9.79
Class I 70,057,990 7,154,021 9.79
Class Y 59,896 6,118 9.79
- -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 61
- -----------------------------------------------------------------------------------------------------------------------
Fund Net assets Shares outstanding Net asset value of one share
- ----------------------------------------- --------------------- ----------------------- -------------------------------
New Dimensions
Class A 6,845,241,780 285,315,473 23.99
Class B 2,003,569,556 88,486,457 22.64
Class C 45,662,322 2,019,120 22.61
Class I 69,748,064 2,889,590 24.14
Class Y 2,557,141,395 106,000,741 24.12
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- ---------------------------------------------------------------------------------------------------------------------
Diversified Bond
Class A 1,932,496,967 396,460,333 4.87
Class B 628,262,697 128,868,605 4.88
Class C 20,877,765 4,277,175 4.88
Class I 9,932 2,037 4.88
Class Y 203,377,008 41,712,199 4.88
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- ---------------------------------------------------------------------------------------------------------------------
Balanced
Class A 1,077,076,237 116,405,595 9.25
Class B 112,782,778 12,273,591 9.19
Class C 2,911,211 316,788 9.19
Class Y 181,701,926 19,639,186 9.25
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Diversified Equity Income
Class A 2,455,128,497 248,435,750 9.88
Class B 876,753,088 88,974,448 9.85
Class C 38,083,847 3,868,662 9.84
Class I 17,793,479 1,798,472 9.89
Class Y 66,730,603 6,748,297 9.89
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Mid Cap Value
Class A 330,631,850 48,565,529 6.81
Class B 127,763,466 19,061,202 6.70
Class C 6,512,086 971,383 6.70
Class I 20,020,114 2,915,630 6.87
Class Y 355,295 51,901 6.85
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Stock
Class A 1,595,974,238 88,586,618 18.02
Class B 145,515,711 8,148,843 17.86
Class C 3,147,113 176,940 17.79
Class I 12,191,913 676,783 18.01
Class Y 437,771,200 24,301,388 18.01
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Strategic Allocation
Class A 886,278,845 101,576,047 8.73
Class B 90,417,191 10,439,704 8.66
Class C 4,134,779 478,256 8.65
Class Y 5,395,258 618,480 8.72
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets
Class A 190,500,049 30,359,602 6.27
Class B 73,255,622 12,316,180 5.95
Class C 1,211,363 203,071 5.97
Class I 12,706,944 1,999,415 6.36
Class Y 18,013,900 2,838,508 6.35
- ----------------------------------------- --------------------- ----------------------- -------------------------------
European Equity
Class A 87,389,098 23,559,683 3.71
Class B 36,333,900 9,954,837 3.65
Class C 1,472,996 403,503 3.65
Class I 10,646 2,865 3.72
Class Y 16,178 4,358 3.71
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Global Balanced
Class A 56,802,615 10,819,137 5.25
Class B 29,946,507 5,813,358 5.15
Class C 788,884 153,660 5.13
Class Y 12,506,399 2,368,527 5.28
- -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 62
- -----------------------------------------------------------------------------------------------------------------------
Fund Net assets Shares outstanding Net asset value of one share
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Global Bond
Class A 388,702,892 55,378,028 7.02
Class B 141,856,065 20,209,576 7.02
Class C 4,716,721 674,551 6.99
Class I 24,020,955 3,414,514 7.03
Class Y 78,443 11,149 7.04
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Global Equity
Class A 364,487,949 70,705,385 5.16
Class B 103,737,319 21,300,358 4.87
Class C 958,277 197,511 4.85
Class Y 4,482,992 862,149 5.20
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Global Technology
Class A 146,065,605 79,952,878 1.83
Class B 59,344,328 36,990,705 1.60
Class C 3,952,783 2,457,559 1.61
Class I 10,781 5,882 1.83
Class Y 412,777 225,433 1.83
- ----------------------------------------- --------------------- ----------------------- -------------------------------
International Aggressive Growth
Class A 151,029,652 22,062,205 6.85
Class B 43,847,769 6,551,452 6.69
Class C 2,733,926 408,576 6.69
Class I 21,060,831 3,054,317 6.90
Class Y 194,904 28,337 6.88
- ----------------------------------------- --------------------- ----------------------- -------------------------------
International Equity
Class A 97,591,124 13,879,271 7.03
Class B 21,998,053 3,168,563 6.94
Class C 1,535,888 221,140 6.95
Class I 21,597,503 3,057,583 7.06
Class Y 82,712 11,738 7.05
- ----------------------------------------- --------------------- ----------------------- -------------------------------
International Opportunity
Class A 347,164,473 52,723,946 6.58
Class B 74,433,389 11,592,373 6.42
Class C 1,792,168 280,894 6.38
Class I 21,542,373 3,240,063 6.65
Class Y 30,660,554 4,629,728 6.62
- ----------------------------------------- --------------------- ----------------------- -------------------------------
International Select Value
Class A 626,407,916 81,535,854 7.68
Class B 219,316,011 29,207,356 7.51
Class C 11,798,008 1,572,120 7.50
Class I 22,052,586 2,854,070 7.73
Class Y 487,420 63,137 7.72
- ----------------------------------------- --------------------- ----------------------- -------------------------------
International Small Cap
Class A 53,310,958 6,744,610 7.90
Class B 12,742,956 1,637,077 7.78
Class C 564,033 72,292 7.80
Class I 10,684,163 1,345,331 7.94
Class Y 74,286 9,371 7.93
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- ---------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt Bond
Class A 125,807,592 23,343,822 5.39
Class B 22,556,935 4,188,280 5.39
Class C 9,148,911 1,698,678 5.39
Class Y 1,302 243 5.36
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Mid Cap Growth
Class A 1,489,202,349 117,818,422 12.64
Class B 407,744,077 34,919,110 11.68
Class C 14,571,251 1,248,024 11.68
Class I 12,461,840 973,107 12.81
Class Y 233,309,493 18,259,470 12.78
- -----------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 63
- -----------------------------------------------------------------------------------------------------------------------
Fund Net assets Shares outstanding Net asset value of one share
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Tax-Exempt Bond
Class A 674,338,988 173,415,848 3.89
Class B 36,040,487 9,267,790 3.89
Class C 4,656,372 1,197,023 3.89
Class Y 1,894 487 3.89
- ----------------------------------------- --------------------- ----------------------- -------------------------------
Tax-Exempt High Income
Class A 3,913,819,641 886,250,598 4.42
Class B 249,987,882 56,626,191 4.41
Class C 27,765,310 6,285,479 4.42
Class Y 1,992 451 4.42
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- ---------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market N/A N/A 1.00
- ---------------------------------------------------------------------------------------------------------------------
For Funds other than Money Market Funds. In determining net assets before
shareholder transactions, a fund's securities are valued as follows as of the
close of business of the New York Stock Exchange (the Exchange):
o Securities traded on a securities exchange for which a last-quoted sales
price is readily available are valued at the last-quoted sales price on the
exchange where such security is primarily traded.
o Securities traded on a securities exchange for which a last-quoted sales
price is not readily available are valued at the mean of the closing bid
and asked prices, looking first to the bid and asked prices on the exchange
where the security is primarily traded and, if none exist, to the
over-the-counter market.
o Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market. o Securities included in the NASDAQ
National Market System for which a last-quoted sales price is not readily
available, and other securities traded over-the-counter but not included in
the NASDAQ National Market System are valued at the mean of the closing bid
and asked prices.
o Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange. o Foreign securities traded outside
the United States are generally valued as of the time their trading is
complete, which is usually different from the close of the Exchange.
Foreign securities quoted in foreign currencies are translated into U.S.
dollars at the current rate of exchange. o Occasionally, events affecting
the value of securities occur between the time the primary market on which
the securities are traded closes and the close of the Exchange. If events
materially affect the value of securities, the securities will be valued at
their fair value according to procedures decided upon in good faith by the
Board. This occurs most commonly with foreign securities, but may occur in
other cases. The fair value of a security is likely to be different from
the quoted or published price.
o Short-term securities maturing more than 60 days from the valuation date
are valued at the readily available market price or approximate market
value based on current interest rates. Short-term securities maturing in 60
days or less that originally had maturities of more than 60 days at
acquisition date are valued at amortized cost using the market value on the
61st day before maturity. Short-term securities maturing in 60 days or less
at acquisition date are valued at amortized cost. Amortized cost is an
approximation of market value determined by systematically increasing the
carrying value of a security if acquired at a discount, or reducing the
carrying value if acquired at a premium, so that the carrying value is
equal to maturity value on the maturity date.
o Securities without a readily available market price and other assets are
valued at fair value as determined in good faith by the Board. The Board is
responsible for selecting methods it believes provide fair value. When
possible, bonds are valued by a pricing service independent from the funds.
If a valuation of a bond is not available from a pricing service, the bond
will be valued by a dealer knowledgeable about the bond if such a dealer is
available.
The assets of Funds-of-Funds consist primarily of shares of the underlying
funds, which are valued at their NAVs. Other securities held by a Fund-of-Funds
are valued as described above.
Statement of Additional Information - Oct. 3, 2005 Page 64
For Money Market Funds. In accordance with Rule 2a-7 of the 1940 Act, all of the
securities in the fund's portfolio are valued at amortized cost. The amortized
cost method of valuation is an approximation of market value determined by
systematically increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium, so that the
carrying value is equal to maturity value on the maturity date. Amortized cost
does not take into consideration unrealized capital gains or losses.
The Board has established procedures designed to stabilize the fund's price per
share for purposes of sales and redemptions at $1, to the extent that it is
reasonably possible to do so. These procedures include review of the fund's
securities by the Board, at intervals deemed appropriate by it, to determine
whether the fund's net asset value per share computed by using available market
quotations deviates from a share value of $1 as computed using the amortized
cost method. The Board must consider any deviation that appears and, if it
exceeds 0.5%, it must determine what action, if any, needs to be taken. If the
Board determines a deviation exists that may result in a material dilution of
the holdings of current shareholders or investors, or in another unfair
consequences for shareholders, it must undertake remedial action that it deems
necessary and appropriate. Such action may include withholding dividends,
calculating net asset value per share for purposes of sales and redemptions
using available market quotations, making redemptions in kind, and selling
securities before maturity in order to realize capital gains or losses or to
shorten average portfolio maturity.
While the amortized cost method provides certainty and consistency in portfolio
valuation, it may result in valuations of securities that are either somewhat
higher or lower than the prices at which the securities could be sold. This
means that during times of declining interest rates the yield on the fund's
shares may be higher than if valuations of securities were made based on actual
market prices and estimates of market prices. Accordingly, if using the
amortized cost method were to result in a lower portfolio value, a prospective
investor in the fund would be able to obtain a somewhat higher yield than the
investor would get if portfolio valuations were based on actual market values.
Existing shareholders, on the other hand, would receive a somewhat lower yield
than they would otherwise receive. The opposite would happen during a period of
rising interest rates.
Portfolio Holdings Disclosure
The funds' Board and the investment manager believe that the investment ideas of
the investment manager with respect to management of a fund should benefit the
fund and its shareholders, and do not want to afford speculators an opportunity
to profit by anticipating fund trading strategies or by using fund portfolio
holdings information for stock picking. However, each fund's Board also believes
that knowledge of the fund's portfolio holdings can assist shareholders in
monitoring their investments, making asset allocation decisions, and evaluating
portfolio management techniques.
Each fund's Board has therefore adopted the investment manager's policies and
approved the investment manager's procedures, including the investment manager's
oversight of subadviser practices relating to disclosure of the fund's portfolio
securities. These policies and procedures are intended to protect the
confidentiality of fund portfolio holdings information and generally prohibit
the release of such information until such information is made public, unless
such persons have been authorized to receive such information on a selective
basis, as described below. It is the policy of the fund not to provide or permit
others to provide holdings information on a selective basis, and the investment
manager does not intend to selectively disclose holdings information or expect
that such holdings information will be selectively disclosed, except where
necessary for the fund's operation or where there are legitimate business
purposes for doing so and, in any case, where conditions are met that are
designed to protect the interests of the fund and its shareholders. Although the
investment manager seeks to limit the selective disclosure of portfolio holdings
information and such selective disclosure is monitored under the fund's
compliance program for conformity with the policies and procedures, there can be
no assurance that these policies will protect the fund from the potential misuse
of holdings information by individuals or firms in
Statement of Additional Information - Oct. 3, 2005 Page 65
possession of that information. Under no circumstances may the investment
manager, its affiliates or any employee thereof receive any consideration or
compensation for disclosing such holdings information.
A complete schedule of each fund's portfolio holdings is available semi-annually
and annually in shareholder reports filed on Form N-CSR and, after the first and
third fiscal quarters, in regulatory filings on Form N-Q. These shareholder
reports and regulatory filings are filed with the SEC in accordance with federal
securities laws and are generally available within sixty (60) days of the end of
a fund's fiscal quarter, on the SEC's website. Once holdings information is
filed with the SEC, it will also be posted on the website (www.riversource.com),
and it may be mailed, e-mailed or otherwise transmitted to any person.
In addition, the investment manager makes publicly available, on a monthly
basis, information regarding a fund's top ten holdings (including name and
percentage of a fund's assets invested in each such holding) and the percentage
breakdown of a fund's investments by country, sector and industry, as
applicable. This holdings information is generally made available through the
website, marketing communications (including printed advertisements and sales
literature), and/or telephone customer service centers that support the fund.
This holdings information is generally not released until it is at least 30 days
old.
From time to time, the investment manager may make partial or complete fund
holdings information that is not publicly available on the website or otherwise
available in advance of the time restrictions noted above (1) to its affiliated
and unaffiliated service providers that require the information in the normal
course of business in order to provide services to the fund (including, without
limitation entities identified by name in the fund's prospectus or this SAI,
such as custodians, auditors, subadvisers, financial printers (Cenveo, Inc.,
Vestek), pricing services (including Reuters Pricing Service, FT Interactive
Data Corporation, Bear Stearns Pricing Service, and Kenny S&P), proxy voting
services (Investor Responsibility Research Center, Inc.), and companies that
deliver or support systems that provide analytical or statistical information
(including, for example, Factset Research Systems, Bloomberg, L.P.), (2) to
facilitate the review and/or rating of the fund by ratings and rankings agencies
(including, for example, Morningstar, Inc., Thomson Financial and Lipper Inc.),
and (3) other entities that provide trading, research or other investment
related services. In such situations, the information is released subject to
confidentiality agreements, duties imposed under applicable policies and
procedures (e.g., applicable codes of ethics) designed to prevent the misuse of
confidential information, general duties under applicable laws and regulations,
or other such duties of confidentiality. In addition, the fund discloses
holdings information as required by federal or state securities laws, and may
disclose holdings information in response to requests by governmental
authorities.
Each fund's Board has adopted the policies of the investment manager and
approved the procedures Ameriprise Financial has established to ensure that the
fund's holdings information is only disclosed in accordance with these policies.
Before any selective disclosure of holdings information is permitted, the person
seeking to disclose such holdings information must submit a written request to
the Portfolio Holdings Committee ("PHC"). The PHC is comprised of members from
the investment manager's General Counsel's Office, Compliance, and
Communications. The PHC has been authorized by the funds' Board to perform an
initial review of requests for disclosure of holdings information to evaluate
whether there is a legitimate business purpose for selective disclosure, whether
selective disclosure is in the best interests of a fund and its shareholders, to
consider any potential conflicts of interest between the fund, the investment
manager, and its affiliates, and to safeguard against improper use of holdings
information. Factors considered in this analysis are whether the recipient has
agreed to or has a duty to keep the holdings information confidential and
whether risks have been mitigated such that the recipient has agreed or has a
duty to use the holdings information only as necessary to effectuate the purpose
for which selective disclosure was authorized, including a duty not to trade on
such information. Before portfolio holdings may be selectively disclosed,
requests approved by the PHC must also be authorized by a fund's Chief
Compliance Officer or the fund's General Counsel. On at least an annual basis
the PHC reviews the approved recipients of selective disclosure and, where
appropriate, requires a resubmission of the request, in order to re-authorize
any ongoing arrangements. These procedures are intended to be reasonably
designed to protect the confidentiality of fund holdings information and to
prohibit their release to
Statement of Additional Information - Oct. 3, 2005 Page 66
individual investors, institutional investors, intermediaries that
distribute the funds' shares, and other parties, until such holdings information
is made public or unless such persons have been authorized to receive such
holdings information on a selective basis, as set forth above.
Although the investment manager has set up these procedures to monitor and
control selective disclosure of holdings information, there can be no assurance
that these procedures will protect a fund from the potential misuse of holdings
information by individuals or firms in possession of that information.
Proxy Voting
GENERAL GUIDELINES
The funds uphold a long tradition of sound and principled corporate governance.
For approximately 30 years, the Board, which consists of a majority of
independent directors, has voted proxies. The funds' administrator, Ameriprise
Financial, provides support to the Board in connection with the proxy voting
process. General guidelines are:
o Corporate governance matters -- The Board supports proxy proposals that
require changes or encourage decisions that have been shown to add
shareholder value over time and votes against proxy proposals that entrench
management.
o Changes in capital structure -- The Board votes for amendments to corporate
documents that strengthen the financial condition of a business.
o Stock option plans and other management compensation issues-- The Board
expects thoughtful consideration to be given by a company's management to
developing a balanced compensation structure providing competitive current
income with long-term employee incentives directly tied to the interest of
shareholders and votes against proxy proposals that dilute shareholder
value excessively.
o Social and corporate policy issues-- The Board believes that proxy
proposals should address the business interests of the corporation. Such
proposals typically request that the company disclose or amend certain
business practices but lack a compelling economic impact on shareholder
value. In general, these matters are primarily the responsibility of
management and should be reviewed by the corporation's board of directors,
unless they have a substantial impact on the value of a fund's investment.
Each proposal is viewed in light of the circumstances of the company submitting
the proposal.
POLICY AND PROCEDURES
The policy of the Board is to vote all proxies of the companies in which a fund
holds investments. The Board has implemented policies and procedures reasonably
designed to ensure that there are no conflicts between interests of a fund's
shareholders and those of the funds' investment manager, RiverSource
Investments, or other affiliated entities.
The recommendation of the management of a company as set out in the company's
proxy statement is considered. In each instance in which a fund votes against
the recommendation, the Board sends a letter to senior management of the company
explaining the basis for its vote. This has permitted both the company's
management and the fund's Board to gain better insight into issues presented by
proxy proposals. In the case of foreign corporations, proxies of companies
located in some countries may not be voted due to requirements of locking up the
voting shares and when time constraints prohibit the processing of proxies.
From time to time a proxy proposal is presented that has not been previously
considered by the Board or that the investment manager recommends be voted
different from the votes cast for similar proposals. In making recommendations
to the Board about voting on a proposal, the investment manager relies on its
own investment personnel (or the investment personnel of a fund's subadviser(s))
and information obtained from outside resources, including Glass Lewis & Co.,
the investment manager makes the recommendation in writing. The process
established by the Board to vote proxies requires that either
Statement of Additional Information - Oct. 3, 2005 Page 67
Board members or officers who are independent from the investment manager
consider the recommendation and decide how to vote the proxy proposal.
Funds-of-funds only own shares of other RiverSource funds and vote proxies of
those funds whenever shareholder meetings are held. Funds-of-funds will vote
for, against or abstain on each proposal that the underlying RiverSource fund
sets forth in its proxy soliciting material in the same percentage as the public
shareholders of the underlying RiverSource fund vote the proposal.
Funds-of-funds do not invest in publicly-held operating companies.
PROXY VOTING RECORD
Information regarding how a fund voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 can be obtained without
charge:
o Through the investment manager's website, www.riversource.com/investments,
o On a website maintained by the SEC, www.sec.gov, or
o By calling the fund's administrator, Board Services Corporation, collect
at (612) 330-9283.
Investing in a Fund
SALES CHARGE
Investors should understand that the purpose and function of the initial sales
charge and distribution fee for Class A shares is the same as the purpose and
function of the contingent deferred sales charge (CDSC) and distribution fee for
Class B and Class C shares. The sales charges and distribution fees applicable
to each class pay for the distribution of shares of a fund.
Shares of a fund are sold at the public offering price. The public offering
price is the NAV of one share adjusted for the sales charge for Class A. For
Class B, Class C, Class D, Class E, Class I and Class Y there is no initial
sales charge so the public offering price is the same as the NAV.
Class A -- Calculation of the Sales Charge
Sales charges are determined as shown in the following table. The table is
organized by investment category. You can find your fund's investment category
in Table 1.
Table 10. Class A Sales Charge
- ---------------------------- --------------------------------------- ---------------------------------------------
Fund category Balanced, Equity, Fund of funds - Fund of funds - bond, State tax-exempt
equity bond, Taxable bond, Tax-exempt bond
- ---------------------------- --------------------------------------- ---------------------------------------------
Sales charge* as a percentage of:
- ---------------------------- -------------------------------------------------------------------------------------
Total market value Public offering Net amount Public offering Net amount invested
price** invested price**
- ---------------------------- ------------------- ------------------- ---------------------- ----------------------
Up to $49,000 5.75% 6.10% 4.75% 4.99%
- ---------------------------- ------------------- ------------------- ---------------------- ----------------------
$50,000-$99,999 4.75% 4.99% 4.25% 4.44%
- ---------------------------- ------------------- ------------------- ---------------------- ----------------------
$100,000-$249,999 3.50% 3.63% 3.50% 3.63%
- ---------------------------- ------------------- ------------------- ---------------------- ----------------------
$250,000-$499,999 2.50% 2.56% 2.50% 2.56%
- ---------------------------- ------------------- ------------------- ---------------------- ----------------------
$500,000-$999,999 2.00% 2.04% 2.00% 2.04%
- ---------------------------- ------------------- ------------------- ---------------------- ----------------------
$1,000,000 or more*** 0.00% 0.00% 0.00% 0.00%
- ---------------------------- ------------------- ------------------- ---------------------- ----------------------
* Because of rounding in the calculation of offering price, the portion
of the sales charge retained by the distributor may vary and the actual
sales charge you pay may be more or less than the sales charge
calculated using these percentages.
** Offering price includes the sales charge.
*** Although there is no sales charge for purchases with a total market
value over $1,000,000, and therefore no re-allowance, the distributor
may pay a fee to a financial intermediary making such a sale.
Money market funds do not have a sales charge for Class A shares.
Using the sales charge schedule in the table above, for Class A, the public
offering price for an investment of less than $50,000, made on the last day of
the most recent fiscal period, was determined as shown in the following table.
The sales charge is paid to the distributor by the person buying the shares. The
table is organized by fiscal year end. You can find your fund's fiscal year end
in Table 1.
Statement of Additional Information - Oct. 3, 2005 Page 68
Table 11. Public Offering Price
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Fund Net asset value 1.0 minus maximum Public offering price
sales charge
- -----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Portfolio Builder Aggressive $10.53 0.9425 $11.17
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Portfolio Builder Conservative 10.23 0.9525 10.74
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Portfolio Builder Moderate 10.47 0.9425 11.11
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Portfolio Builder Moderate Aggressive 10.50 0.9425 11.14
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Portfolio Builder Moderate Conservative 10.35 0.9525 10.87
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Portfolio Builder Total Equity 10.55 0.9425 11.19
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Small Company Index 8.21 0.9425 8.71
- ------------------------------------------ ---------------------- ----------------------- -----------------------
S&P 500 Index (for Class D) 4.55 No sales charge 4.55
- -----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Equity Value 10.12 0.9425 10.74
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Precious Metals 8.98 0.9425 9.53
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Small Cap Advantage 7.07 0.9425 7.50
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Small Cap Growth 4.19 0.9425 4.45
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Strategy Aggressive 11.43 0.9425 12.13
- -----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Aggressive Growth 7.29 0.9425 7.73
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Fundamental Growth 5.79 0.9425 6.14
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Fundamental Value 5.45 0.9425 5.78
- ------------------------------------------ ---------------------- ----------------------- -----------------------
High Yield Bond 2.86 0.9525 3.00
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Select Value 6.65 0.9425 7.06
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Selective 8.69 0.9525 9.12
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Short Duration U.S. Government 4.79 0.9525 5.03
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Small Cap Equity 5.81 0.9425 6.16
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Small Cap Value 6.62 0.9425 7.02
- ------------------------------------------ ---------------------- ----------------------- -----------------------
U.S. Government Mortgage 5.12 0.9525 5.38
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Value 5.36 0.9425 5.69
- -----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ---------------------- ----------------------- -----------------------
California Tax-Exempt 5.27 0.9525 5.53
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Dividend Opportunity 7.30 0.9425 7.75
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Insured Tax-Exempt 5.50 0.9525 5.77
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Massachusetts Tax-Exempt 5.45 0.9525 5.72
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Michigan Tax-Exempt 5.35 0.9525 5.62
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Minnesota Tax-Exempt 5.35 0.9525 5.62
- ------------------------------------------ ---------------------- ----------------------- -----------------------
New York Tax-Exempt 5.18 0.9525 5.44
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Ohio Tax-Exempt 5.35 0.9525 5.62
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Real Estate 13.44 0.9425 14.26
- -----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Cash Management 1.00 No sales charge 1.00
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Core Bond 9.72 0.9525 10.20
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Disciplined Equity 6.70 0.9425 7.11
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Discovery 9.33 0.9425 9.90
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Growth 28.34 0.9425 30.07
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Income Opportunities 10.53 0.9525 11.06
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Inflation Protected Securities 10.02 0.9525 10.52
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Large Cap Equity 5.26 0.9425 5.58
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Large Cap Value 5.83 0.9425 6.19
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Limited Duration Bond 9.79 0.9525 10.28
- ------------------------------------------ ---------------------- ----------------------- -----------------------
New Dimensions 23.99 0.9425 25.45
- -----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Diversified Bond 4.87 0.9525 5.11
- -----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Balanced 9.25 0.9425 9.81
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Diversified Equity Income 9.88 0.9425 10.48
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Mid Cap Value 6.81 0.9425 7.23
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Stock 18.02 0.9425 19.12
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Strategic Allocation 8.73 0.9425 9.26
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Statement of Additional Information - Oct. 3, 2005 Page 69
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Fund Net asset value 1.0 minus maximum Public offering price
sales charge
- -----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Emerging Markets 6.27 0.9425 6.65
- ------------------------------------------ ---------------------- ----------------------- -----------------------
European Equity 3.71 0.9425 3.94
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Global Balanced 5.25 0.9425 5.57
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Global Bond 7.02 0.9525 7.37
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Global Equity 5.16 0.9425 5.47
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Global Technology 1.83 0.9425 1.94
- ------------------------------------------ ---------------------- ----------------------- -----------------------
International Aggressive Growth 6.85 0.9425 7.27
- ------------------------------------------ ---------------------- ----------------------- -----------------------
International Equity 7.03 0.9425 7.46
- ------------------------------------------ ---------------------- ----------------------- -----------------------
International Opportunity 6.58 0.9425 6.98
- ------------------------------------------ ---------------------- ----------------------- -----------------------
International Select Value 7.68 0.9425 8.15
- ------------------------------------------ ---------------------- ----------------------- -----------------------
International Small Cap 7.90 0.9425 8.38
- -----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Intermediate Tax-Exempt Bond 5.39 0.9525 5.66
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Mid Cap Growth 12.64 0.9425 13.41
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Tax-Exempt Bond 3.89 0.9525 4.08
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Tax-Exempt High Income 4.42 0.9525 4.64
- -----------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- -----------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ---------------------- ----------------------- -----------------------
Tax-Exempt Money Market 1.00 No sales charge 1.00
- ------------------------------------------ ---------------------- ----------------------- -----------------------
The initial sales charge is waived for certain qualified plans. Participants in
these qualified plans may be subject to a deferred sales charge on certain
redemptions. The deferred sales charge varies depending on the number of
participants in the qualified plan and total plan assets as follows:
Deferred Sales Charge
----------------------------- -------------------------------
Number of participants
----------------------------- ------------- -----------------
Total plan assets 1-99 100 or more
----------------------------- ------------- -----------------
Less than $1 million 4% 0%
----------------------------- ------------- -----------------
$1 million or more 0% 0%
----------------------------- ------------- -----------------
Class A -- Reducing the Sales Charge
For purposes of reducing the sales charge:
o If multiple trustees are listed on a revocable trust account, the account will
be included only in the household group of the grantor-trustee (the person who
put the money into the trust).
o If the parents or guardians of a minor child who is the beneficiary of one or
more Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act
(UTMA) accounts are not members of the same primary household group, the
distributor will use its discretion in assigning such accounts to one of the
primary household groups. Under most circumstances the distributor will
consider the child's primary domicile to be the appropriate household group in
which to include the UGMA/UTMA account(s). Your primary household group
consists of you, your spouse or domestic partner, and your unmarried children
under age 21 sharing a mailing address. For purposes of this policy a domestic
partner is an individual who shares your primary residence and with whom you
own joint property. If you or any member of your primary household group
elects to separate from the primary household group (for example, by asking
that account statements be sent to separate addresses), your assets will no
longer be combined for purposes of reducing your sales charge.
Class A-- Letter of Intent (LOI)
If you intend to invest $50,000 or more over a period of time, you may be able
to reduce the sales charge for investments in Class A by completing a LOI form
and committing to invest a certain amount. The LOI must be filed with and
accepted in good order by the distributor. The LOI can start at any time and you
will have up to 13 months to fulfill your commitment. The LOI start date can be
backdated by up to 90 days, but backdating the LOI will shorten the going
forward window by the length of the backdating. Your holdings in RiverSource
funds acquired more than 90 days before receipt of your signed LOI in the
distributor's corporate office will not be counted towards the LOI commitment
amount and cannot be used as the starting point for the LOI.
Statement of Additional Information - Oct. 3, 2005 Page 70
While these purchases cannot be included within an LOI, you may still be able to
take advantage of a reduced sales charge on future purchases because the
historic purchases may count toward the combined market value for Rights of
Accumulation. For example, if you made an investment more than 90 days ago, and
that investment's current market value is $75,000, the sales charge you would
pay on additional investment is 4.5% until the market value of your accounts is
$100,000, at which point your sales charge will be reduced to 3.5%. If you plan
to invest another $50,000 over the next 13 month period, you may not rely on a
letter of intent to take immediate advantage of the lower 3.5% sales charge, but
instead would naturally realize the lower sales charge of 3.5% (under Rights of
Accumulation) after you invested $25,000. To take immediate advantage of the
3.5% sales charge level, you would need to sign a $100,000 LOI and then invest
another $100,000. Your investments will be charged the sales charge that applies
to the amount you have committed to invest under the LOI. Five percent of the
commitment amount will be placed in escrow. The LOI will remain in effect for
the entire 13 months, even if you reach your commitment amount. At the end of
the 13-month period, the LOI will end and the shares will be released from
escrow. Once the LOI has ended, future sales charges will be determined by
Rights of Accumulation or the total value of the new investment combined with
the market value of the existing RiverSource fund investments as described in
the prospectus. If you do not invest the commitment amount by the end of the 13
months, the remaining unpaid sales charge will be redeemed from the escrowed
shares and the remaining balance released from escrow. The commitment amount
does not include purchases in any class of RiverSource funds other than Class A;
does not include reinvested dividends and directed dividends earned in any
RiverSource funds; purchases in RiverSource funds held within a wrap product;
and purchases of RiverSource Cash Management Fund and RiverSource Tax-Exempt
Money Market Fund unless they are subsequently exchanged to Class A shares of an
RiverSource fund within the 13 month period. A LOI is not an option (absolute
right) to buy shares. If you purchase shares through different channels, for
example, in a brokerage account or through a third party, you must inform the
distributor in writing about the LOI when placing any purchase orders during the
period of the LOI. If you do not complete and file the LOI form, or do not
request the reduced sales charge at the time of purchase, you will not be
eligible for the reduced sales charge.
Class B Shares
Class B shares have a CDSC for six years. For Class B shares purchased prior to
May 21, 2005, those shares will convert to Class A shares in the ninth calendar
year of ownership. For Class B shares purchased beginning May 21, 2005, those
shares will convert to Class A shares one month after the eighth year of
ownership.
Class Y Shares
Class Y shares are offered to certain institutional investors. Class Y shares
are sold without a front-end sales charge or a CDSC and are not subject to a
distribution fee, but have a separate shareholder service fee. The following
investors are eligible to purchase Class Y shares:
o Qualified employee benefit plans* if the plan:
o uses a daily transfer recordkeeping service offering participants
daily access to RiverSource funds and has
o at least $10 million in plan assets or
o 500 or more participants; or
o does not use daily transfer recordkeeping and has
o at least $3 million invested in RiverSource funds or
o 500 or more participants.
A plan that qualifies for investment in Class E or Y may continue to
invest in Class E or Y even if it subsequently falls below the required
level of assets or participants.
o Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code.*
These institutions must have at least $10 million in RiverSource funds.
o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit plan described above.
o State sponsored college savings plans established under Section 529 of the
Internal Revenue Code.
* Eligibility must be determined in advance. To do so, contact your financial
advisor.
Statement of Additional Information - Oct. 3, 2005 Page 71
Money Market Funds
The minimum purchase amount for directors, officers and employees of the fund or
the investment manager and Ameriprise Financial Services financial advisors is
$1,000 (except payroll deduction plans), with a minimum additional purchase
amount of $100 on a monthly systematic purchase plan. The minimum amount for
additional purchases in a direct-at-fund account is $25 monthly.
SYSTEMATIC INVESTMENT PROGRAMS
You decide how often to make payments -- monthly, quarterly, or semiannually.
Provided your account meets the minimum balance requirement, you are not
obligated to make any payments. You can omit payments or discontinue the
investment program altogether. A fund also can change the program or end it at
any time.
AUTOMATIC DIRECTED DIVIDENDS
Dividends, including capital gain distributions, paid by another RiverSource
fund may be used to automatically purchase shares in the same class of another
fund. Dividends may be directed to existing accounts only. Dividends declared by
a fund are exchanged to another fund the following day. Dividends can be
exchanged into the same class of another RiverSource fund but cannot be split to
make purchases in two or more funds. Automatic directed dividends are available
between accounts of any ownership except:
o Between a non-custodial account and an IRA, or 401(k) plan account or other
qualified retirement account of which Ameriprise Trust Company acts as
custodian;
o Between two Ameriprise Trust Company custodial accounts with different
owners (for example, you may not exchange dividends from your IRA to the IRA
of your spouse); and
o Between different kinds of custodial accounts with the same ownership (for
example, you may not exchange dividends from your IRA to your 401(k) plan
account, although you may exchange dividends from one IRA to another IRA).
Dividends may be directed from accounts established under UGMA or UTMA only into
other UGMA or UTMA accounts with identical ownership.
Each fund's investment goal is described in its prospectus along with other
information, including fees and expense ratios. Before exchanging dividends into
another fund, you should read that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REJECTION OF BUSINESS
Each fund and RiverSource Service Corporation reserves the right to reject any
business, in its sole discretion.
Selling Shares
You have a right to sell your shares at any time. For an explanation of sales
procedures, please see the applicable prospectus.
During an emergency, the Board can suspend the computation of NAV, stop
accepting payments for purchase of shares, or suspend the duty of a fund to
redeem shares for more than seven days. Such emergency situations would occur
if:
o The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
o Disposal of a fund's securities is not reasonably practicable or it is not
reasonably practicable for the fund to determine the fair value of its net
assets, or
o The SEC, under the provisions of the 1940 Act, declares a period of emergency
to exist.
Should a fund stop selling shares, the Board may make a deduction from the value
of the assets held by the fund to cover the cost of future liquidations of the
assets so as to distribute these costs fairly among all shareholders.
Statement of Additional Information - Oct. 3, 2005 Page 72
Each fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the fund as determined by the Board. In these
circumstances, the securities distributed would be valued as set forth in this
SAI. Should a fund distribute securities, a shareholder may incur brokerage fees
or other transaction costs in converting the securities to cash.
Pay-out Plans
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem shares, you may be subject to a contingent deferred
sales charge as discussed in the prospectus. While the plans differ on how the
pay-out is figured, they all are based on the redemption of your investment. Net
investment income dividends and any capital gain distributions will
automatically be reinvested, unless you elect to receive them in cash. If you
are redeeming a tax-qualified plan account for which Ameriprise Trust Company
acts as custodian, you can elect to receive your dividends and other
distributions in cash when permitted by law. If you redeem an IRA or a qualified
retirement account, certain restrictions, federal tax penalties, and special
federal income tax reporting requirements may apply. You should consult your tax
advisor about this complex area of the tax law.
Applications for a systematic investment in a class of a fund subject to a sales
charge normally will not be accepted while a pay-out plan for any of those funds
is in effect. Occasional investments, however, may be accepted.
To start any of these plans, please consult your financial advisor or investment
professional, or write RiverSource Service Corporation, 70100 Ameriprise
Financial Center, Minneapolis, MN 55474, or call (800) 437-3133. Your
authorization must be received at least five days before the date you want your
payments to begin. Payments will be made on a monthly, bimonthly, quarterly,
semiannual, or annual basis. Your choice is effective until you change or cancel
it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way that can be handled efficiently and at a reasonable cost.
If you need a more irregular schedule of payments, it may be necessary for you
to make a series of individual redemptions, in which case you will have to send
in a separate redemption request for each pay-out. Each fund reserves the right
to change or stop any pay-out plan and to stop making such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in your account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Statement of Additional Information - Oct. 3, 2005 Page 73
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset value of the
shares in the account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $100 if the value of your account is $20,000 on
the payment date.
Capital Loss Carryover
For federal income tax purposes, certain funds had total capital loss carryovers
at the end of the most recent fiscal period that, if not offset by subsequent
capital gains, will expire as follows. The table is organized by fiscal year
end. You can find your fund's fiscal year end in Table 1.
Table 12. Capital Loss Carryover
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Total Amount Amount Amount Amount Amount Amount Amount Amount
Fund capital expiring expiring expiring in expiring expiring in expiring expiring expiring
loss in 2007 in 2008 2009 in 2010 2011 in 2012 in 2013 in 2014
carryovers
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Portfolio 0
Builder
Aggressive
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Portfolio 0
Builder
Conservative
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Portfolio 0
Builder Moderate
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Portfolio 0
Builder
Moderate
Aggressive
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Portfolio 0
Builder
Moderate
Conservative
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Portfolio 0
Builder Total
Equity
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Small Company 0
Index
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
S&P 500 Index 49,784,007 0 0 2,387,603 5,744,216 9,288,103 16,618,673 15,745,412 0
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Equity Value 225,502,046 0 0 0 0 183,326,800 42,175,246 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Precious Metals 12,026,077 0 0 6,859,490 0 0 0 1,731,355 3,435,232
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Small Cap 0
Advantage
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Small Cap Growth 18,477,538 0 0 0 0 18,477,538 0 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Strategy 1,414,474,084 0 0 207,116,650 841,156,325 315,348,051 23,741,111 27,111,947 0
Aggressive
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Aggressive 593,899 0 0 0 0 0 0 593,899 0
Growth
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Fundamental 645,527 0 0 0 0 0 0 320,705 324,822
Growth
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Fundamental 10,783,099 0 0 0 180,117 5,185,330 2,015,696 1,996,447 1,405,509
Value
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
High Yield Bond 1,376,361,404 0 80,574,095 226,001,198 517,121,802 552,664,309 0 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Select Value 35,108,088 0 0 0 15,995,507 16,604,151 2,508,430 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Selective 29,747,019 0 0 0 0 24,224,582 0 5,017,493 504,944
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Short Duration 205,645,039 0 35,174,077 117,356,906 0 0 0 36,267,962 16,846,094
U.S. Government
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Small Cap Equity 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Small Cap Value 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
U.S. Government 0
Mortgage
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Value 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Statement of Additional Information - Oct. 3, 2005 Page 74
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Total Amount Amount Amount Amount Amount Amount Amount Amount
Fund capital expiring expiring expiring in expiring expiring in expiring expiring expiring
loss in 2007 in 2008 2009 in 2010 2011 in 2012 in 2013 in 2014
carryovers
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
California
Tax-Exempt
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Dividend 501,472,613 0 0 0 0 501,472,613 0 0 0
Opportunity
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Insured 0
Tax-Exempt
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Massachusetts 0
Tax-Exempt
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Michigan 0
Tax-Exempt
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Minnesota 0
Tax-Exempt
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
New York 0
Tax-Exempt
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Ohio 87,465 0 0 0 0 0 0 87,465 0
Tax-Exempt
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Real Estate 0
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Cash Management 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Core Bond 138,430 0 0 0 0 0 0 0 138,430
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Disciplined 0
Equity
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Discovery 68,875,260 0 0 0 26,744,961 42,130,299 0 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Growth 913,031,953 0 0 0 544,257,626 368,774,327 0 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Income 0
Opportunities
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Inflation 52,096 0 0 0 0 0 0 0 52,096
Protected
Securities
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Large Cap Equity 953,822,923 0 506,643,917 416,711,846 20,988,174 9,478,986 0 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Large Cap Value 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Limited 34,483 0 0 0 0 0 0 0 34,483
Duration Bond
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
New Dimensions 61,551,685 0 5,869,455 42,999,536 8,294,019 4,388,675 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Diversified Bond 134,156,528 0 0 100,641,177 26,118,914 0 0 7,396,437 0
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Balanced 903,118,305 0 0 15,302,375 494,252,075 368,676,980 24,886,875 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Diversified 77,193,402 0 0 0 0 77,193,402 0 0 0
Equity Income
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Mid Cap Value 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Stock 256,397,902 0 0 0 0 256,397,902 0 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Strategic 235,368,884 0 0 212,572 132,591,360 102,564,952 0 0 0
Allocation
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Emerging Markets 75,392,313 0 0 75,392,313 0 0 0 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
European Equity 103,905,954 0 0 82,370,221 16,514,518 5,021,215 0 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Global Balanced 43,431,051 0 0 30,518,697 10,684,989 2,227,365 0 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Global Bond 11,113,313 0 0 0 11,113,313 0 0 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Global Equity 631,430,152 0 0 457,285,316 143,634,885 30,509,951 0 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Global 407,294,569 0 0 325,995,342 81,299,277 0 0 0 0
Technology
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
International 0
Aggressive
Growth
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Statement of Additional Information - Oct. 3, 2005 Page 75
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Total Amount Amount Amount Amount Amount Amount Amount Amount
Fund capital expiring expiring expiring in expiring expiring in expiring expiring expiring
loss in 2007 in 2008 2009 in 2010 2011 in 2012 in 2013 in 2014
carryovers
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
International 0
Equity
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
International 476,235,045 0 0 378,740,075 59,231,998 38,262,972 0 0 0
Opportunity
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
International 0
Select Value
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
International 0
Small Cap
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Intermediate 0
Tax-Exempt Bond
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Mid Cap Growth 221,285,665 0 0 111,582,809 92,560,758 0 17,142,098 0 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Tax-Exempt Bond 0
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Tax-Exempt High 3,778,031 3,757,482 20,549 0 0 0 0 0 0
Income
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
Tax-Exempt 18,498 0 167 0 18,331 0 0 0 0
Money Market
- ----------------- ------------ --------- ----------- ------------- ------------ ------------- ------------ ------------ ------------
It is unlikely that the Board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired except as required by Internal Revenue Service rules.
Taxes
For tax purposes, an exchange is considered a sale and purchase, and may result
in a gain or loss. A sale is a taxable transaction. If you sell shares for less
than their cost, the difference is a capital loss. If you sell shares for more
than their cost, the difference is a capital gain. Your gain may be short term
(for shares held for one year or less) or long term (for shares held more than
one year).
If you buy Class A shares and within 91 days exchange into another fund, you may
not include the sales charge in your calculation of tax gain or loss on the sale
of the first fund you purchased. The sales charge may be included in the
calculation of your tax gain or loss on a subsequent sale of the second fund you
purchased.
For example
You purchase 100 shares of an Equity Fund having a public offering price of
$10.00 per share. With a sales load of 5.75%, you pay $57.50 in sales load. With
a NAV of $9.425 per share, the value of your investment is $942.50. Within 91
days of purchasing that fund, you decide to exchange out of that fund, now at a
NAV of $11.00 per share, up from the original NAV of $9.425, and purchase a
second fund, at a NAV of $15.00 per share. The value of your investment is now
$1,100.00 ($11.00 x 100 shares). You cannot use the $57.50 paid as a sales load
when calculating your tax gain or loss in the sale of the first fund shares. So
instead of having a $100.00 gain ($1,100.00 - $1,000.00), you have a $157.50
gain ($1,100.00 - $942.50). You can include the $57.50 sales load in the
calculation of your tax gain or loss when you sell shares in the second fund.
The following paragraphs provide information based on a fund's investment
category. You can find your fund's investment category in Table 1.
For State Tax-Exempt Bond and Tax-Exempt Bond Funds, all distributions of net
investment income during the year will have the same percentage designated as
tax-exempt. This annual percentage is expected to be substantially the same as
the percentage of tax-exempt income actually earned during any particular
distribution period.
Statement of Additional Information - Oct. 3, 2005 Page 76
For Balanced, Equity, Funds-of-Funds, Taxable Money Market and Taxable Bond
Funds, if you have a nonqualified investment in a fund and you wish to move part
or all of those shares to an IRA or qualified retirement account in the fund,
you can do so without paying a sales charge. However, this type of exchange is
considered a redemption of shares and may result in a gain or loss for tax
purposes. In addition, this type of exchange may result in an excess
contribution under IRA or qualified plan regulations if the amount exchanged
exceeds annual contribution limitations. You should consult your tax advisor for
further details about this complex subject.
Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of a fund's dividend that is
attributable to dividends the fund received from domestic (U.S.) securities. For
the most recent fiscal period, net investment income dividends qualified for the
corporate deduction as shown in the following table.
Under provisions of the Jobs and Growth Tax Relief Reconciliation Act of 2003
(the Act), the maximum tax paid on dividends by individuals is reduced to 15%
(5% for taxpayers in the 10% and 15% brackets) for tax years 2003 through 2008.
The Act also reduces the maximum capital gain rate for securities sold on or
after May 6, 2003 through 2008 from 20% to 15% (5% for taxpayers in the 10% and
15% brackets).
The Act provides that only certain qualified dividend income (QDI) will be
subject to the 15% and 5% tax rates. QDI is dividends earned from domestic
corporations and qualified foreign corporations. Qualified foreign corporations
are corporations incorporated in a U.S. possession, corporations whose stock is
readily tradable on an established U.S. securities market (ADRs), and certain
other corporations eligible for relief under an income tax treaty with the U.S.
that includes an exchange of information agreement (except Barbados). Excluded
are passive foreign investment companies (PFICs), foreign investment companies
and foreign personal holding companies. Holding periods for shares must also be
met to be eligible for QDI treatment (60 days for common stock and 90 days for
preferreds). The QDI for individuals for the most recent fiscal period is shown
in the table below. The table is organized by fiscal year end. You can find your
fund's fiscal year end in Table 1.
Table 13. Corporate Deduction and Qualified Dividend Income
- ------------------------------------------ ------------------------------------- -------------------------------------
Fund Percent of dividends qualifying for Qualified dividend income for
corporate deduction individuals
- ----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
Portfolio Builder Aggressive 16.99% 29.31%
- ------------------------------------------ ------------------------------------- -------------------------------------
Portfolio Builder Conservative 5.46 9.73
- ------------------------------------------ ------------------------------------- -------------------------------------
Portfolio Builder Moderate 10.03 17.52
- ------------------------------------------ ------------------------------------- -------------------------------------
Portfolio Builder Moderate Aggressive 13.43 23.64
- ------------------------------------------ ------------------------------------- -------------------------------------
Portfolio Builder Moderate Conservative 7.66 13.39
- ------------------------------------------ ------------------------------------- -------------------------------------
Portfolio Builder Total Equity 20.84 36.74
- ------------------------------------------ ------------------------------------- -------------------------------------
Small Company Index 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
S&P 500 Index 100.00 100.00
- ----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
Equity Value 100.00 100.00
- ------------------------------------------ ------------------------------------- -------------------------------------
Precious Metals 0.50 3.00
- ------------------------------------------ ------------------------------------- -------------------------------------
Small Cap Advantage 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Small Cap Growth 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Strategy Aggressive 0 0
- ----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
Aggressive Growth 3.17 3.23
- ------------------------------------------ ------------------------------------- -------------------------------------
Fundamental Growth 19.07 19.00
- ------------------------------------------ ------------------------------------- -------------------------------------
Fundamental Value 100.00 100.00
- ------------------------------------------ ------------------------------------- -------------------------------------
High Yield Bond 0.99 0.99
- ------------------------------------------ ------------------------------------- -------------------------------------
Select Value 100.00 100.00
- ------------------------------------------ ------------------------------------- -------------------------------------
Selective 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Short Duration U.S. Government 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 77
- ------------------------------------------ ------------------------------------- -------------------------------------
Fund Percent of dividends qualifying for Qualified dividend income for
corporate deduction individuals
- ------------------------------------------ ------------------------------------- -------------------------------------
Small Cap Equity 6.07 6.31
- ------------------------------------------ ------------------------------------- -------------------------------------
Small Cap Value 33.67 43.71
- ------------------------------------------ ------------------------------------- -------------------------------------
U.S. Government Mortgage 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Value 100.00 100.00
- ----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
California Tax-Exempt 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Dividend Opportunity 100.00 100.00
- ------------------------------------------ ------------------------------------- -------------------------------------
Insured Tax-Exempt 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Massachusetts Tax-Exempt 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Michigan Tax-Exempt 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Minnesota Tax-Exempt 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
New York Tax-Exempt 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Ohio Tax-Exempt 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Real Estate 0.12 1.61
- ----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
Cash Management 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Core Bond 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Disciplined Equity 34.99 35.08
- ------------------------------------------ ------------------------------------- -------------------------------------
Discovery 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Growth 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Income Opportunities 0.13 0.13
- ------------------------------------------ ------------------------------------- -------------------------------------
Inflation Protected Securities 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Large Cap Equity 91.46 91.96
- ------------------------------------------ ------------------------------------- -------------------------------------
Large Cap Value 50.94 55.22
- ------------------------------------------ ------------------------------------- -------------------------------------
Limited Duration Bond 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
New Dimensions 100.00 100.00
- ----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
Diversified Bond 0.10 0.10
- ----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
Balanced 66.44 71.15
- ------------------------------------------ ------------------------------------- -------------------------------------
Diversified Equity Income 100.00 100.00
- ------------------------------------------ ------------------------------------- -------------------------------------
Mid Cap Value 100.00 100.00
- ------------------------------------------ ------------------------------------- -------------------------------------
Stock 100.00 100.00
- ------------------------------------------ ------------------------------------- -------------------------------------
Strategic Allocation 92.68 93.36
- ----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
Emerging Markets 0 10.85
- ------------------------------------------ ------------------------------------- -------------------------------------
European Equity 0 67.45
- ------------------------------------------ ------------------------------------- -------------------------------------
Global Balanced 15.07 37.57
- ------------------------------------------ ------------------------------------- -------------------------------------
Global Bond 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Global Equity 100.00 100.00
- ------------------------------------------ ------------------------------------- -------------------------------------
Global Technology 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
International Aggressive Growth 1.48 100.00
- ------------------------------------------ ------------------------------------- -------------------------------------
International Equity 0 39.28
- ------------------------------------------ ------------------------------------- -------------------------------------
International Opportunity 0 100.00
- ------------------------------------------ ------------------------------------- -------------------------------------
International Select Value 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
International Small Cap 0 17.89
- ----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
Intermediate Tax-Exempt Bond 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Mid Cap Growth 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Tax-Exempt Bond 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
Tax-Exempt High Income 0 0
- ----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
Tax-Exempt Money Market 0 0
- ------------------------------------------ ------------------------------------- -------------------------------------
A fund may be subject to U.S. taxes resulting from holdings in a PFIC. To avoid
taxation, a fund may make an election to mark to market. A foreign corporation
is a PFIC when 75% or more of its gross income for the taxable year is passive
income or 50% or more of the average value of its assets consists of assets that
produce or could produce passive income.
Statement of Additional Information - Oct. 3, 2005 Page 78
Income earned by a fund may have had foreign taxes imposed and withheld on it in
foreign countries. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes. If more than 50% of a fund's total assets at the
close of its fiscal year consists of securities of foreign corporations, the
fund will be eligible to file an election with the Internal Revenue Service
under which shareholders of the fund would be required to include their pro rata
portions of foreign taxes withheld by foreign countries as gross income in their
federal income tax returns. These pro rata portions of foreign taxes withheld
may be taken as a credit or deduction in computing the shareholders' federal
income taxes. If the election is filed, the fund will report to its shareholders
the per share amount of such foreign taxes withheld and the amount of foreign
tax credit or deduction available for federal income tax purposes.
Capital gain distributions, if any, received by shareholders should be treated
as long-term capital gains regardless of how long shareholders owned their
shares. Short-term capital gains earned by a fund are paid to shareholders as
part of their ordinary income dividend and are taxable. Special rates on capital
gains may apply to sales of precious metals, if any, owned directly by a fund
and to investments in REITs.
Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable
to fluctuations in exchange rates that occur between the time a fund accrues
interest or other receivables, or accrues expenses or other liabilities
denominated in a foreign currency and the time the fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, gains or losses on disposition of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gains or losses. These gains or
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of a fund's investment company taxable income to
be distributed to its shareholders as ordinary income.
Under federal tax law, by the end of a calendar year a fund must declare and pay
dividends representing 98% of ordinary income for that calendar year and 98% of
net capital gains (both long-term and short-term) for the 12-month period ending
Oct. 31 of that calendar year. The fund is subject to an excise tax equal to 4%
of the excess, if any, of the amount required to be distributed over the amount
actually distributed. Each fund intends to comply with federal tax law and avoid
any excise tax. For purposes of the excise tax distributions, section 988
ordinary gains and losses are distributable based on an Oct. 31 year end. This
is an exception to the general rule that ordinary income is paid based on a
calendar year end.
The Code imposes two asset diversification rules that apply to each fund as of
the close of each quarter. First, as to 50% of its holdings, the fund may hold
no more than 5% of its assets in securities of one issuer and no more than 10%
of any one issuer's outstanding voting securities. Second, a fund cannot have
more than 25% of its assets in any one issuer.
If a mutual fund is the holder of record of any share of stock on the record
date for any dividend payable with respect to the stock, the dividend will be
included in gross income by the fund as of the later of (1) the date the share
became ex-dividend or (2) the date the fund acquired the share. Because the
dividends on some foreign equity investments may be received some time after the
stock goes ex-dividend, and in certain rare cases may never be received by the
fund, this rule may cause a fund to pay income to its shareholders that it has
not actually received. To the extent that the dividend is never received, the
fund will take a loss at the time that a determination is made that the dividend
will not be received. Distributions, if any, that are in excess of a fund's
current or accumulated earnings and profits will first reduce a shareholder's
tax basis in the fund and, after the basis is reduced to zero, will generally
result in capital gains to a shareholder.
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state, and local income tax laws to fund distributions.
Statement of Additional Information - Oct. 3, 2005 Page 79
Agreements
INVESTMENT MANAGEMENT SERVICES AGREEMENT
RiverSource Investments is the investment manager for each fund. Under the
Investment Management Services Agreement, the investment manager, subject to the
policies set by the Board, provides investment management services.
For its services, the investment manager is paid a fee based on the following
schedule. Each class of a fund pays its proportionate share of the fee.
Table 14. Investment Management Services Agreement Fee Schedule
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Fund Assets (billions) Annual rate at each Daily rate on last day of
asset level most recent fiscal period
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Aggressive Growth First $0.50 0.890 0.890
Next 0.50 0.865
Next 1.0 0.840
Next 1.0 0.815
Next 3.0 0.790
Over 6.0 0.765
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Balanced First $1.0 0.530 0.523
Next 1.0 0.505
Next 1.0 0.480
Next 3.0 0.455
Over 6.0 0.430
- -------------------------------------- ------------------------ ---------------------- ---------------------------
California Tax-Exempt First $0.25 0.470 California - 0.470
Massachusetts Tax-Exempt Next 0.25 0.445 Massachusetts - 0.470
Michigan Tax-Exempt Next 0.25 0.420 Michigan - 0.470
Minnesota Tax-Exempt Next 0.25 0.405 Minnesota - 0.461
New York Tax-Exempt Over 1.0 0.380 New York - 0.470
Ohio Tax-Exempt Ohio - 0.470
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Cash Management First $1.0 0.360 Cash - 0.327
Tax-Exempt Money Market Next 0.5 0.343 Tax-Exempt - 0.360
Next 0.5 0.325
Next 0.5 0.308
Next 1.0 0.290
Next 3.0 0.270
Over 6.5 0.250
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Core Bond First $1.0 0.540 Core Bond - 0.540
Limited Duration Bond Next 1.0 0.515 Limited Duration - 0.540
Next 1.0 0.490
Next 3.0 0.465
Next 3.0 0.440
Over 9.0 0.415
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Disciplined Equity First $1.0 0.600 Disciplined Equity - 0.600
Growth Next 1.0 0.575 Growth - 0.573
Large Cap Equity Next 1.0 0.550 Large Cap Equity - 0.591
Large Cap Value Next 3.0 0.525 Large Cap Value - 0.600
Mid Cap Growth Next 6.0 0.500 Mid Cap Growth- 0.585
New Dimensions Next 12.0 0.490 New Dimensions - 0.526
Over 24.0 0.480
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Discovery First $0.25 0.640 0.640
Next 0.25 0.615
Next 0.25 0.590
Next 0.25 0.565
Next 1.0 0.540
Over 2.0 0.515
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Diversified Bond First $1.0 0.520 Diversified Bond - 0.497
Selective Next 1.0 0.495 Selective - 0.520
Next 1.0 0.470
Next 3.0 0.445
Next 3.0 0.420
Over 9.0 0.395
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Statement of Additional Information - Oct. 3, 2005 Page 80
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Fund Assets (billions) Annual rate at each Daily rate on last day of
asset level most recent fiscal period
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Diversified Equity Income First $0.50 0.530 Diversified Equity Income
Equity Value Next 0.50 0.505 - 0.640
Stock Next 1.0 0.480 Equity Value - 0.513
Strategic Allocation Next 1.0 0.455 Stock - 0.495
Next 3.0 0.430 Strategic Allocation -
Over 6.0 0.400 0.518
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Dividend Opportunity First $0.50 0.610 0.594
Next 0.50 0.585
Next 1.0 0.560
Next 1.0 0.535
Next 3.0 0.510
Over 6.0 0.485
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Emerging Markets First $0.25 1.100 1.097
Next 0.25 1.080
Next 0.25 1.060
Next 0.25 1.040
Next 1.0 1.020
Over 2.0 1.000
- -------------------------------------- ------------------------ ---------------------- ---------------------------
European Equity First $0.25 0.800 European Equity - 0.800
Global Equity Next 0.25 0.775 Global Equity - 0.788
International Opportunity Next 0.25 0.750 International Opportunity
Precious Metals Next 0.25 0.725 - 0.788
Next 1.0 0.700 Precious Metals - 0.800
Over 2.0 0.675
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Fundamental Growth First $1.0 0.780 0.780
Next 1.0 0.755
Next 1.0 0.730
Next 3.0 0.705
Over 6.0 0.680
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Fundamental Value First $0.50 0.730 Fundamental Value - 0.718
Value Next 0.50 0.705 Value - 0.730
Next 1.0 0.680
Next 1.0 0.655
Next 3.0 0.630
Over 6.0 0.600
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Global Balanced First $0.25 0.790 0.790
Next 0.25 0.765
Next 0.25 0.740
Next 0.25 0.715
Next 1.0 0.690
Over 2.0 0.665
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Global Bond First $0.25 0.770 0.754
Next 0.25 0.745
Next 0.25 0.720
Next 0.25 0.695
Over 1.0 0.670
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Global Technology First $0.25 0.720 0.720
Next 0.25 0.695
Next 0.25 0.670
Next 0.25 0.645
Next 1.0 0.620
Over 2.0 0.595
- -------------------------------------- ------------------------ ---------------------- ---------------------------
High Yield Bond First $1.0 0.590 0.568
Next 1.0 0.565
Next 1.0 0.540
Next 3.0 0.515
Next 3.0 0.490
Over 9.0 0.465
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Income Opportunities First $1.0 0.610 0.610
Next 1.0 0.585
Next 1.0 0.560
Next 3.0 0.535
Next 3.0 0.510
Over 9.0 0.485
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Statement of Additional Information - Oct. 3, 2005 Page 81
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Fund Assets (billions) Annual rate at each Daily rate on last day of
asset level most recent fiscal period
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Inflation Protected Securities First $1.0 0.440 0.440
Next 1.0 0.415
Next 1.0 0.390
Next 3.0 0.365
Next 3.0 0.340
Over 9.0 0.315
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Insured Tax-Exempt First $1.0 0.450 Insured Tax-Exempt - 0.450
Intermediate Tax-Exempt Next 1.0 0.425 Intermediate Tax-Exempt -
Tax-Exempt Bond Next 1.0 0.400 0.450
Next 3.0 0.375 Tax-Exempt Bond - 0.450
Over 6.0 0.350
- -------------------------------------- ------------------------ ---------------------- ---------------------------
International Aggressive Growth First $0.25 1.000 1.000
Next 0.25 0.975
Next 0.25 0.950
Next 0.25 0.925
Next 1.0 0.900
Over 2.0 0.875
- -------------------------------------- ------------------------ ---------------------- ---------------------------
International Equity First $0.25 0.970 0.970
Next 0.25 0.945
Next 0.25 0.920
Next 0.25 0.895
Next 1.0 0.870
Over 2.0 0.845
- -------------------------------------- ------------------------ ---------------------- ---------------------------
International Select Value First $0.25 0.900 0.900
Next 0.25 0.875
Next 0.25 0.850
Next 0.25 0.825
Next 1.0 0.800
Over 2.0 0.775
- -------------------------------------- ------------------------ ---------------------- ---------------------------
International Small Cap First $0.25 1.120 1.120
Next 0.25 1.095
Next 0.25 1.070
Next 0.25 1.045
Next 1.0 1.020
Over 2.0 0.995
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Mid Cap Value First $1.0 0.700 0.700
Next 1.0 0.675
Next 1.0 0.650
Next 3.0 0.625
Next 6.0 0.600
Next 12.0 0.590
Over 24.0 0.580
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Portfolio Builder Aggressive All 0.080 0.080
Portfolio Builder Conservative
Portfolio Builder Moderate
Portfolio Builder Moderate Aggressive
Portfolio Builder Moderate
Conservative
Portfolio Builder Total Equity
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Real Estate First $1.0 0.840 0.840
Next 1.0 0.815
Next 1.0 0.790
Next 3.0 0.765
Next 6.0 0.740
Next 12.0 0.739
Over 24.0 0.720
- -------------------------------------- ------------------------ ---------------------- ---------------------------
S&P 500 Index First $1.0 0.240 0.240
Next 1.0 0.230
Next 3.0 0.220
Over 6.0 0.210
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Statement of Additional Information - Oct. 3, 2005 Page 82
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Fund Assets (billions) Annual rate at each Daily rate on last day of
asset level most recent fiscal period
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Select Value First $0.50 0.780 0.772
Next 0.50 0.755
Next 1.0 0.730
Next 1.0 0.705
Next 3.0 0.680
Over 6.0 0.650
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Short Duration U.S. Government First $1.0 0.050 0.510
Next 1.0 0.045
Next 1.0 0.040
Next 3.0 0.035
Next 3.0 0.030
Over 9.0 0.025
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Small Cap Advantage First $0.25 0.740 0.708
Next 0.25 0.715
Next 0.25 0.690
Next 0.25 0.665
Next 1.0 0.640
Over 2.0 0.615
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Small Cap Equity First $0.25 0.970 Small Cap Equity - 0.970
Small Cap Value Next 0.25 0.945 Small Cap Value - 0.926
Next 0.25 0.920
Next 0.25 0.895
Over 1.0 0.870
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Small Cap Growth First $0.25 0.920 0.920
Next 0.25 0.895
Next 0.25 0.870
Next 0.25 0.845
Next 1.0 0.820
Over 2.0 0.795
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Small Company Index First $0.25 0.380 0.359
Next 0.25 0.370
Next 0.25 0.360
Next 0.25 0.350
Over 1.0 0.340
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Strategy Aggressive First $1.0 0.600 0.600
Next 1.0 0.575
Next 1.0 0.550
Next 3.0 0.525
Over 6.0 0.500
- -------------------------------------- ------------------------ ---------------------- ---------------------------
Tax-Exempt High Income First $1.0 0.490 0.451
Next 1.0 0.465
Next 1.0 0.440
Next 3.0 0.415
Next 3.0 0.390
Over 9.0 0.360
- -------------------------------------- ------------------------ ---------------------- ---------------------------
U.S. Government Mortgage First $1.0 0.520 0.520
Next 1.0 0.495
Next 1.0 0.470
Next 3.0 0.445
Next 3.0 0.420
Over 9.0 0.395
- -------------------------------------- ------------------------ ---------------------- ---------------------------
The fee is calculated for each calendar day on the basis of net assets as of the
close of the preceding business day.
Statement of Additional Information - Oct. 3, 2005 Page 83
For Equity and Balanced Funds, before the fee based on the asset charge is paid,
it is adjusted for the fund's investment performance relative to a Lipper Index
(Index) as shown in the table below. If the Index ceases to be published for a
period of more than 90 days, changes in any material respect, or otherwise
becomes impracticable to use for purposes of the adjustment, no adjustment will
be made until the Board approves a substitute index. The adjustment increased or
decreased the fee for the last fiscal period as shown in the following table.
The table is organized by fiscal year end. You can find your fund's fiscal year
end in Table 1.
Table 15. Lipper Indexes
- --------------------------------------- ---------------------------------------- ---------------------------------
Fund Lipper Index Fee Increase or (Decrease)
- ------------------------------------------------------------------------------------------------------------------
Fiscal year ending March 31
- ------------------------------------------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------- ---------------------------------
Equity Value Lipper Large-Cap Value Funds 817,917
- --------------------------------------- ---------------------------------------- ---------------------------------
Precious Metals Lipper Gold Funds (27,758)
- --------------------------------------- ---------------------------------------- ---------------------------------
Small Cap Advantage Lipper Small-Cap Core Funds 89,147
- --------------------------------------- ---------------------------------------- ---------------------------------
Small Cap Growth Lipper Small-Cap Growth Funds (249,698)
- --------------------------------------- ---------------------------------------- ---------------------------------
Strategy Aggressive Lipper Mid-Cap Growth Funds (854,620)
- ------------------------------------------------------------------------------------------------------------------
Fiscal year ending May 31
- ------------------------------------------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------- ---------------------------------
Aggressive Growth Lipper Mid-Cap Growth Funds 1,158
- --------------------------------------- ---------------------------------------- ---------------------------------
Fundamental Growth Lipper Large-Cap Growth Funds (31,784)
- --------------------------------------- ---------------------------------------- ---------------------------------
Fundamental Value Lipper Large-Cap Value Funds 39,947
- --------------------------------------- ---------------------------------------- ---------------------------------
Select Value Lipper Multi-Cap Value Funds (211,710)
- --------------------------------------- ---------------------------------------- ---------------------------------
Small Cap Equity Lipper Small-Cap Core Funds (4,445)
- --------------------------------------- ---------------------------------------- ---------------------------------
Small Cap Value Lipper Small-Cap Value Funds (576,478)
- --------------------------------------- ---------------------------------------- ---------------------------------
Value Lipper Large-Cap Value Funds (69,520)
- ------------------------------------------------------------------------------------------------------------------
Fiscal year ending June 30
- ------------------------------------------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------- ---------------------------------
Dividend Opportunity Lipper Equity Income Funds 29,485
- --------------------------------------- ---------------------------------------- ---------------------------------
Real Estate* Lipper Real Estate Funds 8,364
- ------------------------------------------------------------------------------------------------------------------
Fiscal year ending July 31
- ------------------------------------------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------- ---------------------------------
Disciplined Equity Lipper Large-Cap Core Funds 15,749
- --------------------------------------- ---------------------------------------- ---------------------------------
Discovery Lipper Small-Cap Core Funds 39,153
- --------------------------------------- ---------------------------------------- ---------------------------------
Growth Lipper Large-Cap Growth Funds 1,705,757
- --------------------------------------- ---------------------------------------- ---------------------------------
Large Cap Equity Lipper Large-Cap Core Funds (414,150)
- --------------------------------------- ---------------------------------------- ---------------------------------
Large Cap Value Lipper Large-Cap Value Funds (14,485)
- --------------------------------------- ---------------------------------------- ---------------------------------
New Dimensions Lipper Large-Cap Growth Funds (10,062,023)
- ------------------------------------------------------------------------------------------------------------------
Fiscal year ending September 30
- ------------------------------------------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------- ---------------------------------
Balanced Lipper Balanced Funds (139,930)
- --------------------------------------- ---------------------------------------- ---------------------------------
Diversified Equity Income Lipper Equity Income Funds 2,773,419
- --------------------------------------- ---------------------------------------- ---------------------------------
Mid Cap Value Lipper Mid-Cap Value Funds 227,086
- --------------------------------------- ---------------------------------------- ---------------------------------
Stock Lipper Large-Cap Core Funds (642,172)
- --------------------------------------- ---------------------------------------- ---------------------------------
Strategic Allocation Lipper Flexible Portfolio Funds (311,872)
- ------------------------------------------------------------------------------------------------------------------
Fiscal year ending October 31
- ------------------------------------------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------- ---------------------------------
Emerging Markets Lipper Emerging Markets Funds (232,104)
- --------------------------------------- ---------------------------------------- ---------------------------------
European Equity Lipper European Funds (157,194)
- --------------------------------------- ---------------------------------------- ---------------------------------
Global Balanced Lipper Global Flexible Funds (66,573)
- --------------------------------------- ---------------------------------------- ---------------------------------
Global Equity Lipper Global Funds (570,426)
- --------------------------------------- ---------------------------------------- ---------------------------------
Global Technology Lipper Science and Technology Funds 234,130
- --------------------------------------- ---------------------------------------- ---------------------------------
International Aggressive Growth Lipper International Multi-Cap Growth 39,785
Funds
- --------------------------------------- ---------------------------------------- ---------------------------------
International Equity Lipper International Funds (48,163)
- --------------------------------------- ---------------------------------------- ---------------------------------
International Opportunity Lipper International Large-Cap Core (452,904)
Funds
- --------------------------------------- ---------------------------------------- ---------------------------------
International Select Value Lipper International Multi-Cap Value 218,467
Funds
- --------------------------------------- ---------------------------------------- ---------------------------------
International Small Cap Lipper International Small-Cap Funds (35,481)
- ------------------------------------------------------------------------------------------------------------------
Fiscal year ending November 30
- ------------------------------------------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------- ---------------------------------
Mid Cap Growth Lipper Mid-Cap Growth Funds (2,001,794)
- --------------------------------------- ---------------------------------------- ---------------------------------
* The first adjustment will be made six months after the first public sales of
the fund. The comparison period will increase by one month each month until it
reaches 12 months.
The adjustment, determined monthly, will be determined by measuring the
percentage difference over a rolling 12-month period between the performance of
one Class A share of the fund and the change in the Index. The performance
difference is then used to determine the adjustment rate. The adjustment rate,
computed to five decimal places, is determined in accordance with the following
table. The table is organized by fund category. You can find your fund's
category in Table 1.
Statement of Additional Information - Oct. 3, 2005 Page 84
Table 16. Performance Incentive Adjustment Calculation
- ------------------------------------------------------- --------------------------------------------------------
Equity Funds Balanced Funds
- ------------------- ----------------------------------- ----------------- --------------------------------------
Performance Adjustment Rate Performance Adjustment Rate
Difference Difference
- ------------------- ----------------------------------- ----------------- --------------------------------------
0.00%-0.50% 0 0.00%-0.50% 0
- ------------------- ----------------------------------- ----------------- --------------------------------------
0.50%-1.00% 6 basis points times the 0.50%-1.00% 6 basis points times the performance
performance difference over 0.50% difference over 0.50% (maximum of 3
(maximum of 3 basis points if a basis points if a 1% performance
1% performance difference) difference)
- ------------------- ----------------------------------- ----------------- --------------------------------------
1.00%-2.00% 3 basis points, plus 3 basis 1.00%-2.00% 3 basis points, plus 3 basis points
points times the performance times the performance difference
difference over 1.00% (maximum 6 over 1.00% (maximum 6 basis points
basis points if a 2% performance if a 2% performance difference)
difference)
- ------------------- ----------------------------------- ----------------- --------------------------------------
2.00%-4.00% 6 basis points, plus 2 basis 2.00%-3.00% 6 basis points, plus 2 basis points
points times the performance times the performance difference
difference over 2.00% (maximum 10 over 2.00% (maximum 8 basis points
basis points if a 4% performance if a 3% performance difference)
difference)
- ------------------- ----------------------------------- ----------------- --------------------------------------
4.00%-6.00% 10 basis points, plus 1 basis 3.00% or more 8 basis points
point times the performance
difference over 4.00% (maximum 12
basis points if a 6% performance
difference)
- ------------------- ----------------------------------- ----------------- --------------------------------------
6.00% or more 12 basis points
- ------------------- ----------------------------------- ----------------- --------------------------------------
For example, if the performance difference for an Equity Fund is 2.38%, the
adjustment rate is 0.000676 (0.0006 [6 basis points] plus 0.0038 [the 0.38%
performance difference over 2.00%] x 0.0002 [2 basis points] x 100 (0.000076)).
Rounded to five decimal places, the adjustment rate is 0.00068. The maximum
adjustment rate for the fund is 0.0012 per year. Where the fund's Class A
performance exceeds that of the Index, the fee paid to the investment manager
will increase. Where the performance of the Index exceeds the performance of the
fund's Class A shares, the fee paid to the investment manager will decrease. The
12-month comparison period rolls over with each succeeding month, so that it
always equals 12 months, ending with the month for which the performance
adjustment is being computed.
The management fee is paid monthly. Under the agreement, a fund also pays taxes,
brokerage commissions and nonadvisory expenses, which include custodian fees;
audit and certain legal fees; fidelity bond premiums; registration fees for
shares; office expenses; postage of confirmations except purchase confirmations;
consultants' fees; compensation of Board members, officers and employees;
corporate filing fees; organizational expenses; expenses incurred in connection
with lending securities; and expenses properly payable by a fund, approved by
the Board.
The table below shows the total management fees paid by each fund for the last
three fiscal periods as well as nonadvisory expenses, net of earnings credits,
waivers and expenses reimbursed by the investment manager and its affiliates.
The table is organized by fiscal year end. You can find your fund's fiscal year
end in Table 1.
Statement of Additional Information - Oct. 3, 2005 Page 85
Table 17. Management Fees and Nonadvisory Expenses
- -------------------------------------------- ----------------------------------------- -------------------------------------
Fund Management Fees Nonadvisory expenses
- -------------------------------------------- ----------------------------------------- -------------------------------------
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
2005 2004 2003 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive $55,141(a) N/A N/A $34,746 N/A N/A
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Portfolio Builder Conservative 23,875(a) N/A N/A 43,296 N/A N/A
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Portfolio Builder Moderate 93,838(a) N/A N/A 142,907 N/A N/A
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Portfolio Builder Moderate Aggressive 112,009(a) N/A N/A 116,480 N/A N/A
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Portfolio Builder Moderate Conservative 43,118(a) N/A N/A 75,264 N/A N/A
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Portfolio Builder Total Equity 43,835(a) N/A N/A 27,696 N/A N/A
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Small Company Index 4,547,058 3,962,556 4,217,776 536,282 604,079 630,193
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
S&P 500 Index 933,587 954,894 632,281 (402,204) (24,079) (301,463)
- ----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- ----------------------------------------------------------------------------------------------------------------------------
Equity Value 6,836,800 6,126,938 5,929,794 465,953 493,392 514,413
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Precious Metals 659,595 724,228 478,457 176,012 175,964 208,238
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Small Cap Advantage 6,341,134 5,102,126 3,593,634 533,489 227,451 354,549
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Small Cap Growth 2,276,290 2,359,429 1,747,120 421,008 360,064 (136,353)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Strategy Aggressive 3,390,499 4,338,334 4,964,632 451,456 585,955 577,160
- ----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- ----------------------------------------------------------------------------------------------------------------------------
Aggressive Growth 399,501 117,564 3,774(b) 82,999 18,117 1,282(b)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Fundamental Growth 410,475 79,513 3,368(b) 177,899 24,370 489(b)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Fundamental Value 5,556,219 3,377,169 2,055,809 488,580 210,468 (38,629)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
High Yield Bond 14,973,845 15,136,003 12,593,999 817,018 1,035,459 900,663
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Select Value 5,256,934 2,995,527 1,268,532 423,030 283,570 (42,902)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Selective 4,922,235 6,210,559 7,763,060 (230,799) 522,092 460,190
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Short Duration U.S. Government 10,141,504 14,303,395 15,837,132 (958,143) 1,172,005 1,516,688
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Small Cap Equity 1,560,155 1,108,923 375,456 6,490 (76,600) (50,972)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Small Cap Value 9,857,858 7,749,795 5,539,260 788,885 675,289 (136,624)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
U.S. Government Mortgage 1,532,464 2,063,726 1,714,820 (188,134) 18,299 101,644
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Value 3,311,867 2,926,194 1,925,005 285,856 202,871 42,263
- ----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- ----------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt 1,010,591 1,129,991 1,273,942 116,440 139,264 126,709
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Dividend Opportunity 6,201,403 5,081,258 7,090,687 453,329 596,965 562,883
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Insured Tax-Exempt 1,801,898 2,078,914 2,214,318 165,805 187,506 180,424
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Massachusetts Tax-Exempt 372,649 427,506 455,856 43,112 52,958 54,428
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Michigan Tax-Exempt 294,025 342,995 387,348 36,732 43,425 53,043
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Minnesota Tax-Exempt 1,895,714 2,045,996 2,129,734 161,536 182,884 159,041
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
New York Tax-Exempt 434,449 495,538 549,702 54,945 62,139 73,579
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Ohio Tax-Exempt 307,214 360,176 397,430 38,356 43,070 54,325
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Real Estate 725,491 37,549(c) N/A 133,564 8,198(c) N/A
- ----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- ----------------------------------------------------------------------------------------------------------------------------
Cash Management 12,052,160 14,155,568 17,632,026 1,220,672 2,243,652 2,781,187
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Core Bond 846,872 417,836 32,016(d) 99,940 69,699 7,553(d)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Disciplined Equity 408,720 83,580 11,265(e) 130,016 8,110 4,595(e)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Discovery 1,074,727 1,239,497 752,017 369,132 177,032 128,264
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Growth 18,968,320 16,372,054 20,057,173 1,217,404 1,219,778 1,262,092
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Income Opportunities 1,954,757 985,862 38,550(d) 214,865 133,277 15,960(d)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Inflation Protected Securities 552,220 66,055(f) N/A 28,432 5,260(f) N/A
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Large Cap Equity 9,680,873 2,441,621 342,000 161,534 391,817 40,890
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Large Cap Value 803,736 446,686 139,254 293,194 129,014 22,043
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Limited Duration Bond 960,788 571,688 34,385(d) 57,170 61,331 7,837(d)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
New Dimensions 60,896,353 74,353,086 90,852,746 4,912,847 3,537,012 4,234,549
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Statement of Additional Information - Oct. 3, 2005 Page 86
- -------------------------------------------- ----------------------------------------- -------------------------------------
Fund Management Fees Nonadvisory expenses
- -------------------------------------------- ----------------------------------------- -------------------------------------
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
2004 2003 2002 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- ----------------------------------------------------------------------------------------------------------------------------
Diversified Bond 15,409,504 18,159,757 18,809,556 575,900 1,058,347 787,862
- ----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- ----------------------------------------------------------------------------------------------------------------------------
Balanced 7,736,525 7,434,993 9,074,291 707,529 567,687 726,098
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Diversified Equity Income 17,374,369 9,509,660 11,851,751 993,686 701,496 836,049
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Mid Cap Value 2,537,342 755,866 261,610(g) 271,072 63,479 11,282(g)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Stock 11,111,422 10,665,505 15,120,564 582,837 641,829 738,889
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Strategic Allocation 5,004,559 5,083,754 6,670,033 629,876 498,156 610,477
- ----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- ----------------------------------------------------------------------------------------------------------------------------
Emerging Markets 2,770,886 2,181,279 2,578,135 519,598 477,412 491,764
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
European Equity 872,149 959,764 1,483,797 236,203 143,588 221,341
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Global Balanced 699,824 702,933 882,643 171,229 189,130 178,732
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Global Bond 4,143,713 4,084,088 3,677,461 427,277 450,208 359,934
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Global Equity 3,302,062 3,763,415 5,986,053 506,708 476,898 611,344
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Global Technology 1,812,789 1,185,180 1,358,065 304,625 235,797 330,225
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
International Aggressive Growth 1,878,346 1,114,731 690,573 250,484 69,337 65,305
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
International Equity 1,015,577 439,777 15,692(h) 316,320 131,195 6,693(h)
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
International Opportunity 2,926,933 2,672,683 4,334,965 442,832 451,756 563,325
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
International Select Value 6,467,621 3,341,744 1,253,447 473,274 152,203 145,369
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
International Small Cap 600,389 183,744 8,611(h) 208,586 63,029 3,583(h)
- ----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- ----------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth 10,550,526 10,432,639 11,492,378 744,839 600,194 527,223
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Tax-Exempt High Income 20,079,644 21,646,724 21,993,068 976,647 892,351 737,356
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Intermediate Tax-Exempt Bond 752,882 704,089 381,710 136,017 101,093 78,153
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
Tax-Exempt Bond 3,457,986 3,967,418 4,086,654 248,267 270,404 225,129
- ----------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- ----------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 515,265 678,981 725,514 177,477 218,380 195,140
- -------------------------------------------- ------------- ------------- ------------- ------------ ------------ -----------
(a) For the period from March 4, 2004 (when shares became publicly available)
to Jan. 31, 2005.
(b) For the period from April 24, 2003 (when shares became publicly available)
to May 31, 2003.
(c) For the period from March 4, 2004 (when shares became publicly available)
to June 30, 2004.
(d) For the period from June 19, 2003 (when shares became publicly available)
to July 31, 2003.
(e) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
(f) For the period from March 4, 2004 (when shares became publicly available)
to July 31, 2004.
(g) For the period from Feb. 14, 2002 (when shares became publicly available)
to Sept. 30, 2002.
(h) For the period from Oct. 3, 2002 (when shares became publicly available)
to Oct. 31, 2002.
Subadvisory Agreements
The assets of certain funds are managed by subadvisers that have been selected
by the investment manager, subject to the review and approval of the Board. The
investment manager has recommended the subadvisers to the Board based upon its
assessment of the skills of the subadvisers in managing other assets with goals
and investment strategies substantially similar to those of the applicable fund.
Short-term investment performance is not the only factor in selecting or
terminating a subadviser, and the investment manager does not expect to make
frequent changes of subadvisers. Certain subadviers, affiliated with the
investment manager, have been directly approved by shareholders. These
subadvisers are noted in Table 18.
The investment manager allocates the assets of a fund with multiple subadvisers
among the subadvisers. Each subadviser has discretion, subject to oversight by
the Board and the investment manager, to purchase and sell portfolio assets,
consistent with the fund's investment objectives, policies, and restrictions.
Generally, the services that a subadviser provides to the fund are limited to
asset management and related recordkeeping services.
Statement of Additional Information - Oct. 3, 2005 Page 87
The investment manager has entered into an advisory agreement with each
subadviser under which the subadviser provides investment advisory assistance
and day-to-day management of some or all of the fund's portfolio, as well as
investment research and statistical information. A subadviser may also serve as
a discretionary or non-discretionary investment adviser to management or
advisory accounts that are unrelated in any manner to the investment manager or
its affiliates.
The following table shows the advisory fee schedules for fees paid by the
investment manager to subadvisers for funds that have subadvisers. The table is
organized by fiscal year end. You can find your fund's fiscal year end in Table
1.
Table 18. Subadvisers and Subadvisory Agreement Fee Schedules
- ---------------------------- -------------------------------------------- -------------- --------------------------
Parent
Fund Subadviser name Company, if Fee schedule
any
- ---------------------------- -------------------------------------------- -------------- --------------------------
For funds with fiscal period ending March 31
- ---------------------------- -------------------------------------------- -------------- --------------------------
Small Cap Advantage Kenwood Capital Management LLC (Kenwood)* A 0.35%
(effective May 4, 1999)
- ---------------------------- -------------------------------------------- -------------- --------------------------
Small Cap Growth Essex Investment Management Company, LLC B 0.70% on the first $20
(Essex) million, reducing to
(effective Sept. 23, 2005) 0.60% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
MDT Advisers, Inc. (MDTA) N/A 0.60% on the first
(effective Sept. 23, 2005) $100 million
- ---------------------------- -------------------------------------------- -------------- --------------------------
Turner Investment Partners, Inc. (Turner) N/A 0.60% on the first $50
(effective Aug. 18, 2003) million, reducing to
0.50% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
UBS Global Asset Management (Americas) N/A 0.55% on the first $150
(UBS) million, reducing to
(effective Aug. 18, 2003) 0.50% as assets increase
- -------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- -------------------------------------------------------------------------------------------------------------------
- ---------------------------- -------------------------------------------- -------------- --------------------------
Aggressive Growth American Century Investment Management, N/A 0.50% on the first $100
Inc. (American Century) million, reducing to
(effective April 24, 2003) 0.38% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Turner Investment Partners, Inc. (Turner) N/A 0.55% on the first $100
(effective April 24, 2003) million, reducing to
0.38% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Fundamental Growth Goldman Sachs Asset Management L.P. C 0.50% on the first $50
(Goldman) million, reducing to
(effective April 24, 2003) 0.30% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Wellington Management Company, LLP N/A 0.50% on the first $50
(Wellington) million, reducing to
(effective April 2005) 0.40% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Fundamental Value Davis Advisors (Davis)* N/A 0.45% on the first $100
(effective June 18, 2001) million, reducing to
0.35% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Select Value GAMCO Asset Management Inc. (GAMCO) N/A .040% on the first $500
(effective Mar. 8, 2002) million**, reducing to
0.30% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Small Cap Equity American Century N/A 0.65% on the first $25
(effective Dec. 2003) million**, reducing to
0.55% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Lord, Abbett & Co. (Lord, Abbett) N/A 0.65% on the first $100
(effective Dec. 2003) million**, reducing to
0.55% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Wellington N/A 0.60%, subject to
(effective Mar. 8, 2002) possible adjustment
under a performance
incentive adjustment
- ---------------------------- -------------------------------------------- -------------- --------------------------
Statement of Additional Information - Oct. 3, 2005 Page 88
- ---------------------------- -------------------------------------------- -------------- --------------------------
Parent
Fund Subadviser name Company, if Fee schedule
any
- ---------------------------- -------------------------------------------- -------------- --------------------------
Small Cap Value Royce & Associates, LLC. (Royce) D 0.80% on the first $100
(effective June 18, 2001) million**, reducing to
0.60% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Goldman N/A 0.60% on the first $100
(effective Aug. 8, 2003) million**, reducing to
0.55% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Barrow, Hanley, Mewhinney & Strauss (BHMS) E 1.00% on the first $10
(effective Mar. 12, 2004) million**, reducing to
0.30% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Donald Smith & Co. Inc. (Donald Smith) N/A 0.60% on the first $175
(effective Mar. 12, 2004) million**, reducing to
0.55% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Franklin Portfolio Associates LLC F 0.60% on the first $100
(Franklin Portfolio Associates) million**, reducing to
(effective Mar. 12, 2004) 0.55% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Value Lord, Abbett N/A 0.35% on the first $200
(effective June 18, 2001) million, reducing to
0.25% as assets increase
- -------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- -------------------------------------------------------------------------------------------------------------------
- ---------------------------- -------------------------------------------- -------------- --------------------------
Discovery American Century N/A 0.65% on the first $25
(effective Dec. 22, 2003) million**, reducing to
0.55% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Lord Abbett N/A 0.65% on the first $100
(effective Dec. 22, 2003) million**, reducing to
0.55% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Wellington N/A 0.60%, subject to
(effective Sept. 1, 2002) possible adjustment
under a performance
incentive adjustment
- -------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- -------------------------------------------------------------------------------------------------------------------
- ---------------------------- -------------------------------------------- -------------- --------------------------
Emerging Markets Threadneedle International Limited * G 0.45% of the first $15
(Threadneedle) million, reducing to
(effective July 10, 2004) 0.30% as assets
increase, and subject to
a performance incentive
adjustment***
- ---------------------------- -------------------------------------------- -------------- --------------------------
European Equity Threadneedle* G 0.35% of the first $15
International Opportunity (effective July 10, 2004) million, reducing to
0.20% as assets
increase, and subject to
a performance incentive
adjustment***
- ---------------------------- -------------------------------------------- -------------- --------------------------
Global Balanced Threadneedle* G 0.35% of the first $15
Global Equity (effective July 10, 2004) million, reducing to
0.20% as assets
increase, and subject to
a performance incentive
adjustment***
- ---------------------------- -------------------------------------------- -------------- --------------------------
International Aggressive American Century Global Investment H 0.65% on the first $100
Growth Management, Inc. (ACGIM) million, reducing to
(effective Jan. 1, 2005) 0.50% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Columbia Wanger Asset Management L.P. I 0.70% on the first $100
(Columbia WAM) million, reducing to
(effective Sept. 5, 2001) 0.50% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
International Equity The Boston Company Asset Management, LLC J 0.50% on the first $150
(Boston Company) million, reducing to
(effective Sept. 25, 2002) 0.35% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Marsico Capital Management, LLC (Marsico) K 0.55% on the first $100
(effective Oct. 1, 2004) million, reducing to
0.45% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
International Select Value Alliance Capital Management L.P. N/A 0.65% on the first $75
(Alliance Capital) million, reducing to
(effective Sept. 17, 2001) 0.30% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Statement of Additional Information - Oct. 3, 2005 Page 89
- ---------------------------- -------------------------------------------- -------------- --------------------------
Parent
Fund Subadviser name Company, if Fee schedule
any
- ---------------------------- -------------------------------------------- -------------- --------------------------
International Small Cap Templeton Investment Counsel, LLC N/A 0.70% on the first $50
(Franklin Templeton) million, reducing to
(effective Sept. 25, 2002) 0.50% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
Wellington Management Company, LLP N/A 0.75% on the first $100
(Wellington Management) million, reducing to
(effective Sept. 25, 2002) 0.60% as assets increase
- ---------------------------- -------------------------------------------- -------------- --------------------------
* Davis is a 1940 Act affiliate of the investment manager because it owns or
has owned more than 5% of the public issued securities of the investment
manager's parent company, Ameriprise Financial. Kenwood is an affiliate of
the investment manager as an indirect partially-owned subsidiary of
Ameriprise Financial. Threadneedle is an affiliate of the investment
manager as a direct wholly-owned subsidiary of Ameriprise Financial.
** Based on the combined net assets subject to the subadviser's investment
management.
*** The adjustment for Threadneedle is based on the performance of one Class A
share of the fund and the change in the Lipper Index described in Table 15.
The performance of the fund and the Index will be calculated using the
method described above for the performance incentive adjustment paid to the
investment manager under the terms of the Investment Management Services
Agreement. The amount of the adjustment to Threadneedle's fee, whether
positive or negative, shall be equal to one-half of the performance
incentive adjustment made to the investment management fee payable to the
investment manager under the terms of the Investment Management Services
Agreement. The performance incentive adjustment was effective Dec. 1, 2004.
A - Kenwood is an indirect partially-owned subsidiary of Ameriprise
Financial.
B - Essex is majority owned by Affiliated Managers Group.
C - Goldman is an affiliate of Goldman Sachs & Co.
D - Royce is a direct wholly-owned subsidiary of Legg Mason, Inc.
E - BHMS is an independent-operating subsidiary of Old Mutual Asset
Management.
F - Franklin Portfolio Associates is an indirect wholly-owned subsidiary of
Mellon Financial Corporation.
G - Threadneedle is a direct wholly-owned subsidiary of Ameriprise
Financial.
H - ACGIM is a wholly-owned subsidiary of American Century.
I - Columbia WAM is an indirect wholly-owned subsidiary of Columbia
Management Group, Inc., which in turn is a wholly owned subsidiary of Bank
of America Corporation.
J - Boston Company is a subsidiary of Mellon Financial Corporation and an
affiliate of The Dreyfus Corporation.
K - Marsico is an indirect wholly-owned subsidiary of Bank of America
Corporation.
The following table shows the subadvisory fees paid by the investment manager to
subadvisers in the last three fiscal periods. The table is organized by fiscal
year end. You can find your fund's fiscal year end in Table 1.
Table. 19. Subadvisory Fees
- --------------------------- --------------------------------------------- -------------------------------------------
Fund Subadviser Subadvisory fees paid
- --------------------------- --------------------------------------------- -------------------------------------------
2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Kenwood $3,089,403 $2,282,191 $1,740,599
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Small Cap Growth Essex Effective N/A N/A
9/23/05
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
MDTA Effective N/A N/A
9/23/05
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Turner 371,758 241,927 N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
UBS 342,815 224,007 N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former Subadviser: Bjurman, Barry & 366,178 274,992 N/A
Associates (from Aug. 18, 2003 to Sept. 23,
2005)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former Subadviser: RS Investment 581,602 565,391 400,545
Management, L.P. (from Jan. 24, 2001 to
Sept. 23, 2005)
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth American Century 114,981 32,431 1,218(a)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Turner 119,529 36,468 1,359(a)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Fundamental Growth Wellington* 21,015(b) N/A N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Goldman 143,448 28,129 1,205(a)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former subadviser: Eagle Asset Management, 139,312(c) 28,655 1,249(a)
Inc., a subsidiary of Raymond James
Financial, Inc. (from April 7, 2003 to
April 26, 2005)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Fundamental Value Davis 2,834,365 1,946,906 1,156,584
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Select Value GAMCO 46,074 1,642,235 626,588
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 90
- --------------------------- --------------------------------------------- -------------------------------------------
Fund Subadviser Subadvisory fees paid
- --------------------------- --------------------------------------------- -------------------------------------------
2005 2004 2003
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Small Cap Equity American Century 302,079 90,891 N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Lord, Abbett 278,497 93,666 N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Wellington* 388,922 339,459 99,787
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former subadviser: Pilgrim Baxter & N/A N/A 98,829
Associates, Ltd (from inception to Dec.
2003)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Small Cap Value Goldman 1,599,715 883,316 N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Royce 2,287,184 3,103,451 2,373,829
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Franklin Portfolio Associates 957,263 134,324 N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
BHMS 823,441 126,801 N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Donald Smith 992,659 130,862 N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former subadviser: National City N/A N/A 124,993
Investment Co. (from inception to August
2003)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former subadviser: Third Avenue Management N/A 1,087,918 947,437
LLC (from inception to March 2004)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Value Lord, Abbett 1,389,323 1,251,762 878,954
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- ---------------------------------------------------------------------------------------------------------------------
Discovery American Century 261,637 131,822 N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Lord, Abbett 279,061 151,513 N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Wellington* 458,629 620,176 342,165
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former subadviser: Pilgrim Baxter N/A N/A 337,687
(from April 2002 to December 2003)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets Threadneedle 361,626 N/A N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former subadviser: American Express Asset 942,983 1,033,684 1,168,791
Management International Inc. (AEAMI)
(from inception until July 2004)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
European Equity Threadneedle 131,177 N/A N/A
--------------------------------------------- ---------------- ------------- ------------
Former subadviser: AEAMI 316,031 448,432 668,033
(from inception until July 2004)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Global Balanced Threadneedle 96,408 N/A N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former subadviser: AEAMI 151,173 208,168 416,452
(from inception until July 2004)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Global Equity Threadneedle 449,149 N/A N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former subadviser: AEAMI 484,676 1,841,195 3,015,169
(from inception until July 2004)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
International Aggressive American Century 542,561 394,806 224,250
Growth
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Columbia WAM 709,378 422,056 251,311
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
International Equity Boston Company 288,191 118,846 5,039
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Marsico 30,840 N/A N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former subadviser: Putnam Investment 308,350 142,969 6,823
Management, LLC (from inception until
Sept. 30, 2004)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
International Opportunity Threadneedle 434,968 N/A N/A
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Former subadviser: AEAMI 1,000,707 1,407,484 2,319,155
(from inception until July 2004)
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
International Select Value Alliance Capital 2,869,277 1,604,035 749,095
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
International Small Cap Franklin Templeton 200,710 56,399 3,435
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
Wellington* 215,256 62,802 3,545
- --------------------------- --------------------------------------------- ---------------- ------------- ------------
* Beginning on July 1, 2006, under the Subadvisory Agreement, RiverSource
Investments is subject to a minimum annual fee of $350,000, payable to
Wellington Management.
(a) For fiscal period from April 24, 2003 (when shares became publicly
available) to May 31, 2003.
(b) For fiscal period from April 26, 2005 to May 31, 2005.
(c) For fiscal period from June 1, 2004 to April 26, 2005.
Statement of Additional Information - Oct. 3, 2005 Page 91
Portfolio Managers. The following table provides information about the funds'
portfolio managers as of the end of the most recent fiscal period. The table is
organized by fiscal year end. You can find your fund's fiscal year end in Table
1.
Table 20. Portfolio Managers
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Fund Potential Structure of
Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation
Fund Shares of Interest
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Approximate
Total Net
Assets
Number and type of (excluding
account the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Kent M. Bergene None(a) None (1) (1)
Builder David M. Joy None None
Aggressive Michelle M. Keeley None(b) None
William F. Truscott None(b) None
- ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ ---------------
Portfolio Kent M. Bergene None(a) None
Builder David M. Joy None None
Conservative Michelle M. Keeley None(b) None (1) (1)
William F. Truscott None(b) None
- ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ ---------------
Portfolio Kent M. Bergene None(a) None
Builder Moderate David M. Joy None None
Michelle M. Keeley None(b) None (1) (1)
William F. Truscott None(b) None
- ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ ---------------
Portfolio Kent M. Bergene None(a) $1 - $10,000
Builder David M. Joy None None
Moderate Michelle M. Keeley None(b) None (1) (1)
Aggressive William F. Truscott None(b) $100,001
-$500,000
- ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ ---------------
Portfolio Kent M. Bergene None(a) None
Builder David M. Joy None None
Moderate Michelle M. Keeley None(b) None (1) (1)
Conservative William F. Truscott None(b) None
- ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ ---------------
Portfolio Kent M. Bergene None(a) None
Builder Total David M. Joy None $100,001 -
Equity $500,000 (1) (1)
Michelle M. Keeley None(b) None
William F. Truscott None(b) None
- ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ ---------------
Small Company David Factor, CFA 2 registered $0.7 billion None (2) (2)
Index investment companies
(RICs); $2.6 billion
2 pooled investment
vehicles (PIVs)
- ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ ---------------
S&P 500 Index David Factor, CFA 2 RICs $1.7 billion None (2) (2)
2 PIVs $2.6 billion
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Value Warren Spitz 5 RICs(c) $4.4 billion $50,001 - (2) (3)
2 PIVs $216.3 million $100,000
--------------------------- ---------------
Steve Schroll $10,001 -
$50,000
--------------------------- ---------------
Laton Spahr $1 - $10,000
- ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ ---------------
Precious Metals Clay Hoes 1 PIV $13.9 million $1 - $10,000 (2), (3) (4)
- ----------------- --------------------------- ----------------------- ----------------- --------------- ------------ ---------------
Statement of Additional Information - Oct. 3, 2005 Page 92
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Fund Potential Structure of
Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation
Fund Shares of Interest
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Approximate
Total Net
Assets
Number and type of (excluding
account the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap RSIM: John L. Wallace(d) 4 RICs $1.5 billion None (4) (6)
Growth 3 PIVs $15.9 million
6 other accounts $277.6 million
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
RSIM: John H. Seabern(d) 1 RIC $953.8 million
5 other accounts $252 million
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Turner: William C. McVail 15 RICs $2.4 billion None (5) (7)
45 PIVs $2.2 billion
37 other accounts; $1.4 billion
(for 1 PIV and 2 other
accounts(c))
-------------------------- ------------------------ -----------------
Turner: 16 RICs $2.0 billion
Christopher K. McHugh 49 PIVs $2.4 billion
35 other accounts $1.3 billion
(for 1 PIV and 2 other
accounts(c))
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Turner: Frank L. 4 RICs $41 million None (5) (7)
Sustersic 11 PIVs $886 million
32 other accounts $881 million
(for 2 RICs and 2
other accounts(c))
-------------------------- ------------------------ -----------------
Turner: 4 RICs $433 million
Jason D. Schrotberger 12 PIVs $966 million
24 other accounts $682 million
(for 2 other
accounts(c))
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
BB&A: O. Thomas Barry 7 RICs $824.2 million None (6) (8)
19 other accounts $169.2 million
-------------------------- ------------------------ -----------------
BB&A: G. Andrew Bjurman 15 other accounts $1.3 billion
-------------------------- ------------------------ -----------------
BB&A: 38 other accounts $41.2 million
Stephen W. Shipman (for 8 accounts(c))
-------------------------- ------------------------ -----------------
BB&A: Patrick T. Bradford 1 RIC $7.3 million
-------------------------- ------------------------ -----------------
BB&A: Roberto P. Wu 5 other accounts $7.9 million
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
UBS: Paul A. Graham 7 RICs (includes wrap $764.9 million None (7) (9)
UBS: David N. Wabnik accounts as 1 model)
2 PIVs $440.2 million
7 other accounts $406.1 million
(for 1 other
account(c))
- ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Small Cap RiverSource Investments: 4 RICs(c) $1.5 billion None (2) (4), (10)
Advantage Dimitris Bertsimas 1 PIV $12.7 million
11 other accounts(g) $84.9 million
-------------------------- ------------------------ -----------------
RiverSource Investments: 2 RICs(c) $806.2 million
Jonathan Calvert
-------------------------- ------------------------ -----------------
Kenwood: Jake Hurwitz 1 RIC(c) $185.3 million $100,001 - (2), (8) (11)
1 PIV $44.9 million $500,000
18 other accounts $445.5 million
-------------------------- ---------------
Kenwood: Kent Kelley $100,001 -
$500,000
- ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Strategy Paul Rokosz 1 RIC $741.1 million $10,000 - (2) (4)
Aggressive 2 PIVs $141.5 million $50,000
10 other accounts $1.7 billion
(for 2 RICs(c))
- ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Statement of Additional Information - Oct. 3, 2005 Page 93
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Fund Potential Structure of
Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation
Fund Shares of Interest
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Approximate
Total Net
Assets
Number and type of (excluding
account the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Aggressive Turner: 18 RICs $2.2 billion None (5) (7)
Growth Christopher K. McHugh 30 PIVs $640 million
59 other accounts $3.1 billion
-------------------------- ------------------------ -----------------
Turner: Robert E. Turner 27 RICs $3.6 billion
40 PIVs $1.6 billion
88 other accounts $5.2 billion
-------------------------- ------------------------ -----------------
Turner: William C. McVail 17 RICs $2.6 billion
24 PIVs $504 million
5 other accounts $3.3 billion
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
American Century: 5 RICs $5.584 billion None (9) (12)
Glen A. Fogle 1 other account $27.823 million
-------------------------- ------------------------ -----------------
American Century:
David M. Holland
- ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Fundamental Goldman: Herbert E. 49 RICs $10.7 billion None (11) (14), (20)
Growth Ehlers 1 PIV $94.0 million
542 other accounts $18.0 billion
--------------------------
Goldman:
Gregory H. Ekizian
--------------------------
Goldman: David G. Shell
--------------------------
Goldman: Steven M. Barry
--------------------------
Goldman:
Kenneth T. Berents
--------------------------
Goldman: Andrew F. Pyne
--------------------------
Goldman: Scott Kolar
--------------------------
Goldman:
Prashant R. Khemka
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Wellington: John A. 9 RICs $2,709.4 million None (12) (15)
Boselli 7 PIVs $846.7 million
33 other accounts $5,232.5 million
(for 1 other
account(c))
--------------------------
Wellington:
Andrew J. Schilling
- ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Fundamental Davis: Christopher C. 23 RICs $48 billion None(e) (10) (13)
Value Davis 6 PIVs $853 million
Davis: Kenneth C. 30,000 other accounts $9.9 billing
Feinberg (primarily managed
money/ wrap accounts)
- ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
High Yield Bond Scott Schroepfer 1 RIC $1.2 billion $100,001 - (2) (4)
$500,000
- ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Selective Tom Murphy 8 RICs $6.2 billion None (2) (4)
3 PIVs $1.2 billion
24 other accounts $20.9 billion
(for 3 RICs and 1
other account(c))
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Scott Kirby 11 RICs $8.6 billion $10,001 -
7 PIVs $2.6 billion $50,000
46 other accounts $22.9 billion
(for 3 RICs and 1
other account(c))
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Jamie Jackson 14 RICs $12.1 billion $10,001 -
6 PIVs $3.3 billion $50,000
31 other accounts $5.3 billion
(for 3 RICs and 1
other account(c))
- ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Select Value GAMCO: Mario Gabelli 24 RICs $11.9 billion(f) None (13) (16)
14 PIVs(c) $707.7
1,747 other accounts million(f)
(for 1 RIC and 3 other $9.9 billion
accounts(c))
- ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Statement of Additional Information - Oct. 3, 2005 Page 94
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Fund Potential Structure of
Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation
Fund Shares of Interest
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Approximate
Total Net
Assets
Number and type of (excluding
account the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
Short Duration Scott Kirby 11 RICs $7.9 billion $10,001 - (2) (4)
U.S. Government 7 PIVs $2.6 billion $50,000
46 other accounts $22.9 billion
(for 3 RICs and 1
other account(c))
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Jamie Jackson 14 RICs $11.4 billion $10,001 -
6 PIVs $3.3 billion $50,000
31 other accounts $5.3 billion
(for 3 RICs and 1
other account(c))
- ----------------- -------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Small Cap Equity American Century: 13 RICs $8.720 billion (9) (12)
Thomas P. Vaiana 2 other accounts $229 million None
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
American Century: 14 RICs $9.276 billion
William Martin 2 other accounts $229 million
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
American Century: 5 RICs $2.123 billion
Wihelmine von Turk 2 other accounts $229 million
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Lord, Abbett: 4 RICs $825.2 million None (14) (17)
Michael T. Smith 7 other accounts $534.6 million
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Wellington: 4 RICs $1,640.9 million $500,001 - (12) (15)
Kenneth L. Abrams 3 PIVs $787.6 million $1,000,000
23 other accounts $1,846.3 million
(for 2 RICs and 1
other account(c))
-------------------------- ------------------------ ----------------- --------------- ------------ ---------------
Wellington: Daniel J. 4 RICs $1,640.9 million None
Fitzpatrick 3 PIVs $787.6 million
16 other accounts $1,830.2 million
(for 2 RICs and 1
other account(c))
- ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Small Cap Value Royce: Jay S. Kaplan 6 RICs $7 billion None (15) (18)
-------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Goldman: Eileen Rominger 20 RICs $11.1 billion None (11) (19), (20)
2 PIVs $31.0 million
280 other accounts $5.41 billion
--------------------------
Goldman: Dolores Bamford
--------------------------
Goldman: David Berdon
--------------------------
Goldman: Lisa Parisi
-------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Goldman: J. Kelly Flynn 20 RICs $2.83 billion None (11) (19), (20)
2 PIVs $31.0 million
6 other accounts $634.0 million
--------------------------
Goldman: Chip Otness
-------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Donald Smith: Donald G. 2 RICs $0.786 billion None (16) (21)
Smith 1 PIV $0.171 billion
23 other accounts $1.807 billion
--------------------------
Donald Smith: Richard L.
Greenberg
-------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Franklin Portfolio 6 RICs (with 14 total $13.5 billion None (17) (22)
Associates: John S. Cone portfolios)
4 PIVs $0.7 billion
82 other accounts $14.3 billion
--------------------------
Franklin Portfolio
Associates: Michael F.
Dunn
--------------------------
Franklin Portfolio
Associates: Oliver E.
Buckley
--------------------------
Franklin Portfolio
Associates: Kristin J.
Crawford
--------------------------
Franklin Portfolio
Associates: Langton
Garvin
-------------------------- ------------------------ ----------------- --------------- ----------- ----------------
BHMS: James S. McClure 3 RICs $392.0 million None (18) (23)
16 other accounts $569.8 million
--------------------------
BHMS: John P. Harloe
- ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Statement of Additional Information - Oct. 3, 2005 Page 95
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Fund Potential Structure of
Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation
Fund Shares of Interest
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Approximate
Total Net
Assets
Number and type of (excluding
account the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Scott Kirby 11 RICs $9.3 billion $10,001 - (2) (4)
Mortgage 7 PIVs $2.6 billion $50,000
46 other accounts $22.9 billion
(for 3 RICs and 1
other account(c))
- ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Value Lord, Abbett: Eli M. 14 RICs $23,867.2 None (14) (17)
Salzmann 11 PIVs million
53,962 other accounts $756.2 million
(for 1 other $18,554.4
account(c)) million
--------------------------
Lord, Abbett: Sholom
Dinsky
- ------------------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
California Dave Kerwin 9 RICs $5.84 billion None (2) (4)
Tax-Exempt 0 PIVs
18 other accounts $7.46 billion
- ----------------- ---------------
Insured None
Tax-Exempt
- ----------------- ---------------
Massachusetts None
Tax-Exempt
- ----------------- ---------------
Michigan None
Tax-Exempt
- ----------------- ---------------
Minnesota $50,001 -
Tax-Exempt $100,000
- ----------------- ---------------
New-York None
Tax-Exempt
- ----------------- ---------------
Ohio None
Tax-Exempt
- ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Dividend Warren Spitz 5 RICs(c) $8.1 billion Over (2) (3)
Opportunity 2 PIVs 0.22 billion $1,000,000
0 other accounts
-------------------------- ---------------
Steve Schroll $100,001 -
$500,000
-------------------------- ---------------
Laton Spahr $10,001 -
$50,000
- ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Real Estate Julene Melquist None $0 None (2), (3) (5)
--------------------------
J. Blair Brumley
- ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
For funds with fiscal period ending July 31
- ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Core Bond Tom Murphy 8 RICs(h) $6.87 billion $10,001-$50,000 (2) (4)
3 PIVs $1.28 billion
25 other accounts(g) $21.02 billion
-------------------------- ------------------------ ----------------- ---------------
Jamie Jackson 12 RICs(h) $9.16 billion $10,001-$50,000
6 PIVs $3.14 billion
31 other accounts(g), $5.88 billion
(i)
-------------------------- ------------------------ ----------------- ---------------
Scott Kirby 11 RICs(h) $9.14 billion $10,001-$50,000
7 PIVs $2.71 billion
48 other accounts(g), $23.49 billion
(i)
- ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Disciplined Dimitris Bertsimas 4 RICs(c) $1.74 billion None (2) (3), (10)
Equity 1 PIVs $11.7 million
13 other accounts(g) $84.8 million
-------------------------- ------------------------ ----------------- ---------------
Gina Mourtzinou 2 RICs(c) $1.63 billion $50,001-$100,000
1 PIVs $11.7 million
13 other accounts(g) $84.8 million
- ----------------- -------------------------- ------------------------ ----------------- --------------- ----------- ----------------
Statement of Additional Information - Oct. 3, 2005 Page 96
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Fund Potential Structure of
Portfolio Manager Other Accounts Managed Ownership of Conflicts Compensation
Fund Shares of Interest
- ----------------- -------------------------- ------------------------------------------ --------------- ------------ ---------------
Approximate
Total Net
Assets
Number and type of (excluding
account the fund)
- ------------------------------------------------------------------------------------------------------------------------------------
Discovery Lord Abbett: 3 RICs $1,031 million None (14) (17)
Michael Smith 0 PIVs
9 other accounts $600.03 million
-------------------------- ------------------------ ----------------- --------------- ----------- ---------------
American Century: 14 RICs $9.97 billion None (9) (12)
William Martin 0 PIVs
2 other accounts $302.8 million
-------------------------- ------------------------ -----------------
American Century: 5 RICs $2.48 billion None
Wilhelmine von Turk 0 PIVs
2 other accounts $302.8 million
-------------------------- ------------------------ -----------------
American Century: 13 RICs $9.39 billion
Thomas Vaiana 0 PIVs None
2 other accounts $302.8 million
-------------------------- ------------------------ ----------------- --------------- ----------- ---------------
Wellington: 4 RICs* $1,710 million* None (12) (15)
Kenneth Abrams 3 PIV $841.2 million
23 other accounts** $1,999.7 million
-------------------------- ------------------------ ----------------- ---------------
Wellington: 4 RICs* $1,710 million* None
Daniel Fitzpatrick 3 PIV $841.2 million
16 other accounts** $1,983.4
million**
- ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- ---------------
Growth Nick Thakore 4 RICs(c) $3.43 billion $100,001- (20) (24)
2 PIVs $244.06 million $500,000
0 other accounts
- ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- ---------------
Income Brian Lavin 1 RIC $40.83 million $50,001- (2) (4)
Opportunities 1 PIV $50.11 million $100,000
0 other accounts
-------------------------- ------------------------ ----------------- ---------------
Jennifer Ponce de Leon 5 RICs $7.93 billion $50,001-
1 PIV $50.11 million $100,000
10 other accounts $2.44 billion
- ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- ---------------
Inflation Jamie Jackson 12 RICs(h) $9.13 billion $10,001-$50,000 (2) (4)
Protected 6 PIVs $3.14 billion
Securities 31 other account(g), $5.88 billion
(i)
- ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- ---------------
Large Cap Equity Nick Thakore 5 RICs(c) $6.56 billion $100,001- (20) (24)
2 PIVs $244.05 million $500,000
0 other accounts
-------------------------- ------------------------ ----------------- ---------------
Bob Ewing 6 RICs(c) $5.7. billion $100,001-
2 PIVs $244.05 million $500,000
1 other account $12.04 million
- ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- ---------------
Large Cap Value Bob Ewing 6 RICs(c) $7.11. billion $500,001- (20) (24)
2 PIVs $244.05 million $1,000,000
1 other account $12.04 million
- ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- ---------------
Limited Duration Tom Murphy 8 RICs(h) $6.85 billion $10,001-$50,000 (2) (4)
Bond 3 PIVs $1.28 billion
25 other accounts $21.02 billion
-------------------------- ------------------------ ----------------- ---------------
Jamie Jackson 12 RICs(h) $9.15 billion $10,001-$50,000
6 PIVs $3.14 billion
48 other accounts(g),
(i) $5.88 billion
-------------------------- ------------------------ ----------------- ---------------
Scott Kirby 11 RICs(h) $9.12 billion $10,001-$50,000
7 PIVs $2.72 billion
48 other accounts(g), $23.49 billion
(i)
- ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- ---------------
New Dimensions Gordon Fines 1 RIC(c) $2.32 billion Over (2) (25)
2 PIVs $145.9 million $1,000,000
7 other accounts $1.72 billion
-------------------------- ------------------------ ----------------- ---------------
Michael Nance 1 RIC(c) $2.32 billion None
1 PIV $51.35 million
13 other accounts(g) $304.2 million
-------------------------- ------------------------ ----------------- --------------- ----------- ---------------
Trisha Schuster 1 RIC(c) $2.32 billion $10,001-$50,000 (2), (3) (26)
0 PIVs
0 other accounts
- ------------------ -------------------------- ------------------------ ----------------- --------------- ----------- ---------------
Statement of Additional Information - Oct. 3, 2005 Page 97
* Includes 2 accounts where advisory fee is based on account performance with
approximately $1,491.2 million in total net assets as of July 31, 2005.
** Includes 1 account where advisory fee is based on account performance with
approximately $300.2 million in total net assets as of July 31, 2005.
(a) Mr. Bergene has overall accountability for the group that monitors the
subadvisers for RiverSource funds and for making recommendations to the
Boards of Directors on changes to those subadvisers.
(b) Ms. Keeley, who serves as Senior Vice President, Fixed Income for
RiverSource Investments, and Mr. Truscott, who serves as Chief Investment
Officer for RiverSource Investments, oversee the portfolio managers who
manage other accounts for RiverSource Investments, including the underlying
funds in which the Funds of Funds invest, and other accounts managed by
RiverSource Investments and its affiliates including institutional assets,
proprietary assets and hedge funds.
(c) The advisory fee paid is based in part on the performance of the fund or
account.
(d) Effective May 30, 2005, John Seabern is the sole portfolio manager of the
portion of the fund managed by RSIM.
(e) Neither Christopher Davis nor Kenneth Feinberg own any shares of
Fundamental Value Fund. However, both portfolio managers have over $1
million invested in the Davis Funds, which are managed in a similar style.
(f) Represents the portion of assets for which the portfolio manager has
primary responsibility in the accounts indicated. The accounts may contain
additional assets under the primary responsibility of other portfolio
managers.
(g) Reflects each wrap program strategy as a single client, rather than
counting each participant in the program as a separate client.
(h) The advisory fee paid to RiverSource Investments on 3 of the RICs with
approximately $643.57 million as of July 31, 2005 in aggregate net assets
is based in part on performance. Messrs. Murphy, Jackson and Kirby manage
the fixed income portion of those 3 RICs.
(i) The advisory fee paid to RiverSource Investments on 1 of the other accounts
is based in part on performance. As of July 31, 2005, Mr. Jackson managed
$0.21 million of that account, and Mr. Kirby managed $82.58 million of that
account.
Potential Conflicts of Interest
(1) Management of Funds-of-Funds differs from that of the other RiverSource
funds. The portfolio management process is set forth generally below and
in more detail in the funds' prospectus.
Management of the portfolios is based on initial asset class guidance
provided by the Capital Markets Committee, a group of RiverSource
Investments investment professionals, and subsequent allocation
determinations by the Asset Allocation Committee and Fund Selection
Committee within established guidelines set forth in the prospectus. The
Asset Allocation Committee, comprised of portfolio managers Joy, Keeley
and Truscott, determines each funds-of-fund's allocation among the three
main asset classes (equity, fixed income and cash) and allocation among
investment categories within each asset class. The Fund Selection
Committee, comprised portfolio managers Bergene, Joy, Keeley and Truscott,
determines each funds-of-fund's allocation among the underlying funds.
These allocation determinations are reviewed by the Asset Allocation
Committee and Fund Selection Committee at least quarterly.
Because of the structure of the funds-of-funds, the potential conflicts of
interest for the portfolio managers may be different than the potential
conflicts of interest for portfolio managers who manage other funds. These
potential conflicts of interest include:
o The portfolio managers of the underlying funds are under the
supervision of portfolio managers Keeley and Truscott. Keeley and
Truscott may have influence over the management of the underlying
funds through their supervision of the underlying funds' portfolio
managers and/or through their ability, as part of the Asset
Allocation Committee and Fund Selection Committee, to influence the
allocation of funds-of-funds assets to or away from the underlying
funds.
o Portfolio managers Joy, Keeley and Truscott also serve as members of
the Capital Markets Committee. As described above, the Capital
Markets Committee provides initial guidance with respect to asset
allocation, and its view may play a significant role in the asset
class determinations made by the Asset Allocation Committee and, as
a result, in the underlying fund determinations made by the Fund
Selection Committee.
Statement of Additional Information - Oct. 3, 2005 Page 98
(2) RiverSource Investments portfolio managers may manage one or more mutual
fund as well as other types of accounts, including proprietary accounts,
separate accounts for institutions and individuals, and other pooled
investment vehicles. Portfolio managers make investment decisions for an
account or portfolio based on its investment objectives and policies, and
other relevant investment considerations. A portfolio manager may manage a
separate account or other pooled investment vehicles whose fees may be
materially greater than the management fees paid by the fund and may
include a performance-based fee. Management of multiple funds and accounts
may create potential conflicts of interest relating to the allocation of
investment opportunities, and the aggregation and allocation of trades.
RiverSource Investments has a fiduciary responsibility to all of the
clients for which it manages accounts. RiverSource Investments seeks to
provide best execution for all securities transactions and to aggregate
securities transactions and then allocate securities to client accounts in
a fair and timely manner. RiverSource Investments has developed policies
and procedures, including brokerage and trade allocation policies and
procedures, designed to mitigate and manage the potential conflicts of
interest that may arise from the management of multiple types of accounts
for multiple clients.
(3) The portfolio manager's responsibilities also include working as a
securities analyst. This dual role may give rise to conflicts with respect
to making investment decisions for accounts that the portfolio manager
manages versus communicating his or her analyses to other portfolio
managers concerning securities that he or she follows as an analyst.
(4) Whenever a portfolio manager manages multiple accounts, potential
conflicts of interest exist, including potential conflicts between the
investment strategy of each account and the investment strategy of the
other accounts and potential conflicts in the allocation of investment
opportunities among the accounts. In addition, in certain instances, a
portfolio manager may take conflicting positions in a particular security.
For example, a portfolio manager may sell short a security for one account
that another account holds long, or may take a long position in a security
for one account that the portfolio manager has sold short for another
account. RSIM seeks to identify potential conflicts of interest resulting
from a portfolio manager's management of multiple accounts, and has
adopted policies and procedures, including a Code of Ethics, designed to
address such conflicts. RSIM and each of the portfolio managers attempt to
resolve any conflicts in a manner that is generally fair over time to all
of its clients. RSIM may give advice and take actions with respect to any
of its clients that may differ from advice given or the timing or nature
of action taken with respect to any particular account so long as it is
RSIM's policy, to the extent practicable, to allocate investment
opportunities over time on a fair and equitable basis relative to other
accounts. It is RSIM's policy that when the amount of securities of a
particular issuer available to RSIM's client accounts in an initial public
offering is insufficient to meet the requirements of each account for
which a portfolio manager has determined that the purchase of such
securities is appropriate, RSIM generally will allocate those securities
among those accounts based on the size of each account as of the close of
business on the preceding day. It is also RSIM's policy that it may
aggregate sale and purchase orders of securities for accounts with similar
orders being made simultaneously for other clients if, in RSIM's
reasonable judgment, such aggregation is reasonably likely to result
generally in lower per-share brokerage commission costs. In many
instances, the purchase or sale of securities for accounts will be
effected simultaneously with the purchase or sale of like securities for
other accounts. Such transactions may be made at slightly different
prices, due to the volume of securities purchased or sold. In such event,
each client may be charged or credited, as the case may be, the average
transaction price of all securities purchased or sold in such transaction.
As a result, however, the price may be less favorable to a client than it
would be if similar transactions were not being executed concurrently for
other accounts.
Statement of Additional Information - Oct. 3, 2005 Page 99
(5) As is typical for many money managers, potential conflicts of interest may
arise related to (a) Turner's management of accounts including the Fund
where not all accounts are able to participate in a desired IPO, or other
limited opportunity, (b) the use of soft dollars and other brokerage
practices, (c) the voting of proxies, (d) employee personal securities
trading, (e) the side by side management of accounts with performance
based fees and (f) accounts with fixed fees, and relating to a variety of
other circumstances. In all cases, Turner believes it has written policies
and procedures in place reasonably designed to prevent violations of the
federal securities laws and to prevent material conflicts of interest from
arising. Please see Turner's Form ADV, Part II for a description of some
of its policies and procedures in this regard.
(6) BB&A is a subadviser and adviser to other accounts whose investment focus
may be similar to those of the fund. BB&A currently has the capacity to
manage the fund and these other accounts, and the performance of the fund
should not be adversely affected. Management of multiple funds and
accounts may create potential conflicts of interest relating to the
allocation of investment opportunities, and the aggregation and allocation
of trades. BB&A endeavors at all times to manage all accounts in a fair
and equitable manner by maintaining policies and procedures relating to
allocation and brokerage practices. The Investment Policy Committee plans
to manage mutual funds, separate accounts, wrap accounts and subadvised
accounts so as not to exceed BB&A's ability to actively and proficiently
manage all accounts.
(7) The management of the fund and other accounts could result in potential
conflicts of interest if the fund and other accounts have different
objectives, benchmarks, and fees because the portfolio manager and his
team must allocate time and investment expertise across multiple accounts,
including the fund. The portfolio managers and their team manage the fund
and other accounts utilizing a model portfolio approach that groups
similar accounts within a model portfolio. UBS manages accounts according
to the appropriate model portfolio, including where possible, those
accounts that have specific investment restrictions. Accordingly,
portfolio holdings, position sizes, and industry and sector exposures tend
to be similar across accounts, which may minimize the potential for
conflicts of interest. If a portfolio manager identifies a limited
investment opportunity that may be suitable for more than one account or
model portfolio, the fund may not be able to take full advantage of that
opportunity due to an allocation of filled purchase or sale orders across
all eligible model portfolios and accounts. To deal with these situations,
UBS has adopted procedures for allocating portfolio trades across multiple
accounts to provide fair treatment to all accounts. The management of
personal accounts by a portfolio manager may also give rise to potential
conflicts of interest. UBS and the fund have adopted Codes of Ethics that
govern personal trading but there is no assurance that the Codes will
adequately address all such conflicts.
(8) Kenwood is an affiliate of Ameriprise Financial. The potential conflicts,
responsibilities, policies and procedures described in paragraph (2) also
apply to Kenwood.
(9) Certain conflicts of interest may arise in connection with the management
of multiple portfolios. Potential conflicts include, for example,
conflicts among investment strategies and conflicts in the allocation of
investment opportunities. American Century has adopted policies and
procedures that are designed to minimize the effects of these conflicts.
Responsibility for managing American Century client portfolios is
organized according to investment discipline. Investment disciplines
include, for example, quantitative equity, small- and mid-cap growth,
large-cap growth, value, international, fixed income, asset allocation,
and sector funds. Within each discipline are one or more portfolio teams
responsible for managing specific client portfolios. Generally, client
portfolios with similar strategies are managed by the same team using the
same objective, approach, and philosophy. Accordingly, portfolio holdings,
position sizes,
Statement of Additional Information - Oct. 3, 2005 Page 100
and industry and sector exposures tend to be similar across similar
portfolios, which minimizes the potential for conflicts of interest.
For each investment strategy, one portfolio is generally designated as the
"policy portfolio." Other portfolios with similar investment objectives,
guidelines and restrictions are referred to as "tracking portfolios." When
managing policy and tracking portfolios, a portfolio team typically
purchases and sells securities across all portfolios that the team
manages. American Century's trading systems include various order entry
programs that assist in the management of multiple portfolios, such as the
ability to purchase or sell the same relative amount of one security
across several funds. In some cases a tracking portfolio may have
additional restrictions or limitations that cause it to be managed
separately from the policy portfolio. Portfolio managers make purchase and
sale decisions for such portfolios alongside the policy portfolio to the
extent the overlap is appropriate, and separately, if the overlap is not.
American Century may aggregate orders to purchase or sell the same
security for multiple portfolios when it believes such aggregation is
consistent with its duty to seek best execution on behalf of its clients.
Orders of certain client portfolios may, by investment restriction or
otherwise, be determined not available for aggregation. American Century
has adopted policies and procedures to minimize the risk that a client
portfolio could be systematically advantaged or disadvantaged in
connection with the aggregation of orders. To the extent equity trades are
aggregated, shares purchased or sold are generally allocated to the
participating portfolios pro rata based on order size. Because initial
public offerings (IPOs) are usually available in limited supply and in
amounts too small to permit across-the-board pro rata allocations,
American Century has adopted special procedures designed to promote a fair
and equitable allocation of IPO securities among clients over time. Fixed
income securities transactions are not executed through a centralized
trading desk. Instead, portfolio teams are responsible for executing
trades with broker/dealers in a predominantly dealer marketplace. Trade
allocation decisions are made by the portfolio manager at the time of
trade execution and orders entered on the fixed income order management
system.
Finally, investment of American Century's corporate assets in proprietary
accounts may raise additional conflicts of interest. To mitigate these
potential conflicts of interest, American Century has adopted policies and
procedures intended to provide that trading in proprietary accounts is
performed in a manner that does not give improper advantage to American
Century to the detriment of client portfolios.
(10) Actual or apparent conflicts of interest may arise when a portfolio
manager has day-to-day management responsibilities with respect to more
than one portfolio or other account. More specifically, portfolio managers
who manage multiple portfolios and /or other accounts are presented with
the following potential conflicts:
o The management of multiple portfolios and/or other accounts may
result in a portfolio manager devoting unequal time and attention to
the management of each portfolio and/or other account. Davis
Advisors seeks to manage such competing interests for the time and
attention of portfolio managers by having portfolio managers focus
on a particular investment discipline. Most other accounts managed
by a portfolio manager are managed using the same investment models
that are used in connection with the management of the portfolios.
o If a portfolio manager identifies a limited investment opportunity
which may be suitable for more than one portfolio or other account,
a portfolio may not be able to take full advantage of that
opportunity due to an allocation of filled purchase or sale orders
across all eligible portfolios and other accounts. To deal with
these situations, Davis Advisors has adopted procedures for
allocating portfolio transactions across multiple accounts.
Statement of Additional Information - Oct. 3, 2005 Page 101
o With respect to securities transactions for the portfolios, Davis
Advisors determines which broker to use to execute each order,
consistent with its duty to seek best execution of the transaction.
However, with respect to certain other accounts (such as mutual
funds, other pooled investment vehicles that are not registered
mutual funds, and other accounts managed for organizations and
individuals), Davis Advisors may be limited by the client with
respect to the selection of brokers or may be instructed to direct
trades through a particular broker. In these cases, Davis Advisors
may place separate, non-simultaneous, transactions for a portfolio
and another account which may temporarily affect the market price of
the security or the execution of the transaction, or both, to the
detriment of the portfolio or the other account.
o Finally, substantial investment of Davis Advisor or Davis Family
assets in certain mutual funds may lead to conflicts of interest. To
mitigate these potential conflicts of interest, Davis Advisors has
adopted policies and procedures intended to ensure that all clients
are treated fairly over time. Davis Advisors does not receive an
incentive based fee on any account.
(11) GSAM's portfolio managers are often responsible for managing one or more
funds as well as other accounts, including proprietary accounts, separate
accounts and other pooled investment vehicles, such as unregistered hedge
funds. A portfolio manager may manage a separate account or other pooled
investment vehicle which may have materially higher fee arrangements than
the fund and may also have a performance-based fee. The side-by-side
management of these funds may raise potential conflicts of interest
relating to cross trading, the allocation of investment opportunities and
the aggregation and allocation of trades.
GSAM has a fiduciary responsibility to manage all client accounts in a
fair and equitable manner. It seeks to provide best execution of all
securities transactions and aggregate and then allocate securities to
client accounts in a fair and timely manner. To this end, GSAM has
developed policies and procedures designed to mitigate and manage the
potential conflicts of interest that may arise from side-by-side
management. In addition, GSAM has adopted policies limiting the
circumstances under which cross-trades may be effected between a fund and
another client account. GSAM conducts periodic reviews of trades for
consistency with these policies.
Due to GSAM's internal policies, GSAM portfolio managers are generally
prohibited from purchasing shares of sub-advised funds for which they have
primary responsibility.
(12) Individual investment professionals at Wellington Management manage
multiple portfolios for multiple clients. These accounts may include
mutual funds, separate accounts (assets managed on behalf of institutions
such as pension funds, insurance companies, foundations), bank common
trust accounts, and hedge funds. The investment professionals generally
manage portfolios in several different investment styles. These portfolios
may have investment objectives, strategies, time horizons, tax
considerations and risk profiles that differ from those of the relevant
fund. The Investment Professionals make investment decisions for the
relevant fund based on the investment objectives, policies, practices,
benchmarks, cash flows, tax and other relevant investment considerations
applicable to that portfolio. Consequently, the Investment Professionals
may purchase or sell securities, including IPOs, for one portfolio and not
another portfolio, and the performance of securities purchased for the
relevant fund may vary from the performance of securities purchased for
other portfolios. The Investment Professionals or other investment
professionals at Wellington Management may place transactions on behalf of
other accounts that are directly or indirectly contrary to investment
decisions made on behalf of the relevant fund, or make investment
decisions that are similar to those made for the relevant fund, both of
which have the potential to adversely impact the fund depending on market
conditions. For example, the Investment Professionals may purchase a
security in one portfolio while appropriately selling that same security
in another portfolio. In addition, some of these portfolios have fee
structures, including performance fees, that are or have the potential to
be higher, in some cases significantly higher, than the fees paid by the
relevant fund to Wellington Management. Because incentive payments are
tied to revenues
Statement of Additional Information - Oct. 3, 2005 Page 102
earned by Wellington Management, and where noted, to the performance
achieved by the manager in each account, the incentives associated with
any given fund may be significantly higher or lower than those associated
with other accounts managed by a given Investment Professional.
Wellington Management's goal is to meet its fiduciary obligation to treat
all clients fairly and provide high quality investment services to all of
its clients. Wellington Management has adopted and implemented policies
and procedures, including brokerage and trade allocation policies and
procedures that it believes address the conflicts associated with managing
multiple accounts for multiple clients. In addition, Wellington Management
monitors a variety of areas, including compliance with primary fund
guidelines, the allocation of initial public offerings, and compliance
with the firm's Code of Ethics, and places additional investment
restrictions on Portfolio Managers who manage hedge funds and certain
other accounts. Furthermore, senior investment and business personnel at
Wellington Management periodically review the performance of Wellington
Management's Investment Professionals. Although Wellington Management does
not track the time an Investment Professional spends on a single
portfolio, Wellington Management does periodically assess whether an
Investment Professional has adequate time and resources to effectively
manage the Investment Professional's various client mandates.
(13) Actual or apparent conflicts of interest may arise when the portfolio
manager also has day-to-day management responsibilities with respect to
one or more other accounts. These potential conflicts include:
Allocation of Limited Time and Attention. Because the portfolio manager
manages many accounts, he may not be able to formulate as complete a
strategy or identify equally attractive investment opportunities for each
of those accounts as if he were to devote substantially more attention to
the management of only a few accounts.
Allocation of Limited Investment Opportunities. If the portfolio manager
identifies an investment opportunity that may be suitable for multiple
accounts, the Fund may not be able to take full advantage of that
opportunity because the opportunity may need to be allocated among all or
many of these accounts or other accounts managed primarily by other
portfolio managers of the GAMCO Asset Management, Inc. (GAMCO) and its
affiliates. GAMCO does business under the name Gabelli Asset Management
Company.
Pursuit of Differing Strategies. At times, the portfolio manager may
determine that an investment opportunity may be appropriate for only some
of the accounts for which he exercises investment responsibility, or may
decide that certain of these accounts should take differing positions with
respect to a particular security. In these cases, the portfolio manager
may execute differing or opposite transactions for one or more accounts,
which may affect the market price of the security or the execution of the
transactions, or both, to the detriment of one or more of his accounts.
Selection of Broker/Dealers. Because of the portfolio manager's position
with Gabelli & Company, Inc., an affiliate of GAMCO that is a registered
broker-dealer, and his indirect majority ownership interest in Gabelli &
Company, Inc., he may have an incentive to use Gabelli & Company, Inc. to
execute portfolio transactions for the Fund even if using Gabelli &
Company, Inc. is not in the best interest of the fund.
Variation in Compensation. A conflict of interest may arise where the
financial or other benefits available to the portfolio manager differ
among the accounts that he manages. If the structure of GAMCO's management
fee or the portfolio manager's compensation differs among accounts (such
as where certain funds or accounts pay higher management fees or
performance-based management fees), the portfolio manager may be motivated
to favor certain funds or accounts over others. The portfolio manager also
may be motivated to favor funds or accounts in which he has an investment
interest, or in which GAMCO or its affiliates have investment interests.
In Mr. Gabelli's case, GAMCO's
Statement of Additional Information - Oct. 3, 2005 Page 103
compensation (and expenses) for the Fund are marginally greater as a
percentage of assets than for certain other accounts and are less than for
certain other accounts managed by Mr. Gabelli, while his personal
compensation structure varies with near-term performance to a greater
degree in certain performance fee based accounts than with nonperformance
based accounts. In addition, he has investment interests in several of the
funds managed by GAMCO and its affiliates. GAMCO and the Fund have adopted
compliance policies and procedures that are designed to address the
various conflicts of interest that may arise for GAMCO and its staff
members. However, there is no guarantee that such policies and procedures
will be able to detect and address every situation in which an actual or
potential conflict may arise.
(14) Conflicts of interest may arise in connection with the investment
manager's management of the investments of the relevant fund and the
investments of the other accounts. Such conflicts may arise with respect
to the allocation of investment opportunities among the relevant fund and
other accounts with similar investment objectives and policies. An
investment manager potentially could use information concerning a fund's
transactions to the advantage of other accounts and to the detriment of
the relevant. To address potential conflicts of interest that may arise in
connection with the investment managers' management of the investments of
the relevant fund and the investments of other accounts, Lord Abbett has
adopted and implemented a number of policies and procedures. Lord Abbett
has adopted Policies and Procedures for Evaluating Best Execution of
Equity Transactions, as well as Trading Practices/Best Execution
Procedures. The objective of these policies and procedures is to ensure
the fair and equitable treatment of transactions and allocation of
investment opportunities on behalf of all accounts managed by Lord Abbett.
In addition, Lord Abbett's Code of Ethics sets forth general principles
for the conduct of employee personal securities transactions in a manner
that avoids any actual or potential conflicts of interest with the
interest of Lord Abbett's clients including the relevant fund. Moreover,
Lord Abbett's Statement of Policy and Procedures on Receipt and Use of
Inside Information sets forth procedures for personnel to follow when they
have inside information. Lord Abbett is not affiliated with a full service
broker-dealer and therefore does not execute any fund transactions through
such an entity, a structure that could give rise to additional conflict.
Lord Abbett does not conduct any investment bank functions and does not
manage any hedge funds. Lord Abbett does not believe that any material
conflicts of interest exist in connection with the investment managers'
management of the investments of the relevant fund and the investments of
other accounts.
(15) The fact that Mr. Kaplan has day-to-day management responsibility for more
than one client account may create actual, potential or only apparent
conflicts of interest. For example, Mr. Kaplan may have an opportunity to
purchase securities of limited availability. In this circumstance, Mr.
Kaplan is expected to review each account's investment guidelines,
restrictions, tax considerations, cash balances, liquidity needs and other
factors to determine the suitability of the investment for each account
and to ensure that his managed accounts are treated equitably. Mr.
Kaplan may also decide to purchase or sell the same security for multiple
managed accounts at approximately the same time. To address any conflicts
that this situation may create, Mr. Kaplan will generally combine managed
account orders (i.e., enter a "bunched" order) in an effort to obtain best
execution or a more favorable commission rate. In addition, if orders to
buy or sell a security for multiple accounts managed by Mr. Kaplan on the
same day are executed at different prices or commission rates, the
transactions will generally be allocated by Royce to each of such managed
accounts at the weighted average execution price and commission. In
circumstances where a bunched order is not completely filled, each account
will normally receive a pro-rata portion of the securities based upon the
account's level of participation in the order. Royce may under certain
circumstances allocate securities in a manner other than pro-rata if it
determines that the allocation is fair and equitable under the
circumstances and does not discriminate against any account.
Statement of Additional Information - Oct. 3, 2005 Page 104
(16) Donald Smith & Co., Inc. is very sensitive to conflicts of interest that
could possibly arise in its capacity of serving as an investment adviser.
It remains committed to resolving any and all conflicts in the best
interest of its clients.
Donald Smith & Co., Inc. is an independent investment advisor with no
parent or subsidiary organizations. Additionally, it has no affiliated
organizations, brokerage, nor any investment banking activities.
Clients include mutual funds, public and corporate pension plans,
endowments and foundations, and other separate accounts. Donald Smith &
Co., Inc. has put in place systems, policies and procedures, which have
been designed to maintain fairness in portfolio management across all
clients. Potential conflicts between funds or with other types of accounts
are managed via allocation policies and procedures, internal review
processes, and direct oversight by Donald G. Smith, President.
(17) Portfolio Managers at Franklin Portfolio Associates (FPA) may manage one
or more mutual funds as well as other types of accounts, including
proprietary accounts, separate accounts for institutions and individuals,
and other pooled investment vehicles. Portfolio managers make investment
decisions for an account or portfolio based on its investment objectives
and policies, and other relevant investment considerations. A portfolio
manager may manage a separate account or other pooled investment vehicle
whose fees may be materially greater than the management fees paid by
Small Cap Value Fund and may include a performance-based fee. Management
of multiple funds and accounts may create potential conflicts of interest
relating to the allocation of investment opportunities, and the
aggregation and allocation of trades.
FPA has a fiduciary responsibility to all of the clients for which it
manages accounts. FPA seeks to provide best execution of all securities
transactions and to aggregate securities transactions and then allocate
securities to client accounts in a fair and timely manner. FPA has
developed policies and procedures, including brokerage and trade
allocation policies and procedures, designed to mitigate and manage the
potential conflicts of interest that may arise from the management of
multiple types of accounts for multiple clients.
(18) BHMS's portfolio managers manage one or more mutual funds as well as other
types of accounts, such as separate accounts for institutions and
individuals, and other pooled investment vehicles. Portfolio managers make
investment decisions for an account or portfolio based on its investment
objectives and policies, and other relevant investment considerations.
(19) BHMS has a fiduciary responsibility to all of the clients for which it
manages accounts. BHMS seeks to provide best execution of all securities
transactions and to aggregate securities transactions and then allocate
securities to client accounts in a fair and timely manner.
BHMS has developed policies and procedures, including brokerage and trade
allocation policies and procedures, designed to mitigate and manage the
potential conflicts of interest that may arise from the management of
multiple types of accounts for multiple clients. All clients are managed
identically whether BHMS receives an asset based fee, a performance based
fee or a combination of the two. All client accounts are treated equally
as all purchases and sales of securities are aggregated.
(20) RiverSource Investments portfolio managers may manage one or more mutual
funds as well as other types of accounts, including hedge funds,
proprietary accounts, separate accounts for institutions and individuals,
and other pooled investment vehicles. Portfolio managers make investment
decisions for an account or portfolio based on its investment objectives
and policies, and other relevant investment considerations. A portfolio
manager may manage a separate account or other pooled investment vehicle
whose fees may be materially greater than the management fees paid by the
Fund and may include a performance-based fee. Management of multiple funds
and accounts may create potential conflicts of interest relating to the
allocation of investment opportunities, and the aggregation and allocation
of trades. In addition, RiverSource Investments monitors a variety of
areas (e.g., allocation of investment opportunities) and compliance with
the firm's Code of Ethics,
Statement of Additional Information - Oct. 3, 2005 Page 105
and places additional investment restrictions on portfolio managers who
manage hedge funds and certain other accounts.
RiverSource Investments has a fiduciary responsibility to all of the
clients for which it manages accounts. RiverSource Investments seeks to
provide best execution of all securities transactions and to aggregate
securities transactions and then allocate securities to client accounts in
a fair and timely manner. RiverSource Investments has developed policies
and procedures, including brokerage and trade allocation policies and
procedures, designed to mitigate and manage the potential conflicts of
interest that may arise from the management of multiple types of accounts
for multiple clients.
Structure of Compensation
(1) The compensation of RiverSource Investments employees consists of (i) a
base salary, (ii) an annual cash bonus, and (iii) an equity incentive
award in the form of stock options and/or restricted stock. The annual
cash bonus is based on management's assessment of the employee's
performance relative to individual and business unit goals and objectives
which, for portfolio managers Joy, Keeley and Truscott, may be based, in
part, on achieving certain investment performance goals and retaining and
attracting assets under management, and for portfolio manager Bergene, on
developing competitive products, managing existing products, and selecting
and monitoring subadvisers for RiverSource funds. In addition, subject to
certain vesting requirements, the compensation of portfolio managers Joy,
Keeley and Truscott, includes an annual award based on the performance of
AEFC's parent company and certain of its affiliates over rolling
three-year periods. RiverSource Investments' portfolio managers are
provided with a benefit package including life insurance, health insurance
and participation in the company's 401(k) plan comparable to that received
by other RiverSource Investments employees. Depending upon their job
level, RiverSource Investments' portfolio managers may also be eligible
for other benefits or perquisites that are available to all RiverSource
Investments employees at the same job level.
(2) The compensation of RiverSource Investments employees consists of (i) a
base salary, and (ii) an annual cash bonus, a portion of which may be
subject to a mandatory deferral program. The portfolio manager's annual
bonus is based on (i) the fund's assets, (ii) the fund's short-term and
long-term tracking error compared to the benchmark index and (iii) the
tracking error of two other index funds managed by the portfolio manager
compared to the relevant index. Effective Jan. 1, 2005, the portfolio
manager's annual bonus will be based on the foregoing factors as well as
the performance of other accounts that he manages. RiverSource
Investments' portfolio managers are provided benefits packages including
life insurance, health insurance and participation in the company's 401(k)
plan comparable to that received by other RiverSource Investments
employees. Depending upon their job level, RiverSource Investments'
portfolio managers may also be eligible for other benefits or perquisites
that are available to all RiverSource Investments employees at the same
job level.
(3) The portfolio manager's compensation as a RiverSource Investments employee
consists of (i) a base salary, (ii) an annual cash bonus, a portion of
which may be subject to a mandatory deferral program, and (iii) an equity
incentive award in the form of stock options and/or restricted stock. The
annual bonus is paid from a team bonus pool that is based on both mutual
fund and institutional portfolio performance. Funding for the bonus pool
is determined by a percentage of the aggregate assets under management in
the accounts managed by the portfolio managers, including the Fund, and by
the short term (typically one-year) and long-term (typically three year)
performance of those accounts in relation to the relevant peer groups.
Senior management of RiverSource Investments has the discretion to
increase or decrease the size of the bonus pool and to determine the exact
amount of each portfolio manager's bonus based on his/her performance as
an employee. RiverSource Investments portfolio managers are provided with
a benefits package, including life insurance, health insurance, and
participation in the company's 401(k) plan, comparable to that received by
other RiverSource Investments employees. Depending upon their job level,
Statement of Additional Information - Oct. 3, 2005 Page 106
RiverSource Investments' portfolio managers may also be eligible for other
benefits or perquisites that are available to all RiverSource Investments
employees at the same job level.
(4) The portfolio manager's compensation as a RiverSource Investments employee
consists of (i) a base salary, (ii) an annual cash bonus, and (iii) an
equity incentive award in the form of stock options and/or restricted
stock. An annual bonus is paid from a team bonus pool that is based on
both mutual fund and institutional portfolio performance. Funding for the
bonus pool is determined by the aggregate market competitive bonus targets
for the team of which the portfolio manager is a member and by the
short-term (typically one year) and long-term (typically three year)
performance of the accounts compared to applicable benchmarks. Senior
management of RiverSource Investments has the discretion to increase or
decrease the size of the bonus pool and to determine the exact amount of
the portfolio manager's bonus based on his/her performance as an employee.
RiverSource Investments' portfolio managers are provided with a benefits
package including life insurance, health insurance and participation in
the company's 401(k) plan comparable to that received by other RiverSource
Investments employees. Depending upon their job level, RiverSource
Investments' portfolio managers may also be eligible for other benefits or
perquisites that are available to all RiverSource Investments employees at
the same job level.
(5) The portfolio manager's compensation as a RiverSource Investments employee
consists of (i) a base salary, (ii) an annual cash bonus, a portion of
which may be subject to a mandatory deferral program, and (iii) an equity
incentive award in the form of stock options and/or restricted stock. The
annual bonus is paid from a team bonus pool that is based on both mutual
fund and institutional portfolio performance. Funding for the bonus pool
is determined by a percentage of the aggregate assets under management in
the accounts managed by the portfolio managers, including the Fund, plus a
percentage of the assets of the funds they support as research analysts,
and by the short-term (typically one year) and long-term (typically three
year) performance of those accounts in relation to the relevant peer
groups. Senior management of RiverSource Investments has the discretion to
increase or decrease the size of the bonus pool and to determine the exact
amount of each portfolio manager's bonus based on his performance as an
employee. RiverSource Investments portfolio managers are provided with a
benefits package, including life insurance, health insurance, and
participation in company 401(k) plan, comparable to that received by other
RiverSource Investments employees. Depending upon their job level,
RiverSource Investments portfolio managers may also be eligible for other
benefits or perquisites that are available to all RiverSource Investments
employees at the same job level.
(6) RSIM is an employee-owned investment firm. The firm has two separate
investment advisory operating divisions, each with separate compensation
and profit sharing structures. Each of the firm's portfolio managers is
part of the Growth Group or the Value Group. Messrs. Wallace and Seabern
are members of the Growth Group (the "Group"). In establishing salaries
and bonuses, RSIM considers information regarding industry compensation
levels, which is prepared by a leading consulting firm. RSIM sets salary
and bonus levels by reference to other investment firms investing in
similar categories. In consultation with RSIM's Co-Chief Executive
Officers, the leaders of the Group, who include Mr. Wallace, determined
all salaries and bonuses for the Group for the fiscal year ended Dec. 31,
2004. Salaries were based on industry standards, as described above.
Bonuses within the Group were based on a number of factors, including (1)
pre-tax investment performance for each account managed by a portfolio
manager against a relevant peer group over one-and three-year periods,
with an emphasis on the most recent one-year period, and (2) experience.
Assets under management did not directly affect any individual's salary or
bonus, although the amount of the Group's assets under management affected
the fee revenue attributable to the Group, which in turn affected the
maximum amount of money available for the Group's aggregate salaries and
bonuses. In addition, the Group's portfolio managers participated in the
profits of the Group based on their profit sharing percentages. The
Group's leaders, in consultation with RSIM's Co-Chief Executive Officers,
set these percentages at the beginning of each year based on a number of
factors, including tenure, assets under management, long-term investment
performance (compared to appropriate
Statement of Additional Information - Oct. 3, 2005 Page 107
benchmarks), and overall contribution to the Group's investment process.
Some of the Group's portfolio managers also have an equity interest in RS
Investments and so participate in overall firm profits in addition to
Group profits.
(7) Turner's investment professionals receive a base salary commensurate with
their level of experience. Turner's goal is to maintain competitive base
salaries through review of industry standards, market conditions, and
salary surveys. Bonus compensation, which is a multiple of base salary, is
computed annually based on the one year performance of each individual's
sector and portfolio assignments relative to appropriate market
benchmarks. In addition, each employee is eligible for equity ownership
and equity owners share the firm's profits. Most of the members of the
Investment Team and all Portfolio Managers are equity owners of Turner.
This compensation and ownership structure provides incentives to attract
and retain highly qualified people, as each member of the firm has the
opportunity to share directly in the accomplishments of the business.
The objective performance criteria noted above accounts for 90% of the
bonus calculation. The remaining 10% is based upon subjective, "good will"
factors including teamwork, interpersonal relations, the individual's
contribution to overall success of the firm, media and client relations,
presentation skills, and professional development. Portfolio
managers/analysts are reviewed on an annual basis. The Chief Investment
Officer is responsible for setting base salaries, bonus targets, and
making all subjective judgments related to an investment professional's
compensation. The CIO is also responsible for identifying investment
professionals who should be considered for equity ownership on an annual
basis.
(8) BB&A compensates its investment professionals with salaries, year-end
profit sharing, bonuses, account retention commissions, and incentive
bonuses based upon account performance. Salaries are competitive with
industry standards. Account management commissions are a specific
percentage of the account fees paid to the portfolio account manager(s)
while the manager and account are still with the firm. Performance bonuses
are paid as a specific percentage of the account fees to the portfolio
manager(s) when that account's annual returns occur in the top quartile of
the returns achieved by other managers having the same investment
objective as the subject product.
(9) The compensation received by portfolio managers at UBS includes a base
salary and incentive compensation based on their personal performance.
UBS's compensation and benefits programs are designed to provide its
investment professionals with incentives to excel, and to promote an
entrepreneurial, performance-oriented culture. They also align the
interests of the investment professionals with the interests of UBS's
clients. Overall compensation can be grouped into four categories: 1)
Competitive salary, benchmarked to maintain competitive compensation
opportunities; 2) Annual bonus, tied to individual contributions and
investment performance; 3) UBS equity awards, promoting company-wide
success and employee retention; 4) Partnership Incentive Program (PIP), a
phantom-equity-like program for key senior staff. The base salary is used
to recognize the experience, skills and knowledge that the investment
professionals bring to their roles. Salary levels are monitored and
adjusted periodically in order to remain competitive within the investment
management industry. Annual bonuses are strictly and rigorously correlated
with performance. As such, annual incentives can be highly variable, and
are based on three components: 1) the firm's overall business success; 2)
the performance of the respective asset class and/or investment mandate;
and 3) an individual's specific contribution to the firm's results. UBS
strongly believes that tying bonuses to both long-term (3-year) and
shorter-term (1-year) portfolio performance closely aligns the investment
professionals' interests with those of UBS's clients. Senior investment
professionals, such as Messrs. Graham and Wabnik, may receive a portion of
their annual performance-based incentive in the form of deferred or
restricted UBS AG shares or employee stock options. UBS believes that this
reinforces the critical importance of creating long-term business value
and also serves as an effective retention tool as the equity shares
typically vest over a number of years. Broader equity share ownership is
encouraged for all employees through "Equity Plus". This long-term
incentive program gives employees the
Statement of Additional Information - Oct. 3, 2005 Page 108
opportunity to purchase UBS stock with after-tax funds from their bonus or
salary. Two UBS stock options are given for each share acquired and held
for two years. UBS feels this engages its employees as partners in the
firm's success, and helps to maximize its integrated business strategy.
(10) Funding for bonuses is also based on certain activities of the team in
developing technology tools that can be used in RiverSource Investments'
asset management business.
(11) Messrs. Hurwitz and Kelley are both equity owners of Kenwood. Their
compensation consists of a salary, plus a pro rata share of the annual net
earnings of Kenwood, some of which derives from fees paid by the fund.
Messrs. Hurwitz and Kelley are provided with a benefits package, including
life insurance, health insurance, and participation in a company 401(k)
plan, comparable to that received by other employees of Kenwood. Messrs.
Hurwitz and Kelley are also eligible for certain benefits that are
available to all equity owners of Kenwood.
(12) The compensation of American Century's portfolio managers is structured to
align the interests of portfolio managers with those of the shareholders
whose assets they manage. It includes the components described below, each
of which is determined with reference to a number of factors, such as
overall performance, market competition, and internal equity. Compensation
is not directly tied to the value of assets held in client portfolios.
Base Salary
Portfolio managers receive base pay in the form of a fixed annual salary.
Bonus
A significant portion of portfolio manager compensation takes the form of
an annual incentive bonus tied to performance. Bonus payments are
determined by a combination of factors. One factor is fund investment
performance. For policy portfolios, investment performance is measured by
a combination of one- and three-year pre-tax performance relative to a
pre-established, internally-customized peer group and/or market benchmark.
Custom peer groups are constructed using all the funds in appropriate
Lipper or Morningstar categories as a starting point. Funds are then
eliminated from the peer group based on a standardized methodology
designed to result in a final peer group that more closely represents the
fund's true peers based on internal investment mandates and that is more
stable (i.e., has less peer turnover) over the long-term. In cases where a
portfolio manager has responsibility for more than one policy portfolio,
the performance of each is assigned a percentage weight commensurate with
the portfolio manager's level of responsibility.
With regard to tracking portfolios, investment performance may be measured
in a number of ways. The performance of the tracking portfolio may be
measured against a customized peer group and/or market benchmark as
described above for policy portfolios. Alternatively, the tracking
portfolio may be evaluated relative to the performance of its policy
portfolio, with the goal of matching the policy portfolio's performance as
closely as possible. This is the case for the Small Cap Equity Fund and
Discovery Fund. In some cases, the performance of a tracking portfolio is
not separately considered. Rather, the performance of the policy portfolio
is the key metric. This is the case for the Aggressive Growth Fund.
A second factor in the bonus calculation relates to the performance of all
American Century funds managed according to a particular investment style,
such as U.S. growth or value. Performance is measured for each product
individually as described above and then combined to create an overall
composite for the product group. These composites may measure one-year
performance (equal weighted) or a combination of one- and three-year
performance (asset weighted) depending on the portfolio manager's
responsibilities and products managed. This feature is designed to
encourage effective teamwork among portfolio management teams in achieving
long-term investment success for similarly styled portfolios.
Statement of Additional Information - Oct. 3, 2005 Page 109
A portion of some portfolio managers' bonuses may be tied to individual
performance goals, such as research projects and the development of new
products.
Finally, portfolio manager bonuses may occasionally be affected by
extraordinarily positive or negative financial performance by American
Century Companies, Inc. (ACC), the advisor's privately-held parent
company. This feature has been designed to maintain investment performance
as the primary component of portfolio manager bonuses while also providing
a link to the advisor's ability to pay.
Restricted Stock Plans
Portfolio managers are eligible for grants of restricted stock of ACC.
These grants are discretionary, and eligibility and availability can vary
from year to year. The size of an individual's grant is determined by
individual and product performance as well as other product-specific
considerations. Grants can appreciate/depreciate in value based on the
performance of the ACC stock during the restriction period (generally
three years).
Deferred Compensation Plans
Portfolio managers are eligible for grants of deferred compensation. These
grants are used in very limited situations, primarily for retention
purposes. Grants are fixed and can appreciate/depreciate in value based on
the performance of the American Century mutual funds in which the
portfolio manager chooses to invest them.
(13) Kenneth Feinberg's compensation as a Davis Advisors employee consists of
(i) a base salary, (ii) an annual bonus equal to a percentage of growth in
Davis Advisors' profits, (iii) awards of equity ("Units") in Davis
Advisors including Units, options on Units, and/or phantom Units, and (iv)
an incentive plan whereby Davis Advisors purchases shares in selected
funds managed by Davis Advisors. At the end of specified periods,
generally five years following the date of purchase, some, all, or none of
the fund shares will be registered in the employee's name based on fund
performance after expenses on a pre-tax basis versus the S&P 500 Index and
versus peer groups as defined by Morningstar or Lipper. Davis Advisors'
portfolio managers are provided benefits packages including life
insurance, health insurance, and participation in company 401(k) plan
comparable to that received by other company employees.
Christopher Davis's annual compensation as an employee and general partner
of Davis Advisors consists of a base salary. Davis Advisors' portfolio
managers are provided benefits packages including life insurance, health
insurance, and participation in company 401(k) plan comparable to that
received by other company employees.
(14) GSAM and the GSAM Growth team's (the Growth Team) compensation package for
its Portfolio Managers is comprised of a base salary and performance
bonus. The performance bonus is first and foremost tied to the Growth
Team's pre-tax performance for their clients and the Growth Team's total
revenues for the past year, which in part is derived from advisory fees
and for certain accounts, performance based fees. The Growth Team measures
performance on a market cycle basis, which typically measures a
three-to-seven year period, rather than being focusing on short-term gains
in their strategies or short-term contributions from a Portfolio Manager
in any given year.
The performance bonus for Portfolio Managers is significantly influenced
by the following criteria: (1) whether the team performed consistently
with objectives and client commitments; (2) whether the team's
performance exceeded performance benchmarks over a market cycle; (3)
consistency of performance across accounts with similar profiles; and (4)
communication with other Portfolio Managers within the research process.
Benchmarks for measuring performance can be either broad-based or
narrow-based indices, which will vary based on client expectations. The
benchmark for the Fundamental Growth Fund is the Russell 1000 Growth
Index.
Statement of Additional Information - Oct. 3, 2005 Page 110
The Growth Team also considers each Portfolio Manager's individual
performance, his or her contribution to the overall performance of the
strategy long term, and his/her ability to work as a member of the Team.
GSAM and the Growth Team's decision may also be influenced by the
following: the performance of GSAM, the profitability of Goldman, Sachs &
Co., and anticipated compensation levels among competitor firms.
(15) Wellington Management's compensation structure is designed to attract and
retain high-caliber investment professionals necessary to deliver high
quality investment management services to its clients. Wellington
Management's compensation of the investment professionals primarily
responsible for the day-to-day management of the Fund includes a base
salary and incentive components. The base salary for each investment
professional who is a partner of Wellington Management is determined by
the Managing Partners of the firm.
A partner's base salary is generally a fixed amount that may change as a
result of an annual review. The base salary for all other Investment
Professionals is determined by the Investment Professional's experience
and performance in their role as an Investment Professional. Base salaries
for non-partners are reviewed annually and may be adjusted based on the
recommendation of the Investment Professional's business manager, using
guidelines established by Wellington Management's Compensation Committee,
which has final oversight responsibility for base salaries for
non-partners. Each Investment Professional is eligible to receive an
incentive payment based on the revenues earned by Wellington Management
from the fund managed by that Investment Professional and generally each
other portfolio managed by such Investment Professional. Each Investment
Professional's incentive payment relating to the fund is linked to the
gross pre-tax performance of the fund compared to the appropriate
benchmark or peer group over one and three year periods, with an emphasis
on three year results. Wellington Management applies similar incentive
structures (although the benchmarks or peer groups, time periods and rates
may differ) to other portfolios managed by these Investment Professionals,
including portfolios with performance fees. Portfolio-based incentives
across all portfolios managed by an Investment Professional can, and
typically do, represent a significant portion of an Investment
Professional's overall compensation; incentive compensation varies
significantly by individual and can vary significantly from year to year.
Some Investment Professionals are also eligible for bonus payments based
on their overall contribution to Wellington Management's business
operations. Senior management at Wellington Management may reward
individuals as it deems appropriate based on factors other than portfolio
performance. Each partner of Wellington Management is also eligible to
participate in a partner-funded retirement plan. Messrs. Abrams, Boselli
and Shilling are partners of the firm.
(16) Mr. Gabelli receives incentive-based variable compensation based on a
percentage of net revenues received by GAMCO for managing Select Value
Fund. Net revenues are determined by deducting from gross investment
management fees paid by the Fund the firm's expenses (other than Mr.
Gabelli's compensation) allocable to the Fund. Additionally, he receives
similar incentive-based variable compensation for managing other accounts
within the firm. This method of compensation is based on the premise that
superior long-term performance in managing a portfolio should be rewarded
with higher compensation as a result of growth of assets through
appreciation and net investment activity. One of the other registered
investment companies managed by Mr. Gabelli has a performance (fulcrum)
fee arrangement for which his compensation is adjusted up or down based on
the performance of the investment company relative to an index. Five
closed-end registered investment companies managed by Mr. Gabelli have
arrangements whereby GAMCO will receive only its investment advisory fee
attributable to the liquidation value of outstanding preferred stock (and
Mr. Gabelli would only receive his percentage of such advisory fee) if
certain performance levels are met. Mr. Gabelli manages other accounts
with performance fees. Compensation for managing these accounts has two
components. One component of the fee is based on a percentage of net
revenues received by GAMCO for managing the account. The second component
is based on
Statement of Additional Information - Oct. 3, 2005 Page 111
absolute performance of the account, with respect to which a percentage of
such performance fee is paid to Mr. Gabelli. As an executive officer of
the GAMCO parent company, Gabelli Asset Management Inc., Mr. Gabelli also
receives ten percent of the net operating profits of the parent company.
Mr. Gabelli receives no base salary, no annual bonus and no stock options.
(17) Lord Abbett compensates its portfolio managers on the basis of salary,
bonus and profit sharing plan contributions. Base salaries are assigned at
a level that takes into account the portfolio manager's experience,
reputation and competitive market rates.
Fiscal year-end bonuses, which can be a substantial percentage of base
level compensation, are determined after an evaluation of various factors.
These factors include the portfolio manager's investment results and style
consistency, the dispersion among funds with similar objectives, the risk
taken to achieve the fund returns, the funds' size and cash flows, and
similar factors. Investment results are evaluated based on an assessment
of the portfolio manager's three- and five year investment returns on a
pre-tax basis vs. both the appropriate style benchmarks and the
appropriate peer group rankings. Finally, there is a component of the
bonus that reflects leadership and management of the investment team. The
evaluation does not follow a formulaic approach, but rather is reached
following a review of these factors. No part of the bonus payment is based
on the portfolio manager's assets under management, the revenues generated
by those assets, or the profitability of the portfolio manager's unit.
Lord Abbett does not manage hedge funds. Lord Abbett may designate a bonus
payment to a manager for participation in the firm's senior incentive
compensation plan, which provides for a deferred payout over a five-year
period. The plan's earnings are based on the overall asset growth of the
firm as a whole. Lord Abbett believes this incentive focuses portfolio
managers on the impact their fund's performance has on the overall
reputation of the firm as a whole and encourages exchanges of investment
ideas among investment professionals managing different mandates.
Lord Abbett provides a 401(k) profit-sharing plan for all eligible
employees. Contributions to a portfolio manager's profit-sharing account
are based on a percentage of the portfolio manager's total base and bonus
paid during the fiscal year, subject to a specified maximum amount. The
assets of this profit-sharing plan are entirely invested in Lord
Abbett-sponsored funds.
(18) Mr. Kaplan receives from Royce a base salary, a performance bonus, a
"Partners Pool" participation based primarily on registered investment
company and other client account revenues generated by Royce and a
benefits package. Mr. Kaplan's compensation is reviewed and may be
modified from time to time as appropriate to reflect changes in the
market, as well as to adjust the factors used to determine bonuses.
Base Salary - Mr. Kaplan is paid a base salary. In setting the base
salary, Royce seeks to be competitive in light of Mr. Kaplan's experience
and responsibilities.
Performance Bonus - Mr. Kaplan receives a quarterly performance bonus that
is revenue-based, and therefore in part is based on the value of the
accounts' net assets, determined with reference to each of the registered
investment company accounts he manages. For Mr. Kaplan, the revenue-based
performance bonus applicable to the registered investment company accounts
he manages is subject to upward or downward adjustment or elimination
based on a combination of 3-year and 5-year risk-adjusted pre-tax returns
of such accounts relative to all small-cap objective funds with three
years of history tracked by Morningstar and the 5-year absolute returns of
such accounts relative to 5-year U.S. Treasury Notes.
Payment of the performance bonus may be deferred as described below, and
any amounts deferred are forfeitable, if a portfolio manager is terminated
by Royce with or without cause or resigns. The amount of the deferred
performance bonus will appreciate or depreciate during the deferral
period, based on the total return performance of one or more Royce
registered investment company accounts selected by the portfolio manager
at the beginning of the deferral period. The amount
Statement of Additional Information - Oct. 3, 2005 Page 112
deferred will depend on the portfolio manager's total direct, indirect
beneficial, and deferred unvested bonus investments in the Royce
registered investment company account for which he is receiving portfolio
management compensation.
Partners Pool - Each portfolio manager, as well as other senior firm
employees, participates in a quarterly pool relating to Royce's net
operating revenues adjusted for some imputed expenses. A portion of this
participation may be deferred for three years. The deferred portion is
also forfeitable if the portfolio manager is terminated with or without
cause or resigns, and appreciates or depreciates during the deferral
period based on the total return of a basket of registered investment
company accounts managed by Royce.
Benefit Package - Each portfolio manager also receives benefits standard
for all Royce employees, including health care and other insurance
benefits, and participation in Royce's 401(k) Plan and Money Purchase
Pension Plan. From time to time, on a purely discretionary basis,
portfolio managers may also receive options to acquire stock in Royce's
parent company, Legg Mason, Inc. Those options typically represent a small
portion of a portfolio manager's overall compensation.
(19) GSAM and the GSAM Value Team's (the Value Team) compensation package for
its Portfolio Managers is comprised of a base salary and a performance
bonus. The performance bonus is a function of each Portfolio Manager's
individual performance and his or her contribution to overall team
performance. Portfolio Managers are rewarded for their ability to
outperform a benchmark while managing risk appropriately. Compensation is
also influenced by the Value Team's total revenues for the past year,
which in part is derived from advisory fees and for certain accounts,
performance based fees.
Anticipated compensation levels among competitor firms may also be
considered, but is not a principal factor.
The performance bonus is significantly influenced by a 3-year period of
investment performance. The following criteria are considered:
o Individual performance (relative, absolute)
o Team Performance (relative, absolute)
o Consistent performance that aligns with clients' objectives
o Achievement of top rankings (relative and competitive)
The investment performance mentioned above is considered only on a pre-tax
basis. As it relates to relative performance, the benchmark for this Fund
is the Russell 2000 Value Index. As mentioned above, performance is
measured on a 3-year basis.
(20) Other Compensation. GSAM offers a number of additional benefits/deferred
compensation programs for all Portfolio Managers including (i) a 401(k)
program that enables employees to direct a percentage of their pretax
salary and bonus income into a tax-qualified retirement plan; (ii) a
profit sharing program to which Goldman Sachs & Co. makes a pretax
contribution; and (iii) investment opportunity programs in which certain
professionals are eligible to participate subject to certain net worth
requirements. Portfolio Managers may also receive grants of restricted
stock units and/or stock options as part of their compensation.
Certain GSAM Portfolio Managers may also participate in the firm's Partner
Compensation Plan, which covers many of the firm's senior executives. In
general, under the Partner Compensation Plan, participants receive a base
salary and a bonus (which may be paid in cash or in the form of an
equity-based award) that is linked to Goldman Sachs' overall financial
performance.
(21) The compensation for portfolio managers, analysts and traders at Donald
Smith consists of a base salary, a partnership interest in the firm's
profits, and possibly an additional, discretionary bonus. This
discretionary bonus can exceed 100% of the base salary if performance for
clients exceeds established benchmarks. The current benchmark utilized is
the Russell 2000 Value Index. Additional distribution of firm ownership is
a strong motivation for continued employment at
Statement of Additional Information - Oct. 3, 2005 Page 113
Donald Smith & Co., Inc. Administrative personnel are also given a bonus
as a function of their contribution and the profitability of the firm.
(22) FPA's portfolio managers are encouraged and expected to work as a team.
Compensation is commensurate with their performance and that of the firm.
The percentage of compensation derived from base salary, bonus and other
incentives varies widely across the firm and is dependent on the area of
responsibility and seniority of the employee.
FPA feels that the salary component of its compensation structure is
competitive with other investment managers. All of our investment
professionals participate in a deferred compensation arrangement; they
receive a share of the firm's profits which are allocated to an account,
payable at a future point in time, provided they remain with the firm.
(23) In addition to base salary, all of BHMS's portfolio managers and analysts
share in a bonus pool that is distributed semi-annually. The amount of
bonus compensation is based on quantitative and qualitative factors.
Analysts and portfolio managers are rated on the value that they add to
the team-oriented investment process. Compensation is not tied to a
published or private benchmark. It is important to understand that
contributions to the overall investment process may include not
recommending securities in an analyst's sector if there are no compelling
opportunities in the industries covered by that analyst.
In addition, many BHMS employees, including all portfolio managers and
analysts, have equity ownership in the firm through "phantom stock" in
BHMS, and participate in a long-term incentive plan with Old Mutual Asset
Management (US), an affiliate of BHMS. Also, all partners of the firm
receive, on a quarterly basis, a share of the firm's profits, which are,
to a great extent, related to the performance of the entire investment
team.
(24) The portfolio manager's compensation as a RiverSource Investments employee
consists of (i) a base salary, (ii) an annual cash bonus, a portion of
which may be subject to a mandatory deferral program, and (iii) an equity
incentive award in the form of stock options and/or restricted stock. The
annual bonus is paid from a team bonus pool that is based on mutual fund,
institutional portfolio and hedge fund performance. With respect to mutual
funds and institutional portfolios, funding for the bonus pool is
determined by a percentage of the aggregate assets under management in
these accounts managed by the portfolio managers, including the Fund, and
by the short-term (typically one year) and long-term (typically three
year) performance of those accounts in relation to the relevant peer
groups. With respect to hedge funds, funding for the bonus pool is a
percentage of performance fees earned on the hedge funds managed by the
portfolio managers. The percentage of the hedge fund performance fees used
to fund the bonus pool is determined annually based on the performance of
the mutual funds managed by the portfolio managers. Senior management of
RiverSource Investments has the discretion to increase or decrease the
size of the bonus pool and to determine the exact amount of each portfolio
manager's bonus based on his performance as an employee. RiverSource
Investments portfolio managers are provided with a benefits package,
including life insurance, health insurance, and participation in company
401(k) plan, comparable to that received by other RiverSource Investments
employees. Depending upon their job level, RiverSource Investments
portfolio managers may also be eligible for other benefits or perquisites
that are available to all RiverSource Investments employees at the same
job level.
(25) The portfolio manager's compensation as a RiverSource Investments employee
consists of (i) a base salary, (ii) an annual cash bonus, a portion of
which may be subject to a mandatory deferral program, and (iii) an equity
incentive award in the form of stock options and/or restricted stock. The
annual bonus is paid from a team bonus pool that is based on both mutual
fund and institutional portfolio performance. With respect to mutual
funds, funding for the bonus pool is determined by a percentage of the
aggregate assets under management in mutual funds managed by the portfolio
managers, including the Fund, and by the short-term (typically one year)
and long-term (typically
Statement of Additional Information - Oct. 3, 2005 Page 114
three year) performance of those accounts in relation to the relevant peer
groups and with respect to other accounts, by a percentage of management
fees. Senior management of RiverSource Investments has the discretion to
increase or decrease the size of the bonus pool and to determine the exact
amount of each portfolio manager's bonus based on his performance as an
employee. RiverSource Investments portfolio managers are provided with a
benefits package, including life insurance, health insurance, and
participation in company 401(k) plan, comparable to that received by other
RiverSource Investments employees. Depending upon their job level,
RiverSource Investments portfolio managers may also be eligible for other
benefits or perquisites that are available to all RiverSource Investments
employees at the same job level.
(26) The portfolio manager's compensation as a RiverSource Investments employee
consists of (i) a base salary, (ii) an annual cash bonus, a portion of
which may be subject to a mandatory deferral program, and (iii) an equity
incentive award in the form of stock options and/or restricted stock. The
annual bonus is paid from a team bonus pool that is based on both mutual
fund and institutional portfolio performance. With respect to mutual
funds, funding for the bonus pool is determined by a percentage of the
aggregate assets under management in mutual funds managed by the portfolio
managers, including the Fund, plus a percentage of the assets of the funds
they support as research analysts and by the short-term (typically one
year) and long-term (typically three year) performance of those accounts
in relation to the relevant peer groups and with respect to other
accounts, by a percentage of management fees. Senior management of
RiverSource Investments has the discretion to increase or decrease the
size of the bonus pool and to determine the exact amount of each portfolio
manager's bonus based on his performance as an employee. RiverSource
Investments portfolio managers are provided with a benefits package,
including life insurance, health insurance, and participation in company
401(k) plan, comparable to that received by other RiverSource Investments
employees. Depending upon their job level, RiverSource Investments
portfolio managers may also be eligible for other benefits or perquisites
that are available to all RiverSource Investments employees at the same
job level.
Basis for Board approving investment advisory contract.
Beginning in June 2005, the discussion regarding the basis for the Board's
approval of the Investment Management Service Agreement and any subadvisory
agreement is found in the fund's next annual or semiannual report following
Board approval.
For funds that have not yet issued an annual or semiannual report since June
2005, the following information is provided regarding contracts between the fund
and the investment manager or its affiliates, including the investment advisory
contract, that were renewed in April 2004, generally based on the data as of the
end of calendar year 2003. In renewing the contracts, members of the contracts
committee first reviewed detailed written reports prepared by the investment
manager, then the reports were reviewed by all other Board members. The reports
were presented in meetings at which Board members asked questions in order to
further understand the data. In addition, data prepared by independent sources,
including Lipper Inc. (detailed fund data) and Strategic Insight (industry
trends) was considered. The Board obtained representations that it had received
all the information that the investment manager believed was reasonably
necessary to evaluate the terms of the contracts. The factors used by the Board
the conclusions drawn are set forth below.
The Board considered that:
o The investment manager must provide those services necessary to
effectively manage the fund's assets and to provide shareholders a range
of investment options to meet long-term investment goals. These services
include implementing investment decisions, managing cash flow,
administering effective compliance programs, developing products,
accessing distribution and operating processes to compute daily net
assets and maintain financial records. The Board reviewed the services
using surveys and benchmarks that are available from commercial
providers, trade associations, and internal standards; compared those
services with services required by other types of clients of the
investment manager; and considered the allocation of costs among the
Statement of Additional Information - Oct. 3, 2005 Page 115
services. Based on these comparisons the Board concluded that the
services provided by the investment manager were those provided by other
investment managers that offer mutual funds through personal investment
advisers, the prices paid for the services were in line with those
charged by these management companies, and the services are in the
interest of shareholders.
o The investment manager should be paid a fee that allows it to offer
competitive compensation, make necessary investments and earn an
appropriate profit. The Board considered the benefits derived by the
investment manager from the use of commission dollars to buy services
and from other business relationships with fund shareholders, compared
publicly-available profitability reports of other investment managers,
and concluded that the level of overall profitability in 2003 was
appropriate in the short term though it may be too low on an ongoing
basis.
For funds with fiscal period ending September 30, 2004
Additionally for Diversified Equity Income
The Board considered that:
o Over time the investment manager's portfolio management team should
achieve investment performance net of fees above the median of funds
with the same investment goals. The fund's investment performance for
the three-year period ended Dec. 31, 2003 was above the median of its
Lipper competitive group.
o The portfolio management team the investment manager has assigned to
manage the fund should maintain a consistent investment style through a
variety of market conditions. The performance record for one year, which
is above median, is consistent with the expected results of that
investment style in light of recent market conditions.
o The investment manager must provide quality services at a fair price
with shareholders benefiting from economies of scale as assets increase.
To assist the Board in making an assessment, Lipper provided an analysis
of a small comparison group comprised of funds substantially similar to
the fund and a larger comparison group that excluded funds that differ
significantly. The Board found that the graduated fee scale set a fair
price that recognized the potential economies of scale. To the extent
investment performance exceeded or failed to achieve the standard
required by the performance incentive adjustment provision in the
contract, the investment manager's fees were adjusted accordingly. The
performance incentive adjustment for the period ended Dec. 31, 2003,
resulted in an increase in the investment manager's investment
management fee.
Additionally for Strategic Allocation
The Board considered that:
o Over time the investment manager's portfolio management team should
achieve investment performance net of fees above the median of funds
with the same investment goals. The fund's investment performance for
the period Dec. 19, 2002, through Dec. 31, 2003, which is the time the
team has managed the fund, was below the median of its Lipper
competitive group, and the investment manager's senior management is
taking effective action to address the below median performance.
o The portfolio management team the investment manager has assigned to
manage the fund should maintain a consistent investment style through a
variety of market conditions. The performance record for the one-year
period, which is below median, is consistent with the expected results
of that investment style in light of recent market conditions.
o The investment manager must provide quality services at a fair price
with shareholders benefiting from economies of scale as assets increase.
To assist the Board in making an assessment, Lipper provided an analysis
of a small comparison group comprised of funds substantially similar to
the fund and a larger comparison group that excluded funds that differ
significantly. The Board found that the graduated fee scale set a fair
price that recognized the potential economies of scale. To the extent
investment performance exceeded or failed to achieve the standard
required by the performance incentive adjustment provision in the
contract, the investment manager's fees were adjusted accordingly. The
performance incentive adjustment for the period ended Dec. 31, 2003,
resulted in a decrease in the investment manager's investment management
fee.
Statement of Additional Information - Oct. 3, 2005 Page 116
Additionally for Mid Cap Value
The Board considered that:
o Over time the investment manager's portfolio management team should
achieve investment performance net of fees above the median of funds
with the same investment goals. The fund's investment performance for
the period Feb. 14, 2002 through Dec. 31, 2003, which is the time the
team has managed the fund, was above the median of its Lipper
competitive group.
o The portfolio management team the investment manager has assigned to
manage the fund should maintain a consistent investment style through a
variety of market conditions. The performance record for the one-year
period, which is above median, is consistent with the expected results
of that investment style in light of recent market conditions.
o The investment manager must provide quality services at a fair price
with shareholders benefiting from economies of scale as assets increase.
To assist the Board in making an assessment, Lipper provided an analysis
of a small comparison group comprised of funds substantially similar to
the fund and a larger comparison group that excluded funds that differ
significantly. The Board found that the graduated fee scale set a fair
price that recognized the potential economies of scale. To the extent
investment performance exceeded or failed to achieve the standard
required by the performance incentive adjustment provision in the
contract, the investment manager's fees were adjusted accordingly. The
performance incentive adjustment for the period ended Dec. 31, 2003,
resulted in a decrease in the investment manager's investment management
fee. Also, consistent with the investment manager's pricing philosophy,
an expense cap has been established to limit expenses.
Additionally for Balanced
The Board considered that:
o Over time the investment manager's portfolio management team should
achieve investment performance net of fees above the median of funds
with the same investment goals. The fund's investment performance for
the period March 31, 2002 through Dec. 31, 2003, which is the time the
team has managed the fund, was below the median of its Lipper
competitive group, and the investment manager's senior management is
taking effective action to address the below median performance.
o The portfolio management team the investment manager has assigned to
manage the fund should maintain a consistent investment style through a
variety of market conditions. The performance record for the one-year
period, which is above median, is consistent with the expected results
of that investment style in light of recent market conditions.
o The investment manager must provide quality services at a fair price
with shareholders benefiting from economies of scale as assets increase.
To assist the Board in making an assessment, Lipper provided an analysis
of a small comparison group comprised of funds substantially similar to
the fund and a larger comparison group that excluded funds that differ
significantly. The Board found that the graduated fee scale set a fair
price that recognized the potential economies of scale. To the extent
investment performance exceeded or failed to achieve the standard
required by the performance incentive adjustment provision in the
contract, the investment manager's fees were adjusted accordingly. The
performance incentive adjustment for the period ended Dec. 31, 2003,
resulted in a decrease in the investment manager's investment management
fee.
Additionally for Stock
The Board considered that:
o Over time the investment manager's portfolio management team should
achieve investment performance net of fees above the median of funds
with the same investment goals. The fund's investment performance for
the three-year period ended Dec. 31, 2003 was above the median of its
Lipper competitive group.
o The portfolio management team the investment manager has assigned to
manage the fund should maintain a consistent investment style through a
variety of market conditions. The performance record for the one-year
period, which is above median, is consistent with the expected results
of that investment style in light of recent market conditions.
o The investment manager must provide quality services at a fair price
with shareholders benefiting from economies of scale as assets increase.
To assist the Board in making an assessment, Lipper provided an analysis
of a small comparison group comprised of funds substantially similar to
the fund and a larger comparison group that excluded funds that differ
significantly. The Board found that the graduated fee scale set a fair
price that recognized the potential economies of scale. To the extent
investment performance exceeded or failed to achieve the standard
required by the performance incentive adjustment provision in the
contract, the investment manager's fees were adjusted accordingly. The
performance incentive adjustment for the period ended Dec. 31, 2003,
resulted in a decrease in the investment manager's investment management
fee.
For funds with fiscal period ending March 31, 2005
Additionally, for Precious Metals:
The Board considered that
o Over time the investment manager's portfolio management team should
achieve investment performance net of fees above the median of funds
with the same investment goals. The fund's investment performance for
the three-year period ended Dec. 31, 2003, was below the median of its
Lipper competitive group and the investment manager's senior management
is taking action intended to address the below median performance.
o The portfolio management team the investment manager has assigned to
manage the fund should maintain a consistent investment style through a
variety of market conditions. The performance record for one year, which
is above median, is consistent with the expected results of that
investment style in light of recent market conditions.
Statement of Additional Information - Oct. 3, 2005 Page 117
o The investment manager must provide quality services at a fair price
with shareholders benefiting from economies of scale as assets increase.
To assist the Board in making an assessment, Lipper provided an analysis
of a small comparison group comprised of funds substantially similar to
the fund and a larger comparison group that excluded funds that differ
significantly. The Board found that the graduated fee scale set a fair
price that recognized the potential economies of scale. To the extent
investment performance exceeded or failed to achieve the standard
required by the performance incentive adjustment provision in the
contract, the investment manager's fees were adjusted accordingly. The
performance incentive adjustment for the period ended Dec. 31, 2003,
resulted in an increase in the investment manager's investment
management fee.
Additionally for Equity Value:
The Board considered that
o Over time the investment manager's portfolio management team should
achieve investment performance net of fees above the median of funds
with the same investment goals. The fund's investment performance for
the three-year period ended Dec. 31, 2003, was below the median of its
Lipper competitive group and the investment manager's senior management
is taking action intended to address the below median performance.
o The portfolio management team the investment manager has assigned to
manage the fund should maintain a consistent investment style through a
variety of market conditions. The performance record for one year, which
is above median, is consistent with the expected results of that
investment style in light of recent market conditions.
o The investment manager must provide quality services at a fair price
with shareholders benefiting from economies of scale as assets increase.
To assist the Board in making an assessment, Lipper provided an analysis
of a small comparison group comprised of funds substantially similar to
the fund and a larger comparison group that excluded funds that differ
significantly. The Board found that the graduated fee scale set a fair
price that recognized the potential economies of scale. To the extent
investment performance exceeded or failed to achieve the standard
required by the performance incentive adjustment provision in the
contract, the investment manager's fees were adjusted accordingly. The
performance incentive adjustment for the period ended Dec. 31, 2003,
resulted in a decrease in the investment manager's investment management
fee.
Statement of Additional Information - Oct. 3, 2005 Page 118
Additionally for Small Cap Growth:
The Board considered that
o Over time the investment manager should select and manage subadviser so
that the fund will achieve investment performance above the median of
funds with the same investment goals. The fund's investment performance
for the period Jan. 24, 2001 through Dec. 31, 2003, which is the time
the team has managed the fund and since inception of the fund, was below
the median of its Lipper competitive group and the investment manager's
senior management is taking action intended to address the below median
performance.
o The portfolio management team the investment manager has assigned to
manage the fund should maintain a consistent investment style through a
variety of market conditions. The performance record for one year, which
is slightly above median, is consistent with the expected results of
that investment style in light of recent market conditions.
o The investment manager must provide quality services at a fair price
with shareholders benefiting from economies of scale as assets increase.
To assist the Board in making an assessment, Lipper provided an analysis
of a small comparison group comprised of funds substantially similar to
the fund and a larger comparison group that excluded funds that differ
significantly. The Board found that the graduated fee scale set a fair
price that recognized the potential economies of scale. To the extent
investment performance exceeded or failed to achieve the standard
required by the performance incentive adjustment provision in the
contract, the investment manager's fees were adjusted accordingly. The
performance incentive adjustment for the period ended Dec. 31, 2003,
resulted in a decrease in the investment manager's investment management
fee. Also, consistent with the investment manager's pricing philosophy,
an expense cap has been established to limit expenses.
Additionally for Small Cap Advantage:
The Board considered that
o Over time the investment manager should select and manage subadviser so
that the fund will achieve investment performance net of fees above the
median of funds with the same investment goals. The fund's investment
performance for the three-year period ended Dec. 31, 2003, was below the
median of its Lipper competitive group and the investment manager's
senior management is taking action intended to address the below median
performance.
o The portfolio management team the investment manager has assigned to
manage the fund should maintain a consistent investment style through a
variety of market conditions. The performance record for one year, which
is above median, is consistent with the expected results of that
investment style in light of recent market conditions.
o The investment manager must provide quality services at a fair price
with shareholders benefiting from economies of scale as assets increase.
To assist the Board in making an assessment, Lipper provided an analysis
of a small comparison group comprised of funds substantially similar to
the fund and a larger comparison group that excluded funds that differ
significantly. The Board found that the graduated fee scale set a fair
price that recognized the potential economies of scale. To the extent
investment performance exceeded or failed to achieve the standard
required by the performance incentive adjustment provision in the
contract, the investment manager's fees were adjusted accordingly. The
performance incentive adjustment for the period ended Dec. 31, 2003,
resulted in an increase in the investment manager's investment
management fee.
Additionally for Strategy Aggressive:
The Board considered that
o Over time the investment manager should select and manage subadviser so
that the fund will achieve investment performance net of fees above the
median of funds with the same investment goals. The fund's investment
performance for the period June 30, 2002 through Dec. 31, 2003, which is
the time the team has managed the fund, was below the median of its
Lipper competitive group and the investment manager's senior management
is taking action intended to address the below median performance.
Statement of Additional Information - Oct. 3, 2005 Page 119
o The portfolio management team the investment manager has assigned to
manage the fund should maintain a consistent investment style through a
variety of market conditions. The performance record for one year, which
is below median, is consistent with the expected results of that
investment style in light of recent market conditions.
o The investment manager must provide quality services at a fair price
with shareholders benefiting from economies of scale as assets increase.
To assist the Board in making an assessment, Lipper provided an analysis
of a small comparison group comprised of funds substantially similar to
the fund and a larger comparison group that excluded funds that differ
significantly. The Board found that the graduated fee scale set a fair
price that recognized the potential economies of scale. To the extent
investment performance exceeded or failed to achieve the standard
required by the performance incentive adjustment provision in the
contract, the investment manager's fees were adjusted accordingly. The
performance incentive adjustment for the period ended Dec. 31, 2003,
resulted in a decrease in the investment manager's investment management
fee.
ADMINISTRATIVE SERVICES AGREEMENT
Each fund has an Administrative Services Agreement with Ameriprise Financial.
Under this agreement, the fund pays Ameriprise Financial for providing
administration and accounting services. The fee is calculated as follows:
Table 21. Administrative Services Agreement Fee Schedule*
- --------------------------------------- ---------------------------------------------------------------------------------------
Fund Asset Levels And Breakpoints In Applicable Fees
- --------------------------------------- -------------- ----------------- ---------------- ------------------- -----------------
$0 - $500,000,001 - $1,000,000,001 $3,000,000,001 - $12,000,000,001
500,000,000 1,000,000,000 - 3,000,000,000 12,000,000,000 +
- --------------------------------------- -------------- ----------------- ---------------- ------------------- -----------------
Discovery 0.080% 0.075% 0.070% 0.060% 0.050%
Emerging Markets
European Equity
Global Balanced
Global Bond
Global Equity
International Aggressive Growth
International Equity
International Opportunity
International Select Value
International Small Cap
Partners Small Cap Value
Small Cap Advantage
Small Cap Equity
Small Cap Growth
Small Company Index
Strategic Allocation
- --------------------------------------- -------------- ----------------- ---------------- ------------------- -----------------
California Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040%
Core Bond
Diversified Bond
High-Yield Bond
Income Opportunities
Inflation Protected
Insured Tax-Exempt
Intermediate Tax-Exempt
Limited Duration Bond
Massachusetts Tax-Exempt
Michigan Tax-Exempt
Minnesota Tax-Exempt
New York Tax-Exempt
Ohio Tax-Exempt
Selective
Short Duration U.S. Government
Tax-Exempt Bond
Tax-Exempt High Income
U.S. Government Mortgage
- --------------------------------------- -------------- ----------------- ---------------- ------------------- -----------------
Statement of Additional Information - Oct. 3, 2005 Page 120
- --------------------------------------- ---------------------------------------------------------------------------------------
Fund Asset Levels And Breakpoints In Applicable Fees
- --------------------------------------- -------------- ----------------- ---------------- ------------------- -----------------
$0 - $500,000,001 - $1,000,000,001 $3,000,000,001 - $12,000,000,001
500,000,000 1,000,000,000 - 3,000,000,000 12,000,000,000 +
- --------------------------------------- -------------- ----------------- ---------------- ------------------- -----------------
Aggressive Growth 0.060% 0.055% 0.050% 0.040% 0.030%
Balanced
Cash Management
Disciplined Equity
Diversified Equity
Dividend Opportunity
Equity Value
Fundamental Growth
Fundamental Value
Global Technology
Growth
Large Cap Equity
Large Cap Value
Mid Cap Growth
Mid Cap Value
New Dimensions
Precious Metals
Real Estate
S&P 500 Index
Select Value
Stock
Strategy Aggressive
Tax-Exempt Money Market
Value
- --------------------------------------- -------------- ----------------- ---------------- ------------------- -----------------
Portfolio Builder Aggressive 0.020% 0.020% 0.020% 0.020% 0.020%
Portfolio Builder Conservative
Portfolio Builder Moderate
Portfolio Builder Moderate Aggressive
Portfolio Builder Moderate
Conservative
Portfolio Builder Total Equity
- --------------------------------------- -------------- ----------------- ---------------- ------------------- -----------------
* The Administrative Services Agreement fee schedule changed, effective as of
Oct. 1, 2005.
The fee is calculated for each calendar day on the basis of net assets as of the
close of the preceding business day. Fees paid in each of the last three fiscal
periods are shown in the table below. The table also shows the daily rate
applied to each fund's net assets as of the last day of the most recent fiscal
period. The table is organized by fiscal year end. You can find your fund's
fiscal year end in Table 1.
Statement of Additional Information - Oct. 3, 2005 Page 121
Table 22. Administrative Fees
- ------------------------------------------ ------------------------------------------------------- ------------------
Fund Daily rate
Administrative services fees paid in applied to fund
assets
- ------------------------------------------ ------------------------------------------------------- ------------------
2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 13,785 N/A N/A 0.020
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Portfolio Builder Conservative 5,969 N/A N/A 0.020
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Portfolio Builder Moderate 23,460 N/A N/A 0.020
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Portfolio Builder Moderate Aggressive 28,002 N/A N/A 0.020
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Portfolio Builder Moderate Conservative 10,779 N/A N/A 0.020
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Portfolio Builder Total Equity 10,959 N/A N/A 0.020
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Small Company Index 784,439 731,549 737,583 0.060
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
S&P 500 Index 319,791 324,551 213,950 0.080
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- ---------------------------------------------------------------------------------------------------------------------
Equity Value 454,202 451,613 503,915 0.037
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Precious Metals 51,848 52,769 36,584 0.060
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Small Cap Advantage 491,869 371,247 295,220 0.054
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Small Cap Growth 224,042 218,131 162,755 0.080
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Strategy Aggressive 369,709 441,077 507,375 0.050
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth 24,630 7,449 254(a) 0.060
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Fundamental Growth 31,978 6,428 259(a) 0.060
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Fundamental Value 458,121 271,928 168,023 0.058
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
High Yield Bond 1,219,476 1,227,227 1,034,060 0.046
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Select Value 427,460 240,301 94,457 0.058
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Selective 477,298 598,158 738,688 0.050
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Short Duration U.S. Government 960,018 1,317,413 1,421,675 0.048
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Small Cap Equity 129,820 88,061 32,020 0.080
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Small Cap Value 824,914 676,121 470,468 0.071
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
U.S. Government Mortgage 152,145 204,741 166,561 0.050
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Value 285,752 228,212 161,752 0.060
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- ---------------------------------------------------------------------------------------------------------------------
California Tax-Exempt 87,771 100,323 111,565 0.040
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Dividend Opportunity 406,110 415,515 457,055 0.037
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Insured Tax-Exempt 166,983 193,412 204,472 0.040
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Massachusetts Tax-Exempt 30,362 37,526 39,417 0.040
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Michigan Tax-Exempt 23,283 30,016 33,309 0.040
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Minnesota Tax-Exempt 163,503 176,718 182,304 0.038
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
New York Tax-Exempt 36,031 43,576 47,766 0.040
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Ohio Tax-Exempt 24,486 31,477 34,268 0.040
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Real Estate 41,449 2,235(b) N/A 0.050
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- ---------------------------------------------------------------------------------------------------------------------
Cash Management 1,016,703 1,171,667 1,445,919 0.025
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Core Bond 78,241 38,539 2,965(c) 0.050
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Disciplined Equity 29,441 6,521 939 0.050
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Discovery 97,528 106,137 85,805 0.060
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Growth 1,370,094 1,523,915 1,469,076 0.045
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Income Opportunities 164,038 81,849 3,160(c) 0.050
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Inflation Protected Securities 61,197 6,834(d) N/A 0.050
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Large Cap Equity 860,387 212,114 27,560 0.048
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Large Cap Value 67,667 41,856 11,000 0.050
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Limited Duration Bond 88,881 53,771 3,184(c) 0.050
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
New Dimensions 4,756,123 5,561,820 5,277,428 0.035
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Statement of Additional Information - Oct. 3, 2005 Page 122
- ------------------------------------------ ------------------------------------------------------- ------------------
Fund Daily rate
Administrative services fees paid in applied to fund
assets
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- ---------------------------------------------------------------------------------------------------------------------
Diversified Bond 1,460,195 1,674,570 1,778,050 0.045
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- ---------------------------------------------------------------------------------------------------------------------
Balanced 588,644 610,513 797,157 0.039
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Diversified Equity Income 942,358 676,319 758,131 0.029
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Mid Cap Value 170,293 58,931 18,741 0.050
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Stock 789,200 768,983 958,744 0.033
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Strategic Allocation 390,084 381,033 465,436 0.038
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets 271,857 208,342 234,669 0.098
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
European Equity 78,835 82,084 116,212 0.060
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Global Balanced 59,047 56,559 71,921 0.060
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Global Bond 314,640 311,211 279,674 0.057
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Global Equity 284,795 304,662 463,678 0.058
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Global Technology 131,702 93,713 112,662 0.060
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
International Aggressive Growth 149,750 94,603 N/A 0.080
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
International Equity 88,536 38,014 N/A 0.080
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
International Opportunity 255,871 239,593 357,775 0.058
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
International Select Value 549,050 284,251 N/A 0.074
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
International Small Cap 46,103 13,092 N/A 0.080
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- ---------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt Bond 69,058 65,453 33,380 0.040
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Mid Cap Growth 1,056,445 868,316 805,649 0.047
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Tax-Exempt Bond 323,368 371,126 375,680 0.040
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Tax-Exempt High Income 1,447,459 1,546,469 1,631,443 0.032
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- ---------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 45,528 60,388 61,883 0.030
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
(a) For the period from April 24, 2003 (when shares became publicly available)
to May 31, 2003.
(b) For the period from March 4, 2004 (when shares became publicly available) to
June 30, 2004.
(c) For the period from June 19, 2003 (when shares became publicly available) to
July 31, 2003.
(d) For the period from March 4, 2004 (when shares became publicly available) to
July 31, 2004.
Third parties with which Ameriprise Financial contracts to provide services for
the fund or its shareholders may pay a fee to Ameriprise Financial to help
defray the cost of providing administrative and accounting services. The amount
of any such fee is negotiated separately with each service provider and does not
constitute compensation for investment advisory, distribution, or other
services. Payment of any such fee neither increases nor reduces fees or expenses
paid by shareholders of the fund.
TRANSFER AGENCY AGREEMENT
Each fund has a Transfer Agency Agreement with RiverSource Service Corporation
located at 70100 Ameriprise Financial Center, Minneapolis, MN 55474. This
agreement governs RiverSource Service Corporation's responsibility for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of the fund's shares. Under the
agreement, RiverSource Service Corporation will earn a fee from the fund
determined by multiplying the number of shareholder accounts at the end of the
day by a rate determined for each class per year and dividing by the number of
days in the year. The fee varies depending on the investment category of the
fund. You can find your fund's investment category in Table 1.
Statement of Additional Information - Oct. 3, 2005 Page 123
Balanced, Equity, Funds-of-Funds - Equity Funds
The annual per account fee accrued daily and payable monthly, for the applicable
classes is as follows:
Class A Class B Class C Class D Class E Class I Class Y
------- ------- ------- ------- ------- ------- -------
$19.50 $20.50 $20.00 $19.50 $19.50 $1.00 $17.50
Funds-of-Funds - Bond, State Tax-Exempt Bond, Taxable Bond, Tax-Exempt Bond
Funds
The annual per account fee accrued daily and payable monthly, for the applicable
classes is as follows:
Class A Class B Class C Class I Class Y
------- ------- ------- ------- -------
$20.50 $21.50 $21.00 $1.00 $18.50
Money Market Funds
The annual per account fee accrued daily and payable monthly, for the applicable
classes is as follows. The fee for Tax-Exempt Money Market, which does not have
separate classes of shares, is the same as that applicable to Class A.
Class A Class B Class C Class I Class Y
------- ------- ------- ------- -------
$22.00 $23.00 $22.50 $1.00 $20.00
In addition, an annual closed-account fee of $5.00 per inactive account may be
charged on a pro rata basis from the date the account becomes inactive until the
date the account is purged from the transfer agent system, generally within one
year. The fees paid to RiverSource Service Corporation may be changed by the
Board without shareholder approval.
DISTRIBUTION AGREEMENT
Ameriprise Financial Services, Inc., located at 70100 Ameriprise Financial
Center, Minneapolis, MN 55474, is the funds' principal underwriter. Each fund's
shares are offered on a continuous basis. Under a Distribution Agreement, sales
charges deducted for distributing fund shares are paid to the Distributor daily.
The table is organized by fiscal year end. You can find your fund's fiscal year
end in Table 1.
Statement of Additional Information - Oct. 3, 2005 Page 124
Table 23. Sales Charges Paid to Distributor
- ---------------------------------------- --------------------------------------- ------------------------------------------
Fund Sales charges paid to Distributor Amount retained after paying commissions
and other expenses
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
2005 2004 2003 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 2,689,735 N/A N/A 1,129,812 N/A N/A
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Portfolio Builder Conservative 722,689 N/A N/A 178,650 N/A N/A
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Portfolio Builder Moderate 3,810,185 N/A N/A 1,309,727 N/A N/A
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Portfolio Builder Moderate Aggressive 6,114,118 N/A N/A 2,610,071 N/A N/A
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Portfolio Builder Moderate Conservative 1,603,913 N/A N/A 530,042 N/A N/A
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Portfolio Builder Total Equity 1,393,255 N/A N/A 509,719 N/A N/A
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Small Company Index 1,511,932 1,717,480 2,281,660 554,278 485,006 379,830
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
S&P 500 Index N/A - No N/A N/A N/A N/A N/A
sales charge
- ---------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- ---------------------------------------------------------------------------------------------------------------------------
Equity Value 740,741 798,502 1,056,778 258,954 212,373 257,505
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Precious Metals 141,256 146,086 116,320 58,658 46,448 (25,993)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Small Cap Advantage 1,972,996 2,543,371 968,618 774,287 757,410 332,344
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Small Cap Growth 636,221 1,140,014 1,001,802 251,743 371,324 177,635
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Strategy Aggressive 595,175 873,773 1,249,906 241,030 296,244 439,236
- ---------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- ---------------------------------------------------------------------------------------------------------------------------
Aggressive Growth 165,878 131,508 2,319(a) 72,142 50,690 19,790(a)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Fundamental Growth 108,453 87,619 5,351(a) 42,738 18,759 (18,864)(a)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Fundamental Value 2,807,456 2,069,259 1,337,752 1,018,799 633,428 251,037
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
High Yield Bond 3,259,902 4,885,301 3,424,299 975,605 1,014,719 301,541
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Select Value 1,622,013 2,473,422 1,230,319 570,709 668,150 56,873
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Selective 588,090 1,034,975 1,444,382 284,661 429,635 232,740
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Short Duration U.S. Government 3,761,704 8,055,130 11,561,778 1,548,985 2,236,469 (2,552,775)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Small Cap Equity 521,747 687,100 317,549 185,766 199,371 9,860
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Small Cap Value 2,761,449 3,415,712 2,827,168 1,027,972 1,093,404 579,029
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
U.S. Government Mortgage 621,406 1,414,409 2,218,546 188,075 322,339 585,001
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Value 826,767 1,098,734 980,177 238,721 257,673 138,732
- ---------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- ---------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt 217,494 246,897 369,212 109,849 96,481 147,346
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Dividend Opportunity 1,560,011 1,451,779 1,198,206 478,911 537,003 449,037
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Insured Tax-Exempt 302,210 567,873 739,237 94,572 182,980 (34,724)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Massachusetts Tax-Exempt 95,312 163,094 230,570 41,176 67,903 23,080
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Michigan Tax-Exempt 67,704 108,759 123,009 20,037 48,877 9,420
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Minnesota Tax-Exempt 459,091 645,851 658,737 137,046 225,724 43,189
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
New York Tax-Exempt 132,690 155,512 146,838 62,241 65,578 26,914
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Ohio Tax-Exempt 55,007 113,361 155,216 8,755 35,469 15,472
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Real Estate 556,057 224,344(b) N/A 223,164 95,933(b) N/A
- ---------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- ---------------------------------------------------------------------------------------------------------------------------
Cash Management 748,512 1,556,245 2,570,091 746,839 1,554,374 2,568,224
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Core Bond 202,975 243,504 61,761(c) 86,520 169,705 (239,213)
(c)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Disciplined Equity 125,953 64,957 15,207 46,636 13,620 (24,103)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Discovery 48,669 74,600 82,752 19,935 34,840 40,973
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Growth 3,363,143 5,194,048 5,319,830 1,253,105 1,979,434 1,703,248
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Income Opportunities 879,762 1,008,513 51,706(c) 190,393 268,488 (266,547)
(c)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Inflation Protected Securities 421,889 218,847(d) N/A 76,043 45,591(d) N/A
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Large Cap Equity 1,699,188 2,547,239 592,326 609,407 711,343 76,721
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Large Cap Value 188,831 454,971 180,263 63,877 132,559 6,677
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Limited Duration Bond 389,542 423,604 64,991(c) 111,318 178,177 (268,630)
(c)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
New Dimensions 11,509,625 18,985,816 20,406,015 4,338,161 6,850,376 454,955
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Statement of Additional Information - Oct. 3, 2005 Page 125
- ---------------------------------------- --------------------------------------- ------------------------------------------
Fund Sales charges paid to Distributor Amount retained after paying commissions
and other expenses
- ---------------------------------------- --------------------------------------- ------------------------------------------
2004 2003 2002 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- ---------------------------------------------------------------------------------------------------------------------------
Diversified Bond 3,926,269 5,046,003 6,081,163 1,516,544 722,797 (949,704)
- ---------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- ---------------------------------------------------------------------------------------------------------------------------
Balanced 735,450 750,472 906,306 240,733 228,111 397,132
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Diversified Equity Income 10,301,867 3,604,654 5,283,451 2,933,886 1,012,358 744,874
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Mid Cap Value 2,377,837 655,293 498,784 837,278 149,937 (25,406)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Stock 831,538 980,709 1,308,555 329,906 337,309 445,629
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Strategic Allocation 989,579 847,194 877,280 316,545 223,952 295,874
- ---------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- ---------------------------------------------------------------------------------------------------------------------------
Emerging Markets 556,829 243,062 325,336 (6,660,972) (2,681,731) (4,049,970)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
European Equity 227,285 212,129 373,420 121,202 42,141 134,829
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Global Balanced 150,501 122,917 152,020 57,629 45,326 46,735
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Global Bond 956,580 1,009,917 515,760 536,364 537,388 274,717
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Global Equity 467,198 437,154 782,415 203,564 196,939 348,443
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Global Technology 591,744 543,360 717,011 208,704 150,041 262,977
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
International Aggressive Growth 796,060 528,748 N/A 360,944 194,832 N/A
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
International Equity 456,321 329,351 N/A 175,987 82,777 N/A
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
International Opportunity 997,517 274,577 428,744 371,845 104,589 89,051
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
International Select Value 3,105,887 1,896,607 N/A 1,220,539 527,546 N/A
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
International Small Cap 324,756 86,270 N/A 115,235 18,806 N/A
- ---------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- ---------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt Bond 306,545 611,983 366,668 86,091 100,008 (44,152)
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Mid Cap Growth 3,566,760 4,166,089 2,678,040 1,373,111 1,046,768 438,718
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Tax-Exempt Bond 495,541 740,644 814,931 197,028 233,789 169,809
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
Tax-Exempt High Income 3,131,234 4,468,036 5,379,416 1,256,629 1,475,443 1,352,482
- ---------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- ---------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market N/A - No N/A N/A N/A N/A N/A
sales charge
- ---------------------------------------- ------------- ------------ ------------ ------------- -------------- -------------
(a) For the period from April 14, 2003 (when shares became publicly available)
to May 31, 2003.
(b) For the period from March 4, 2004 (when shares became publicly available to
June 30, 2004.
(c) For the period from June 19, 2003 (when shares became publicly available) to
July 31, 2003.
(d) For the period from March 4, 2004 (when shares became publicly available) to
July 31, 2004.
Part of the sales charge may be paid to selling dealers who have agreements with
the distributor. The distributor will retain the balance of the sales charge. At
times the entire sales charge may be paid to selling dealers.
SHAREHOLDER SERVICE AGREEMENT
For funds with Class Y shares, the fund pays the distributor a fee for service
provided to shareholders by financial advisors and other servicing agents with
respect to those shares. The fee is calculated at a rate of 0.10% of average
daily net assets for Class Y.
PLAN AND AGREEMENT OF DISTRIBUTION
For funds other than money market funds
To help defray the cost of distribution and servicing not covered by the
sales charges received under the Distribution Agreement, each fund and the
distributor entered into a Plan and Agreement of Distribution (Plan)
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, of the type
known as a reimbursement plan, the fund pays a fee up to actual expenses
incurred at an annual rate as follows:
The fee is based on the average daily net assets of the fund attributable
to the applicable class:
Class A Class B Class C Class D
0.25% 1.00% 1.00% 0.25%
Statement of Additional Information - Oct. 3, 2005 Page 126
For Class B and Class C shares, up to 0.75% is reimbursed for distribution
expenses. Up to an additional 0.25% is paid to the distributor to
compensate the distributor, financial advisors and servicing agents for
personal service to shareholders and maintenance of shareholder accounts.
For money market funds
The fee for services is equal on an annual basis to the following
percentage of the average daily net assets of the fund attributable to the
applicable class. The fee for Tax-Exempt Money Market, which does not have
separate classes of shares, is the same as that applicable to Class A.
Class A Class B
0.10% 0.85%
For Class B shares, up to 0.75% is reimbursed for distribution expenses. Up
to an additional 0.10% is paid to the distributor to compensate the
distributor, financial advisors and servicing agents for personal service
to shareholders and maintenance of shareholder accounts.
Each class has exclusive voting rights on the Plan as it applies to that class.
In addition, because Class B shares convert to Class A shares, Class B
shareholders have the right to vote on any material increase to expenses charged
under the Class A plan.
Expenses covered under this Plan include sales commissions; business, employee
and financial advisor expenses charged to distribution of shares; and overhead
appropriately allocated to the sale of Class A, Class B, Class C and Class D
shares, as applicable. These expenses also include costs of providing personal
service to shareholders. A substantial portion of the costs are not specifically
identified to any one of the RiverSource funds. The fee is not allocated to any
one service (such as advertising, payments to underwriters, or other uses).
However, a significant portion of the fee is generally used for sales and
promotional expenses.
The Plan must be approved annually by the Board, including a majority of the
disinterested Board members, if it is to continue for more than a year. At least
quarterly, the Board reviews written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of Board members who are not interested persons of the fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the relevant class of shares or by the distributor. Any
agreement related to the Plan will terminate in the event of its assignment, as
that term is defined in the 1940 Act. The Plan may not be amended to increase
the amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the Board
members, including a majority of the Board members who are not interested
persons of the fund and who do not have a financial interest in the operation of
the Plan or any agreement related to it. The selection and nomination of
disinterested Board members is the responsibility of the other disinterested
Board members. No Board member who is not an interested person has any direct or
indirect financial interest in the operation of the Plan or any related
agreement.
For its most recent fiscal period, each fund paid 12b-1 fees as shown in the
following table. The table is organized by fiscal year end. You can find your
fund's fiscal year end in Table 1.
Statement of Additional Information - Oct. 3, 2005 Page 127
Table 24. 12b-1 Fees
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Fund Class A Class B Class C Class D
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive $131,509 $148,824 $14,167 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Portfolio Builder Conservative 47,394 90,296 18,476 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Portfolio Builder Moderate 207,226 306,025 37,943 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Portfolio Builder Moderate Aggressive 269,870 290,686 29,798 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Portfolio Builder Moderate Conservative 88,986 154,618 28,321 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Portfolio Builder Total Equity 103,536 123,254 10,069 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Small Company Index 1,997,297 4,471,167 N/A N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
S&P 500 Index N/A N/A N/A $169,434
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- ---------------------------------------------------------------------------------------------------------------------
Equity Value 2,181,335 2,942,254 34,607 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Precious Metals 162,502 190,923 17,490 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Small Cap Advantage 1,548,853 2,477,943 123,637 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Small Cap Growth 448,569 839,539 76,227 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Strategy Aggressive 1,298,856 1,840,696 21,193 N/A
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth 53,023 48,357 3,331 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Fundamental Growth 41,230 53,576 2,998 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Fundamental Value 1,207,593 2,384,944 146,962 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
High Yield Bond 4,680,366 7,125,474 395,850 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Select Value 1,225,074 1,930,026 115,118 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Selective 1,638,968 1,516,008 49,992 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Short Duration U.S. Government 2,696,008 7,653,428 311,601 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Small Cap Equity 272,058 431,058 38,537 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Small Cap Value 1,851,124 3,558,899 222,997 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
U.S. Government Mortgage 427,918 1,109,871 125,193 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Value 678,394 1,516,583 96,685 N/A
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- ---------------------------------------------------------------------------------------------------------------------
California Tax-Exempt 483,557 182,416 33,536 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Dividend Opportunity 1,852,456 2,836,466 105,158 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Insured Tax-Exempt 859,029 502,493 65,596 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Massachusetts Tax-Exempt 147,943 186,463 14,622 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Michigan Tax-Exempt 136,742 59,822 18,779 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Minnesota Tax-Exempt 877,625 517,111 92,150 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
New York Tax-Exempt 196,842 120,762 16,217 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Ohio Tax-Exempt 136,871 84,836 21,311 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Real Estate 98,379 109,406 6,203 N/A
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- ---------------------------------------------------------------------------------------------------------------------
Cash Management 3,303,424 1,141,431 20,261 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Core Bond 153,743 100,229 4,566 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Disciplined Equity 44,025 51,693 1,420 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Discovery 366,138 129,934 280 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Growth 5,058,973 5,641,889 128,612 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Income Opportunities 484,743 713,097 64,944 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Inflation Protected Securities 151,312 322,955 28,363 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Large Cap Equity 2,866,767 5,272,525 101,520 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Large Cap Value 183,291 277,867 14,213 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Limited Duration Bond 252,631 234,566 19,297 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
New Dimensions 20,565,923 24,839,333 559,396 N/A
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- ---------------------------------------------------------------------------------------------------------------------
Diversified Bond 5,209,432 7,944,719 241,016 N/A
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- ---------------------------------------------------------------------------------------------------------------------
Balanced 2,814,685 1,376,547 28,213 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Diversified Equity Income 5,224,755 8,381,118 317,426 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Mid Cap Value 549,492 998,282 49,648 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Stock 4,245,423 1,877,379 32,180 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Strategic Allocation 2,277,239 1,085,304 37,928 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Statement of Additional Information - Oct. 3, 2005 Page 128
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Fund Class A Class B Class C Class D
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Emerging Markets 438,042 756,560 9,336 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
European Equity 220,429 388,890 15,823 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Global Balanced 136,721 320,051 7,301 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Global Bond 952,565 1,560,487 50,444 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Global Equity 894,340 1,283,273 9,589 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Global Technology 375,071 644,615 42,622 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
International Aggressive Growth 332,586 423,534 25,270 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
International Equity 205,952 192,318 13,300 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
International Opportunity 773,809 795,312 13,470 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
International Select Value 1,251,975 1,947,966 101,585 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
International Small Cap 105,681 95,201 4,458 N/A
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- ---------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt Bond 326,960 258,071 107,144 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Mid Cap Growth 3,701,465 4,312,934 147,541 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Tax-Exempt Bond 1,800,449 429,863 52,734 N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
Tax-Exempt High Income 10,363,982 2,912,090 293,295 N/A
- ---------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- ---------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 143,129 N/A N/A N/A
- ------------------------------------------ ----------------- ------------------ ------------------ ------------------
CUSTODIAN AGREEMENT
Custody information varies depending on the fund's investment category. You can
find your fund's investment category in Table 1.
For Balanced, Equity, Funds-of-Funds, Taxable Money Market and Taxable Bond
Funds other than Diversified Bond, High Yield Bond and Selective: The fund's
securities and cash are held by Ameriprise Trust Company, 200 Ameriprise
Financial Center, Minneapolis, MN 55474, through a custodian agreement. The
custodian is permitted to deposit some or all of its securities in central
depository systems as allowed by federal law. For its services, the fund pays
the custodian a maintenance charge and a charge per transaction in addition to
reimbursing the custodian's out-of-pocket expenses.
For State Tax-Exempt Bond, Tax-Exempt Bond and Tax-Exempt Money Market Funds, as
well as Diversified Bond, High Yield Bond, and Selective: The fund's securities
and cash are held by U.S. Bank National Association, 180 E. Fifth St., St. Paul,
MN 55101-1631, through a custodian agreement. The custodian is permitted to
deposit some or all of its securities in central depository systems as allowed
by federal law. For its services, the fund pays the custodian a maintenance
charge and a charge per transaction in addition to reimbursing the custodian's
out-of-pocket expenses.
For all funds: The custodian may enter into a sub-custodian agreement with the
Bank of New York, 90 Washington Street, New York, NY 10286. As part of this
arrangement, securities purchased outside the United States are maintained in
the custody of various foreign branches of Bank of New York or in other
financial institutions as permitted by law and by the fund's sub-custodian
agreement.
Organizational Information
Each fund is an open-end management investment company. The fund's headquarters
are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.
SHARES
The shares of a fund represent an interest in that fund's assets only (and
profits or losses), and, in the event of liquidation, each share of a fund would
have the same rights to dividends and assets as every other share of that fund.
Statement of Additional Information - Oct. 3, 2005 Page 129
VOTING RIGHTS
As a shareholder in a fund, you have voting rights over the fund's management
and fundamental policies. You are entitled to vote based on your total dollar
interest in the fund. Each class, if applicable, has exclusive voting rights
with respect to matters for which separate class voting is appropriate under
applicable law. All shares have cumulative voting rights with respect to the
election of Board members. This means that you have as many votes as the dollar
amount you own, including the fractional amount, multiplied by the number of
members to be elected.
DIVIDEND RIGHTS
Dividends paid by a fund, if any, with respect to each applicable class of
shares will be calculated in the same manner, at the same time, on the same day,
and will be in the same amount, except for differences resulting from
differences in fee structures.
Table 25. Fund History Table for All Publicly Offered RiverSource Funds
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Date of Date First Form of State of Fiscal Year Diversified
Fund* Organization Offered to Organization Organization End
Public
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
California Tax-Exempt Trust 4/7/86 Business MA 6/30
Trust(2)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
California Tax-Exempt Fund 8/18/86 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Dimensions Series, Inc 2/20/68, Corporation NV/MN 7/31
6/13/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
New Dimensions Fund 8/1/68 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Discovery Series, Inc. 4/29/81, Corporation NV/MN 7/31
6/13/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Core Bond Fund 6/19/03 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Discovery Fund 8/24/81 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Income Opportunities Fund 6/19/03 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Inflation Protected Securities Fund 3/4/04 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Limited Duration Bond Fund 6/19/03 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Equity Series, Inc. 3/18/57, Corporation NV/MN 11/30
6/13/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Mid Cap Growth Fund(7) 6/4/57 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Fixed Income Series, Inc. 6/27/74, Corporation NV/MN 8/31
6/31/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Diversified Bond Fund(3) 10/3/74 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Global Series, Inc. 10/28/88 Corporation MN 10/31
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Emerging Markets Fund(6) 11/13/96 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Global Balanced Fund(6) 11/13/96 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Global Bond Fund 3/20/89 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Global Equity Fund(4),(6) 5/29/90 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Global Technology Fund 11/13/96 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Government Income Series, Inc. 3/12/85 Corporation MN 5/31
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Short Duration U.S. Government Fund(3) 8/19/85 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
U.S. Government Mortgage Fund 2/14/02 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Growth Series, Inc. 5/21/70, Corporation NV/MN 7/31
6/13/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Disciplined Equity Fund(7) 4/24/03 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Growth Fund 3/1/72 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Large Cap Equity Fund 3/28/02 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Large Cap Value Fund 6/27/02 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
High Yield Income Series, Inc. 8/17/83 Corporation MN 5/31
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
High Yield Bond Fund(3) 12/8/83 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
High Yield Tax-Exempt Series, Inc. 12/21/78; Corporation NV/MN 11/30
6/13/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Tax-Exempt High Income Fund(7) 5/7/79 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Income Series, Inc. 2/10/45; Corporation NV/MN 5/31
6/13/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Selective Fund 4/6/45 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 130
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Date of Date First Form of State of Fiscal Year Diversified
Fund* Organization Offered to Organization Organization End
Public
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
International Series, Inc. 7/18/84 Corporation MN 10/31
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
European Equity Fund(6) 6/26/00 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
International Opportunity Fund(6), (7) 11/15/84 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Investment Series, Inc. 1/18/40; Corporation NV/MN 9/30
6/13/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Balanced Fund(7) 4/16/40 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Diversified Equity Income Fund 10/15/90 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Mid Cap Value Fund 2/14/02 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Managed Series, Inc. 10/9/84 Corporation MN 9/30
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Strategic Allocation Fund(7) 1/23/85 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Market Advantage Series, Inc. 8/25/89 Corporation MN 1/31
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Portfolio Builder Conservative Fund 3/4/04 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Portfolio Builder Moderate Conservative 3/4/04 No
Fund
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Portfolio Builder Moderate Fund 3/4/04 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Portfolio Builder Moderate Aggressive 3/4/04 No
Fund
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Portfolio Builder Aggressive Fund 3/4/04 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Portfolio Builder Total Equity Fund 3/4/04 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
S&P 500 Index Fund 10/25/99 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Small Company Index Fund 8/19/96 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Money Market Series, Inc. 8/22/75; Corporation NV/MN 7/31
6/13/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Cash Management Fund 10/6/75 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Partners Series, Inc. 3/20/01 Corporation MN 5/31
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Aggressive Growth Fund 4/24/03 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Fundamental Growth Fund(7) 4/24/03 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Fundamental Value Fund 6/18/01 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Select Value Fund 3/8/02 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Small Cap Equity Fund(7) 3/8/02 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Small Cap Value Fund 6/18/01 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Value Fund 6/18/01 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Partners International Series, Inc. 5/9/01 Corporation MN 10/31
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
International Aggressive Growth Fund 9/28/01 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
International Equity Fund(7) 10/3/02 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
International Select Value Fund 9/28/01 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
International Small Cap Fund 10/3/02 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Sector Series, Inc. 3/25/88 Corporation MN 6/30
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Dividend Opportunity Fund(5) 8/1/88 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Real Estate Fund 3/4/04 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Selected Series, Inc. 10/5/84 Corporation MN 3/31
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Precious Metals Fund 4/22/86 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Special Tax-Exempt Series Trust 4/7/86 Business MA 6/30
Trust(2)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Insured Tax-Exempt Fund 8/18/86 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Massachusetts Tax-Exempt Fund 7/2/87 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Michigan Tax-Exempt Fund 7/2/87 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Minnesota Tax-Exempt Fund 8/18/86 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
New York Tax-Exempt Fund 8/18/86 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Ohio Tax-Exempt Fund 7/2/87 No
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Stock Series, Inc. 2/10/45, Corporation NV/MN 9/30
6/13/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Stock Fund 4/6/45 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Strategy Series, Inc. 1/24/84 Corporation MN 3/31
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Equity Value Fund 5/14/84 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Small Cap Growth Fund 1/24/01 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Small Cap Advantage Fund 5/4/99 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Strategy Aggressive Fund 5/14/84 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 131
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Date of Date First Form of State of Fiscal Year Diversified
Fund* Organization Offered to Organization Organization End
Public
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Tax-Exempt Series, Inc. 9/30/76, Corporation NV/MN 11/30
6/13/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Intermediate Tax-Exempt Fund 11/13/96 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Tax-Exempt Bond Fund 11/24/76 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Tax-Free Money Series, Inc. 2/29/80, Corporation NV/MN 12/31
6/13/86(1)
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Tax-Exempt Money Market Fund(7) 8/5/80 Yes
- --------------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
* Effective Oct. 1, 2005 American Express Funds changed its name to
RiverSource funds and the names Threadneedle and Partners were removed from
fund names.
(1) Date merged into a Minnesota corporation incorporated on April 7, 1986.
(2) Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the
trust itself is unable to meet its obligations.
(3) Effective June 27, 2003, Bond Fund changed its name to Diversified Bond
Fund, Federal Income Fund changed its name to Short Duration U.S.
Government Fund and Extra Income Fund changed its name to High Yield Bond
Fund.
(4) Effective Oct. 20, 2003, Global Growth Fund changed its name to Global
Equity Fund.
(5) Effective Feb. 18, 2004, Utilities Fund changed its name to Dividend
Opportunity Fund.
(6) Effective July 9, 2004, Emerging Markets Fund changed its name to
Threadneedle Emerging Markets Fund, European Equity Fund changed its name
to Threadneedle European Equity Fund, Global Balanced Fund changed its name
to Threadneedle Global Balanced Fund, Global Equity Fund changed its name
to Threadneedle Global Equity Fund, and International Fund changed its name
to Threadneedle International Fund.
(7) Effective Oct. 1, 2005, Equity Select Fund changed its name to Mid Cap
Growth Fund, High Yield Tax-Exempt Fund changed its name to Tax-Exempt High
Income Fund, Managed Allocation Fund changed its name to Strategic
Allocation Fund, Mutual changed its name to Balanced Fund, Partners Growth
Fund changed its name to Fundamental Growth Fund, Partners International
Core Fund changed its name to International Equity Fund, Partners Small Cap
Core Fund changed its name to Small Cap Equity Fund, Quantitative Large Cap
Equity Fund changed its name to Disciplined Equity Fund, Tax-Free Money
Fund changed its name to Tax-Exempt Money Market Fund, and Threadneedle
International Fund changed its name to International Opportunity Fund.
Statement of Additional Information - Oct. 3, 2005 Page 132
Board Members and Officers
Shareholders elect a Board that oversees a fund's operations. The Board appoints
officers who are responsible for day-to-day business decisions based on policies
set by the Board.
The following is a list of each fund's Board members. Each member oversees 14
Master Trust portfolios and 90 RiverSource funds. Board members serve until the
next regular shareholders' meeting or until he or she reaches the mandatory
retirement age established by the Board.
Table 26. Board Members
Independent Board Members
- ---------------------------- --------------------- -------------------------- ------------------------ --------------------
Name, address, age Position held with Principal occupation Other Committee
Fund and length during past five years directorships memberships
of service
- ---------------------------- --------------------- -------------------------- ------------------------ --------------------
Arne H. Carlson Board member Chair, Board Services Joint Audit,
901 S. Marquette Ave. since 1999 Corporation (provides Contracts,
Minneapolis, MN 55402 administrative services Executive,
Age 71 to boards). Former Investment Review,
Governor Board Effectiveness
of Minnesota
- ---------------------------- --------------------- -------------------------- ------------------------ --------------------
Philip J. Carroll, Jr. Board member Retired Chairman and Scottish Power PLC, Joint Audit,
901 S. Marquette Ave. since 2002 CEO, Fluor Corporation Vulcan Materials Executive,
Minneapolis, MN 55402 (engineering and Company, Inc. Investment Review
Age 67 construction) since 1998 (construction
materials/chemicals)
- ---------------------------- --------------------- -------------------------- ------------------------ --------------------
Patricia M. Flynn Board member Trustee Professor of Investment Review,
901 S. Marquette Ave. since 2004 Economics and Joint Audit
Minneapolis, MN 55402 Management, Bentley
Age 54 College; former Dean,
McCallum Graduate School
of Business, Bentley
College
- ---------------------------- --------------------- -------------------------- ------------------------ --------------------
Anne P. Jones Board member Attorney and Consultant Joint Audit,
901 S. Marquette Ave. since 1985 Board
Minneapolis, MN 55402 Effectiveness,
Age 70 Executive,
Investment Review
- ---------------------------- --------------------- -------------------------- ------------------------ --------------------
Stephen R. Lewis, Jr. Board member President Emeritus and Valmont Industries, Contracts,
901 S. Marquette Ave. since 2002 Professor of Economics, Inc. (manufactures Investment Review,
Minneapolis, MN 55402 Carleton College irrigation systems) Executive,
Age 66 Board Effectiveness
- ---------------------------- --------------------- -------------------------- ------------------------ --------------------
Catherine James Paglia Board member Director, Enterprise Strategic Contracts,
901 S. Marquette Ave. since 2004 Asset Management, Inc. Distribution, Inc. Investment Review
Minneapolis, MN 55402 (private real estate and (transportation,
Age 53 asset management distribution and
company) since 1999 logistics consultants)
- ---------------------------- --------------------- -------------------------- ------------------------ --------------------
Alan K. Simpson Board member Former three-term Investment Review,
1201 Sunshine Ave. since 1997 United States Senator Board Effectiveness
Cody, WY 82414 for Wyoming
Age 74
- ---------------------------- --------------------- -------------------------- ------------------------ --------------------
Alison Taunton-Rigby Board member Chief Executive Officer, Hybridon, Inc. Investment Review,
901 S. Marquette Ave. since 2002 RiboNovix, Inc. since (biotechnology) Contracts
Minneapolis, MN 55402 2003 (biotechnology);
Age 61 Former President,
Forester Biotech
- ---------------------------- --------------------- -------------------------- ------------------------ --------------------
Statement of Additional Information - Oct. 3, 2005 Page 133
Board Members Affiliated with Ameriprise Financial, Inc. (formerly AEFC)*
- ---------------------------------- ----------------- ------------------------------------- ----------------- ----------------
Name, address, age Position held Principal occupation Other Committee
with Fund and during past five years directorships Memberships
length of
service
- ---------------------------------- ----------------- ------------------------------------- ----------------- ----------------
William F. Truscott Board member Senior Vice President - Chief Investments
53600 Ameriprise Financial Center since 2001, Investment Officer of Ameriprise
Minneapolis, MN 55474 Vice President Financial, Inc. and RiverSource
Age 45 since 2002 Investments, LLC since 2001. Former
Chief Investment Officer and
Managing Director, Zurich Scudder
- ---------------------------------- ----------------- ------------------------------------- ----------------- ----------------
* Interested person by reason of being an officer, director and/or employee of
Ameriprise Financial, Inc. (formerly American Express Financial Corporation)
or of RiverSource Investments, LLC, its wholly-owned subsidiary.
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is vice president, the
fund's other officers are:
Table 27. Fund Officers
- ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------
Name, address, age Position held Principal occupation Other Committee
with Fund and during past five years directorships Memberships
length of
service
- ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------
Jeffrey P. Fox Treasurer Vice President - Investment
105 Ameriprise Financial Center since 2002 Accounting, Ameriprise Financial,
Minneapolis, MN 55474 Inc., since 2002; Vice President -
Age 50 Finance, American Express Company,
2000-2002; Vice President -
Corporate
Controller, AEFC, 1996-2000
- ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------
Paula R. Meyer President Senior Vice President and General
596 Ameriprise Financial Center since 2002 Manager - Mutual Funds, Ameriprise
Minneapolis, MN 55474 Financial, since 2002 and Senior
Age 51 Vice President, RiverSource
Investments, LLC since 2004; Vice
President and Managing Director -
American Express Funds, Ameriprise
Financial, 2000-2002; Vice
President, Ameriprise Financial,
1998-2000
- ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------
Leslie L. Ogg Vice President, President of Board Services
901 S. Marquette Ave. General Corporation
Minneapolis, MN 55402 Counsel, and
Age 67 Secretary
since 1978
- ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------
Beth E. Weimer Chief Vice President and Chief Compliance
172 Ameriprise Financial Center Compliance Officer, Ameriprise Financial,
Minneapolis, MN 55402 Officer since since 2001 and Chief Compliance
Age 52 2004 Officer, RiverSource Investments,
LLC since 2005; Vice President and
Chief Compliance Officer,
Ameriprise Financial Services
(formerly American Express Financial
Advisors), 2001-2005; Partner,
Arthur Andersen Regulatory Risk
Services, 1998-2001
- ------------------------------------ ---------------- ------------------------------------- ------------------ ------------------
Responsibilities of Board with respect to fund management
The Board initially approves an Investment Management Services Agreement and
other contracts with RiverSource Investments and its affiliates, its
subsidiaries, and other service providers. Once the contracts are approved, the
Board monitors the level and quality of services including commitments of
service providers to achieve expected levels of investment performance and
shareholder services. In addition, the Board oversees that processes are in
place to assure compliance with applicable rules, regulations and
Statement of Additional Information - Oct. 3, 2005 Page 134
investment policies and addresses possible conflicts of interest. Annually, the
Board evaluates the services received under the contracts by receiving reports
covering investment performance, shareholder services, marketing, and
RiverSource Investments' profitability in order to determine whether to continue
existing contracts or negotiate new contracts.
Several committees facilitate its work
Executive Committee -- Acts for the Board between meetings of the Board.
Joint Audit Committee -- Meets with the independent public accountant, internal
auditors and corporate officers to review financial statements, reports, and
compliance matters. Reports significant issues to the Board and makes
recommendations to the independent directors regarding the selection of the
independent public accountant.
Investment Review Committee -- Considers investment management policies and
strategies; investment performance; risk management techniques; and securities
trading practices and reports areas of concern to the Board.
Board Effectiveness Committee -- Recommends to the Board the size, structure and
composition for the Board; the compensation to be paid to members of the Board;
and a process for evaluating the Board's performance. The committee also reviews
candidates for Board membership including candidates recommended by
shareholders. To be considered, recommendations must include a curriculum vita
and be mailed to the Chairman of the Board, RiverSource Funds, 901 Marquette
Avenue South, Suite 2810, Minneapolis, MN 55402-3268.
Contracts Committee -- Receives and analyzes reports covering the level and
quality of services provided under contracts with the fund and advises the Board
regarding actions taken on these contracts during the annual review process.
This table shows the number of times the committees met during each fund's most
recent fiscal period. The table is organized by fiscal year end. You can find
your fund's fiscal year end in Table 1.
Table 28. Committee Meetings
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
Fiscal Period Executive Joint Audit Investment Board Contracts
Committee Committee Review Effectiveness Committee
Committee Committee
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
For funds with fiscal period ending 1 4 4 5 5
January 31
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
For funds with fiscal period ending 1 4 3 5 5
March 31
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
For funds with fiscal period ending 1 4 4 5 5
May 31
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
For funds with fiscal period ending 1 4 3 5 6
June 30
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
For funds with fiscal period ending 1 4 4 5 6
July 31
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
For funds with fiscal period ending 1 4 4 3 7
August 31
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
For funds with fiscal period ending 1 4 4 3 7
September 30
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
For funds with fiscal period ending 1 5 4 4 7
October 31
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
For funds with fiscal period ending 1 4 4 3 6
November 30
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
For funds with fiscal period ending 1 4 4 3 7
December 31
- -------------------------------------- -------------- -------------- --------------- ---------------- --------------
Statement of Additional Information - Oct. 3, 2005 Page 135
BOARD MEMBER HOLDINGS
The following tables show the Board members' ownership of the funds.
All funds. This table shows the dollar range of equity securities beneficially
owned on Dec. 31, 2004 of all funds overseen by the Board member.
Table 29. Board Member Holdings - All Funds
Based on net asset values as of Dec. 31, 2004
- --------------------------- ----------------------------------------------------
Board member Aggregate dollar range of equity securities of all
funds overseen by Board member
- --------------------------- ----------------------------------------------------
Arne H. Carlson Over $100,000
- --------------------------- ----------------------------------------------------
Philip J. Carroll, Jr.* None
- --------------------------- ----------------------------------------------------
Patricia M. Flynn $10,001 - $50,000
- --------------------------- ----------------------------------------------------
Anne P. Jones Over $100,000
- --------------------------- ----------------------------------------------------
Stephen R. Lewis, Jr.* $10,001 - $50,000
- --------------------------- ----------------------------------------------------
Catherine James Paglia None
- --------------------------- ----------------------------------------------------
Alan K. Simpson $50,000 - $100,000
- --------------------------- ----------------------------------------------------
Alison Taunton-Rigby Over $100,000
- --------------------------- ----------------------------------------------------
William F. Truscott Over $100,000
- --------------------------- ----------------------------------------------------
* Three independent directors have deferred compensation invested in share
equivalents.
As of Dec. 31, 2004, each owned:
Philip J. Carroll, Jr.......................$10,001-$50,000
Stephen R. Lewis, Jr. ......................$50,001-$100,000
Holdings in each individual fund. This table shows the dollar range of equity
securities beneficially owned on Dec. 31, 2004 of each fund.
Table 30. Board Member Holdings - Individual Funds
Based on net asset values as of Dec. 31, 2004
- ------------------------- ----------------------------------------------------------------------------------------------------------
Fund Dollar range of equity securities in the fund
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Carlson Carroll Flynn Jones Lewis Paglia Simpson Taunton Truscott
Rigby
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Aggressive Growth None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Balanced None None None None None None None None $50,001-
$100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
California Tax-Exempt None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Cash Management $10,001- None None None None None $1- None None
$50,000 10,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Core Bond None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Disciplined Equity $10,001- None None None None None None None $10,001-
$50,000 $50,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Discovery None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Diversified Bond None None None $10,001- None None None None $10,001-
$50,000 $50,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Diversified Equity None None None None $10,001- None None $10,001- None
Income $50,000 $50,000
C
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Dividend Opportunity $10,001- None None None None None None None Over
$50,000 $100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Emerging Markets None None None None None None None None $10,001-
$50,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Equity Value None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
European Equity None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Fundamental Growth None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Fundamental Value $10,001- None None None None None None None None
$50,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Global Balanced None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Global Bond None None None $50,001- None None None None None
$100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Global Equity None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Statement of Additional Information - Oct. 3, 2005 Page 136
- ------------------------- ----------------------------------------------------------------------------------------------------------
Fund Dollar range of equity securities in the fund
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Carlson Carroll Flynn Jones Lewis Paglia Simpson Taunton Truscott
Rigby
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Global Technology None A None None None None None $10,001- $10,001-
$50,000 $50,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Growth None None None $10,001- None None None $10,001- $50,001-
$50,000 $50,000 $100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
High Yield Bond None None None Over None None None None Over
$100,000 $100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Income Opportunities None None None None None None None None $10,001-
$50,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Inflation Protected None None None None None None None None None
Securities
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Insured Tax-Exempt None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Intermediate None None None None None None None None $50,001-
Tax-Exempt Bond $100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
International None None None None None None None None None
Aggressive Growth
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
International Equity None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
International None None None None None None $10,001- None Over
Opportunity $50,000 $100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
International Select None None None None None None None None None
Value
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
International Small Cap None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Large Cap Equity None None None None None None None $10,001- Over
$50,000 $100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Large Cap Value None None None None None None None $10,001- $50,001-
$50,000 $100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Limited Duration Bond None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Massachusetts Tax-Exempt None None None None None None None None Over
$100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Michigan Tax-Exempt None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Mid Cap Growth None None None None $10,001- None None None $50,001-
$50,000 $100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Mid Cap Value None None None None None None None None $10,001-
$50,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Minnesota Tax-Exempt None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
New Dimensions None None None Over None None None None None
$100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
New York Tax-Exempt None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Ohio Tax-Exempt None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Portfolio Builder None None None None None None None None None
Aggressive
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Portfolio Builder None None None None None None None None None
Conservative
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Portfolio Builder None None None None None None None None None
Moderate
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Portfolio Builder None None None None None None None None None
Moderate Aggressive
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Portfolio Builder None None None None None None None None None
Moderate Conservative
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Portfolio Builder Total None None None None None None None None None
Equity
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Precious Metals None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Real Estate None None None None None None None None $50,001-
$100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
S&P 500 Index None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Select Value $10,001- None None None None None None None None
$50,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Selective None None None $10,001- None None None None None
$50,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Short Duration U.S. None None None Over None None None None None
Government $100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Small Cap Advantage None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Small Cap Equity None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Small Cap Growth None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Statement of Additional Information - Oct. 3, 2005 Page 137
- ------------------------- ----------------------------------------------------------------------------------------------------------
Fund Dollar range of equity securities in the fund
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Carlson Carroll Flynn Jones Lewis Paglia Simpson Taunton Truscott
Rigby
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Small Cap Value None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Small Company Index None None None Over None None None None None
$100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Stock None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Strategic Allocation $50,001- None $10,001- None None None None None $10,001-
$100,000 $50,000 $50,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Strategy Aggressive None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Tax-Exempt Bond None None None $10,001- None None None None None
$50,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Tax-Exempt High Income None None None None None None None None $50,001-
$100,000
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Tax-Exempt Money Market None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
U.S. Government Mortgage None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Value None None None None None None None None None
- ------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Deferred compensation invested in share equivalents:
A. Carroll.......Global Technology...............$10,001-$50,000
B. Lewis ........International Opportunity.......$10,001-$50,000
Diversified Equity Income.......$50,001-$100,000
Emerging Markets................$10,001-$50,000
As of 30 days prior to the date of this SAI, the Board members and officers as a
group owned less than 1% of the outstanding shares of any class of any fund.
COMPENSATION OF BOARD MEMBERS
Total compensation. The following table shows the total compensation paid to
independent Board members from all the funds in the last fiscal year.
Table 31. Board Member Compensation - All Funds
- ------------------------ -------------------------------------------------------
Board members*+ Total Cash Compensation
from RiverSource Funds and Preferred Master Trust Group
Paid to Board Member
- ------------------------ -------------------------------------------------------
Philip J. Carroll, Jr. $ 0
- ------------------------ -------------------------------------------------------
Patricia M. Flynn 71,621
- ------------------------ -------------------------------------------------------
Anne P. Jones 176,025
- ------------------------ -------------------------------------------------------
Stephen R. Lewis, Jr. 137,438
- ------------------------ -------------------------------------------------------
Catherine James Paglia 129,592
- ------------------------ -------------------------------------------------------
Alan K. Simpson 128,975
- ------------------------ -------------------------------------------------------
Alison Taunton-Rigby 156,975
- ------------------------ -------------------------------------------------------
* Arne H. Carlson, Chair of the Board, is compensated by Board Services
Corporation, a company providing administrative services to the funds. Mr.
Carlson's total compensation was $373,750. Board member compensation is a
combination of a base fee and meeting fees.
+ Livio D. DeSimone retired as a member of the Board, effective Sept. 8, 2005.
Statement of Additional Information - Oct. 3, 2005 Page 138
Compensation from each fund. The following table shows the compensation to the
Board members from each fund during its last fiscal period.
Table 32. Board Member*+ Compensation - Individual Funds
- -------------------------------------- -----------------------------------------------------------------------------------
Fund Aggregate Compensation from Fund
- -------------------------------------- -----------------------------------------------------------------------------------
Carroll Flynn Jones Lewis Paglia Simpson Taunton-
Rigby
- --------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending January 31
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive ** ** ** ** ** ** **
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Portfolio Builder Conservative ** ** ** ** ** ** **
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Portfolio Builder Moderate ** ** ** ** ** ** **
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Portfolio Builder Moderate Aggressive ** ** ** ** ** ** **
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Portfolio Builder Moderate ** ** ** ** ** ** **
Conservative
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Portfolio Builder Total Equity ** ** ** ** ** ** **
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Small Company Index - total 1,677 533 1,954 2,104 550 1,550 1,750
Amount deferred 1,677 133 0 827 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
S&P 500 Index - total 1,169 442 1,445 1,595 417 1,042 1,242
Amount deferred 1,169 108 0 638 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending March 31
- --------------------------------------------------------------------------------------------------------------------------
Equity Value - total 1,628 692 1,905 2,005 758 1,450 1,700
Amount deferred 1,628 213 0 803 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Precious Metals - total 979 483 1,255 1,355 492 800 1,050
Amount deferred 979 138 0 550 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Small Cap Advantage - total 1,403 642 1,680 1,780 683 1,225 1,475
Amount deferred 1,403 200 0 722 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Small Cap Growth - total 1,079 517 1,355 1,455 533 900 1,150
Amount deferred 1,079 150 0 590 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Strategy Aggressive - total 1,353 592 1,630 1,730 633 1,175 1,425
Amount deferred 1,353 175 0 693 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending May 31
- --------------------------------------------------------------------------------------------------------------------------
Aggressive Growth - total 1,020 750 1,347 1,448 758 842 1,092
Amount deferred 1,020 271 0 556 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Fundamental Growth - total 1,428 992 1,755 1,857 1,033 1,250 1,500
Amount deferred 1,428 375 0 715 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Fundamental Value - total 1,270 892 1,597 1,748 917 1,142 1,392
Amount deferred 1,270 333 0 670 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
High Yield Bond - total 1,529 1,000 1,855 2,007 1,050 1,400 1,650
Amount deferred 1,529 375 0 765 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Select Value - total 1,320 900 1,647 1,798 933 1,192 1,442
Amount deferred 1,320 333 0 686 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Selective - total 1,129 800 1,455 1,607 817 1,000 1,250
Amount deferred 1,129 292 0 613 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Short Duration U.S. Government - 1,395 908 1,722 1,873 950 1,267 1,517
total Amount deferred 1,395 333 0 711 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Small Cap Equity - total 1,029 750 1,355 1,507 758 900 1,150
Amount deferred 1,029 271 0 575 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Small Cap Value - total 1,595 1,050 1,922 2,073 1,108 1,467 1,717
Amount deferred 1,595 396 0 792 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
U.S. Government Mortgage - total 1,129 800 1,455 1,607 817 1,000 1,250
Amount deferred 1,129 292 0 613 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Value - total 1,220 850 1,547 1,698 875 1,092 1,342
Amount deferred 1,220 313 0 648 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending June 30
- --------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt - total 1,079 808 1,405 1,557 867 900 1,200
Amount deferred 1,079 300 0 583 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Dividend Opportunity - total 1,579 1,100 1,905 2,057 1,200 1,400 1,700
Amount deferred 1,579 425 0 769 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Insured Tax-Exempt - total 1,204 875 1,530 1,682 950 1,025 1,325
Amount deferred 1,204 325 0 628 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Massachusetts Tax-Exempt - total 1,079 808 1,405 1,557 867 900 1,200
Amount deferred 1,079 300 0 583 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Michigan Tax-Exempt - total 1,079 808 1,405 1,557 867 900 1,200
Amount deferred 1,079 300 0 583 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Statement of Additional Information - Oct. 3, 2005 Page 139
- -------------------------------------- -----------------------------------------------------------------------------------
Fund Aggregate Compensation from Fund
- -------------------------------------- -----------------------------------------------------------------------------------
Carroll Flynn Jones Lewis Paglia Simpson Taunton-
Rigby
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Minnesota Tax-Exempt - total 1,279 925 1,605 1,757 1,000 1,100 1,400
Amount deferred 1,279 300 0 583 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
New York Tax-Exempt - total 1,079 808 1,405 1,557 867 900 1,200
Amount deferred 1,079 300 0 583 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Ohio Tax-Exempt - total 1,079 808 1,405 1,557 867 900 1,200
Amount deferred 1,079 300 0 583 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Real Estate 727 808 1,027 1,172 867 625 925
Amount deferred 727 300 0 489 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending July 31
- --------------------------------------------------------------------------------------------------------------------------
Cash Management - total 3,681 2,700 4,004 4,155 2,975 3,500 3,800
Amount deferred 3,681 1,138 0 1,515 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Core Bond - total 1,081 967 1,404 1,555 1,025 900 1,200
Amount deferred 1,081 379 0 562 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Disciplined Equity - total 938 967 1,288 1,433 1,025 783 1,083
Amount deferred 938 379 0 554 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Discovery - total 1,081 967 1,404 1,555 1,025 900 1,200
Amount deferred 1,081 379 0 562 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Growth - total 1,681 1,367 2,004 2,155 1,475 1,500 1,800
Amount deferred 1,681 554 0 782 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income Opportunities - total 1,140 1,025 1,463 1,614 1,083 958 1,258
Amount deferred 1,140 408 0 584 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Inflation Protected Securities - total 1,081 967 1,404 1,555 1,025 900 1,200
Amount deferred 1,081 379 0 562 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Large Cap Equity - total 2,198 1,700 2,521 2,672 1,850 2,017 2,317
Amount deferred 2,198 700 0 970 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Large Cap Value - total 1,081 967 1,404 1,555 1,025 900 1,200
Amount deferred 1,081 379 0 562 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Limited Duration Bond - total 1,081 967 1,404 1,555 1,025 900 1,200
Amount deferred 1,081 379 0 562 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
New Dimensions - total 4,256 2,958 4,579 4,730 3,317 4,075 4,375
Amount deferred 4,256 1,225 0 1,716 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending August 31
- --------------------------------------------------------------------------------------------------------------------------
Diversified Bond - total 2,394 0 3,237 3,437 0 3,033 3,283
Amount deferred 2,394 0 1,490 0 0
- --------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending September 30
- --------------------------------------------------------------------------------------------------------------------------
Balanced - total 1,177 0 1,354 1,504 0 1,150 1,350
Amount deferred 1,177 0 611 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Diversified Equity Income - total 1,460 0 1,654 1,804 0 1,450 1,650
Amount deferred 1,460 0 717 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Mid Cap Value - total 1,060 0 1,204 1,354 0 1,000 1,200
Amount deferred 1,060 0 548 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Stock - total 1,427 0 1,654 1,804 0 1,450 1,650
Amount deferred 1,427 0 730 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Strategic Allocation - total 1,094 0 1,254 1,404 0 1,050 1,250
Amount deferred 1,094 0 571 0 0
- --------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending October 31
- --------------------------------------------------------------------------------------------------------------------------
Emerging Markets - total 1,035 0 1,162 1,312 0 1,008 1,108
Amount deferred 1,035 0 514 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
European Equity - total 1,069 0 1,204 1,354 0 1,050 1,150
Amount deferred 1,069 0 532 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Global Balanced - total 1,069 0 1,204 1,354 0 1,050 1,150
Amount deferred 1,069 0 532 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Global Bond - total 1,069 0 1,204 1,354 0 1,050 1,150
Amount deferred 1,069 0 532 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Global Equity - total 1,069 0 1,204 1,354 0 1,050 1,150
Amount deferred 1,069 0 532 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Global Technology - total 977 0 1,104 1,254 0 950 1,050
Amount deferred 977 0 495 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
International Aggressive Growth - 1,185 0 1,320 1,470 0 1,167 1,267
total
Amount deferred 1,185 0 571 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
International Equity - total 1,069 0 1,204 1,354 0 1,050 1,150
Amount deferred 1,069 0 532 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Statement of Additional Information - Oct. 3, 2005 Page 140
- -------------------------------------- -----------------------------------------------------------------------------------
Fund Aggregate Compensation from Fund
- -------------------------------------- -----------------------------------------------------------------------------------
Carroll Flynn Jones Lewis Paglia Simpson Taunton-
Rigby
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
International Opportunity - total 1,194 0 1,337 1,487 0 1,183 1,283
Amount deferred 1,194 0 581 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
International Select Value - total 1,085 0 1,237 1,387 0 1,083 1,183
Amount deferred 1,085 0 552 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
International Small Cap - total 910 0 887 1,037 0 783 833
Amount deferred 910 0 342 0 0
- --------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending November 30
- --------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt Bond - total 1,077 208 1,204 1,404 158 1,050 1,150
Amount deferred 1,077 0 0 506 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Mid Cap Growth - total 2,335 317 2,462 2,662 267 2,308 2,408
Amount deferred 2,335 0 0 945 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Tax-Exempt Bond - total 1,485 242 1,612 1,812 192 1,458 1,558
Amount deferred 1,485 0 0 652 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Tax-Exempt High Income - total 1,977 283 2,104 2,304 233 1,950 2,050
Amount deferred 1,977 0 0 823 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending December 31
- --------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market - total 977 208 1,154 1,304 167 950 1,000
Amount deferred 977 0 0 430 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
* Arne H. Carlson, Chair of the Board, is compensated by Board Services
Corporation.
+ Livio D. DeSimone retired as a Board member, effective Sept. 8, 2005.
** Funds-of-Funds do not pay additional compensation to the Board members for
attending meetings. Compensation is paid directly from the underlying funds
in which each Funds-of-Funds invests.
Master portfolios. For funds that are part of a master/feeder structure, Board
members also received compensation from the master portfolios during the last
fiscal period as shown in the following table:
Table 32A. Board Member*+ Compensation - Master Portfolios
- -------------------------------------- ----------------------------------------------------------------------------------
Portfolio Aggregate Compensation from Portfolio
- -------------------------------------- ----------------------------------------------------------------------------------
Carroll Flynn Jones Lewis Paglia Simpson Taunton-
Rigby
- -------------------------------------------------------------------------------------------------------------------------
For portfolios with fiscal period ending May 31
- -------------------------------------------------------------------------------------------------------------------------
Government Income - total 1,937 1,200 2,264 2,415 1,283 1,808 2,058
Amount deferred 1,937 458 0 920 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
High Yield - total 2,129 1,300 2,455 2,607 1,400 2,000 2,250
Amount deferred 2,129 500 0 993 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
Quality Income - total 1,429 950 1,755 1,907 992 1,300 1,550
Amount deferred 1,429 354 0 727 0 0 0
- -------------------------------------------------------------------------------------------------------------------------
For portfolios with fiscal period ending July 31
- -------------------------------------------------------------------------------------------------------------------------
Growth - total 2,423 1,842 2,746 2,897 2,017 2,242 2,542
Amount deferred 2,423 758 0 1,052 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
Growth Trends - total 8,173 5,608 8,496 8,647 6,283 7,992 8,292
Amount deferred 8,173 2,392 0 3,155 0 0 0
- -------------------------------------------------------------------------------------------------------------------------
For portfolios with fiscal period ending September 30
- -------------------------------------------------------------------------------------------------------------------------
Equity Income - total 1,910 0 2,204 2,354 0 2,000 2,200
Amount deferred 1,910 0 939 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
Balanced - total 1,510 0 1,754 1,904 0 1,550 1,750
Amount deferred 1,510 0 770 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
Equity - total 1,760 0 2,054 2,204 0 1,850 2,050
Amount deferred 1,760 0 889 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
Total Return - total 1,335 0 1,529 1,679 0 1,325 1,525
Amount deferred 1,335 0 675 0 0
- -------------------------------------------------------------------------------------------------------------------------
For portfolios with fiscal period ending October 31
- -------------------------------------------------------------------------------------------------------------------------
Emerging Markets - total 1,077 0 1,212 1,362 0 1,058 1,158
Amount deferred 1,077 0 535 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
World Growth - total 1,160 0 1,304 1,454 0 1,150 1,250
Amount deferred 1,160 0 570 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
World Income - total 1,169 0 1,320 1,470 0 1,167 1,267
Amount deferred 1,169 0 580 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
World Technologies - total 1,069 0 1,204 1,354 0 1,050 1,150
Amount deferred 1,069 0 532 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
Statement of Additional Information - Oct. 3, 2005 Page 141
- -------------------------------------- ----------------------------------------------------------------------------------
Portfolio Aggregate Compensation from Portfolio
- -------------------------------------- ----------------------------------------------------------------------------------
Carroll Flynn Jones Lewis Paglia Simpson Taunton-
Rigby
- -------------------------------------------------------------------------------------------------------------------------
For portfolios with fiscal period ending November 30
- -------------------------------------------------------------------------------------------------------------------------
Tax-Free High Yield - total 3,019 367 3,145 3,345 317 2,992 3,092
Amount deferred 3,019 0 0 1,194 0 0 0
- -------------------------------------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
* Arne H. Carlson, Chair of the Board, is compensated by Board Services
Corporation.
+ Livio D. DeSimone retired as a Board member, effective Sept. 8, 2005.
Control Persons and Principal Holders of
Securities
The following table identifies those investors who, as of 30 days after the end
of the fund's fiscal period, owned 5% or more of any class of a fund's shares
and those investors who owned 25% or more of a fund's shares (all share classes
taken together). Investors who own more than 25% of a fund's shares are presumed
to control the fund and would be able to determine the outcome of most issues
that are submitted to shareholders for vote. The table is organized by fiscal
year end. You can find your fund's fiscal year end in Table 1.
Table 33. Control Persons and Principal Holders of Securities
as of 30 days after the end of the fund's fiscal period
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Fund Shareholder name, Class A Class B Class C Class I Class Y Percent of
city and state Fund (if
greater
than 25%)
- -----------------------------------------------------------------------------------------------------------------------------------
Funds with fiscal period ending January 31
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Ameriprise Financial, Inc. 11.44%
Aggressive Minneapolis, MN
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Charles Schwab & Co., Inc. 88.56%
(Charles Schwab) a brokerage
firm in San Francisco, CA
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Ameriprise Financial 100.00%
Conservative
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Ameriprise Financial 46.90%
Moderate
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Charles Schwab 53.10%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Ameriprise Financial 21.82%
Moderate Aggressive
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Charles Schwab 78.18%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Ameriprise Financial 100.00%
Moderate
Conservative
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Ameriprise Financial 12.34%
Equity
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Charles Schwab 87.66%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Small Company Index Charles Schwab 9.96%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 65.78%
Minneapolis, MN
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Asbestos Workers Local 34 25.78%
Minneapolis, MN
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
S&P 500 Index*** Clients of American Enterprise
Investment Services, Inc.
(AEIS), a brokerage firm,
Minneapolis, MN
- -----------------------------------------------------------------------------------------------------------------------------------
Funds with fiscal period ending March 31
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Value Ameriprise Financial 100.00%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 98.74%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
John C. Mullarkey 6.37%
Willowbrook, IL
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Precious Metals Charles Schwab 17.51% 95.29%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
John E. Bridgman 6.10%
Minneapolis, MN
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Richard L. and 5.71%
Susan Angela Venerable
Argyle, TX
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 142
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Shareholder name, Class A Class B Class C Class I Class Y Percent of
Fund city and state Fund (if
greater
than 25%)
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Small Cap Advantage Charles Schwab 17.79% 99.46%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.40%
Aggressive Fund
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Small Cap Growth Charles Schwab 15.25%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.39%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 69.43%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Strategy Aggressive Ameriprise Financial 100.00%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Met Life 93.94%
Jersey City, NJ
- -----------------------------------------------------------------------------------------------------------------------------------
Funds with fiscal period ending May 31
- -----------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth Charles Schwab 5.02% 58.52%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
AEIS 5.10%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Roger J., Sylvia Ann and 11.31%
Matthew Thompson
Eagle, ID
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.70%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.87%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.66%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 19.10%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.89%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 41.49%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Fundamental Growth Charles Schwab 7.00% 44.41%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
AEIS 5.91%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.72%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.87%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.62%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 19.09%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.92%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Terry H. Henson 8.46%
Fairmount, GA
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Nancy P. Kofranek 5.50%
Oxnard, CA
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 55.60% 73.50%*
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Fundamental Value Charles Schwab 14.97% 98.09%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.73%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.89%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.61%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 19.09%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.91%
Conservative Fund
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
High Yield Bond Charles Schwab 11.00%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 100.00%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Met Life 50.50%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Select Value Charles Schwab 11.34% 76.29%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.78%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.82%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.62%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 18.99%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.99%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 23.71%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 143
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Fund Shareholder name, Class A Class B Class C Class I Class Y Percent of
city and state Fund (if
greater
than 25%)
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Selective Portfolio Builder Conservative 15.80%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 35.47%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.15%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 13.84%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 97.47%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Short Duration Charles Schwab 10.00%
U.S. Gov't
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Conservative 29.71%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 24.34%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 45.92%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 22.34%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Small Cap Equity Charles Schwab 21.21% 91.36%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.87%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.65%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.66%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 19.08%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.89%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 8.64%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Small Cap Value Charles Schwab 21.84% 94.45%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.92%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.79%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.46%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 19.06%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.88%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 5.55%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
U.S. Gov't Mortgage Charles Schwab 15.46% 70.83%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 100.00%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Value Charles Schwab 12.97% 93.22%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.70%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.86%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.65%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 19.11%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.92%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 6.78%
- -----------------------------------------------------------------------------------------------------------------------------------
Funds with fiscal period ending June 30
- -----------------------------------------------------------------------------------------------------------------------------------
Dividend Opportunity Charles Schwab 10.51% 100.00%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 100.00%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Insured Tax-Exempt J. Haley Stephens and Lynne S. 7.19%
Kelly as the Trustees of the
Mary M. Stephens Irrevocable
Trust, Calhoun, GA
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 100.00%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
California Tax-Exempt Arthur Mendel and Dorothy 6.50%
Mendel as the Trustees of the
Dorothy M. Mendel Irrevocable
Trust, Richmond, CA
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 144
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Shareholder name, Class A Class B Class C Class I Class Y Percent of
Fund city and state Fund (if
greater
than 25%)
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Massachusetts Charles Schwab 6.56%
Tax-Exempt
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
June P. Venette and Norman E. 9.24%
Venette as the Trustees of the
Norman E. Venette Revocable
Trust, Orange, MN
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Donal A. Simard and Claire G. 7.14%
Simard, Ipswich, MA
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Alphonse A. Di Nardo and Linda 6.30%
Di Nardo, Leominster, MA
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Harvey W. Levin and Phyllis 6.10%
Levin, Swampscott, MA
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Rita Hashem, Tewksbury, MA 5.18%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Michigan Tax-Exempt Charles Schwab 5.39%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Chester V. Mysliwiec and Rose 7.02%
M. Mysliwiec as the Trustees of
the Rose M. Mysliwiec
Living Trust, Grand Rapids, MI
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Barry J. Fishman and Teresa A. 10.96%
McMahon, as Trustees for the
Barry J. Fishman Living Trust,
AnnArbor, MI
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ray W. Butler and Gertrude E. 7.04%
Butler, Clarkston, MI
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
R. Paul Minger and Diane E. 5.55% Minger, Huntley, IL
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
New York Tax-Exempt Charles Schwab 5.11%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Dana Brandwein and Daniel 7.80%
Oates, Sharon, CT
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Arthur Ezersky and Sandra 7.28%
Ezersky, Woodbury, NY
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Charles D. Adler and Judith E. 5.91%
Adler, New York, NY
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ohio Tax-Exempt Charles Schwab 5.54%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Sandra K. Ogle, Strongsville, OH 5.14%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Richard L. Sears, Parma, OH 6.32%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Joseph A. Sears, Berea, OH 6.32%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
James N. Sears, Columbus, OH 6.32%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
David A. Sears, Brunswick, OH 6.10%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Real Estate Charles Schwab 10.23% 62.53%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 37.47% 37.38%*
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 15.20%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Conservative 5.32%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 25.63%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 31.33%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 10.35%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 12.14%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Funds with fiscal period ending July 31
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Management Ameriprise Trust Company 96.61%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Jerry J. and Roma J. Meyer, 10.41%
Williamsburg, IN
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 145
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Shareholder name, Class A Class B Class C Class I Class Y Percent of
Fund city and state Fund (if
greater
than 25%)
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Core Bond IDS Life Insurance Company, 17.56% 9.64%
Minneapolis, MN
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Charles Schwab 13.23% 90.36%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Frank S. Gregory, Derry, NH 6.27%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Conservative 12.18%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 41.33%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.45%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 10.22%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 73.57%*
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Disciplined Equity Charles Schwab 10.87% 60.92%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Emanuel A. and Kelly D. 9.56%
Madeira, S. Dartmouth, MA
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Brian L. and Mary Jane Hopp, 8.25%
Beldenville, WI
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Linda L. Lane, Bay Pines, FL 6.29%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Paul M. and Nikki S. Farmer, 5.48%
Franklin, TN
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Evelyn F. and Steven Couture, 5.10%
Plymouth, MN
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.61%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.63%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 33.09%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.85%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 19.09%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 7.02% 39.08% 68.54%*
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Discovery Ameriprise Trust Company 100.00%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Hal C. Beckley and William A. 67.22%
Beckley, Branford, CT
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Teresa M. and Carl Greenfield, 12.28%
Seattle, WA
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Terence J. Benka, Milwaukee, WI 8.37%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 7.91%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Growth Charles Schwab 6.58%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 98.98%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.66%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.71%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 33.04%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.79%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 19.08%
Fund
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Income Opportunities Charles Schwab 19.59% 97.45%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 12.71%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 53.17%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 24.77%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 9.33%
Conservative Fund
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 146
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Shareholder name, Class A Class B Class C Class I Class Y Percent of
Fund city and state Fund (if
greater
than 25%)
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Inflation Protected Charles Schwab 18.04%
Securities
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
IDS Life Insurance Company, 100.00%
Minneapolis, MN
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Conservative 10.20%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 37.97%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 31.86%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 19.95%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 28.37%*
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Large Cap Equity Charles Schwab 5.48% 76.80%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 5.53%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Wells Fargo Bank as Tr of the 17.67%
Holland American Line,
Minneapolis, MN
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.57%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.74%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 33.37%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.61%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 19.05%
Fund
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Large Cap Value Charles Schwab 15.35% 90.06%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.72%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.66%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 33.08%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.74%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 19.05%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 9.94% 27.93%*
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Limited Duration Bond Charles Schwab 18.26% 83.70%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Donald and Elizabeth L. Snow, 7.22%
Derry, NH
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Sylvia Cohen, Stockton, CA 5.33%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 17.24%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Conservative 14.41%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 14.27%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 23.98%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 30.10%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
IDS Life Insurance Company, 16.30%
Minneapolis, MN
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 42.41%*
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
New Dimensions Charles Schwab 5.32%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 82.79%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Aggressive 19.67%
Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate Fund 20.73%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 33.04%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 5.83%
Conservative Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Total Equity 19.00%
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information - Oct. 3, 2005 Page 147
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Fund Shareholder name, Class A Class B Class C Class I Class Y Percent of
city and state Fund (if
greater
than 25%)
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Funds with fiscal period ending August 31
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Bond Charles Schwab 5.86%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 100.00%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 72.40%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Tomorrow's Scholar 6.62%
Menomonee Falls, WI
- -----------------------------------------------------------------------------------------------------------------------------------
Funds with fiscal period ending September 30
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced Ameriprise Trust Company 99.78%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Diversified Equity Charles Schwab 10.20%
Income
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.32%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 53.55%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Mid Cap Value Charles Schwab 15.40% 96.46%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.23%
Aggressive Fund
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Strategic Allocation Ameriprise Trust Company 61.99%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Marshall & Ilsley Trust Co 38.00%
Milwaukee, WI
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Stock Portfolio Builder Moderate 32.27%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 95.66%
- -----------------------------------------------------------------------------------------------------------------------------------
Funds with fiscal period ending October 31
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Charles Schwab 9.72%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
AEIS 6.40%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 33.15%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 95.28%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Raymond T. Snapp 5.59%
Bedford, IN
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
European Equity Charles Schwab 13.66% 86.15%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 100.00% 13.86%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Global Balanced Charles Schwab 9.68%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 99.96%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Sherman D and Carol A Deponte, 6.35%
Trustees
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Global Bond Portfolio Builder Moderate 42.46%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Charles Schwab 100.00%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Global Equity Ameriprise Trust Company 90.29%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Global Technology Charles Schwab 11.74%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 92.26%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
International Charles Schwab 33.80% 92.74%
Aggressive Growth
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.22%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 7.26%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
International Equity Ameriprise Financial 28.46% 35.45%*
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Charles Schwab 9.13% 82.96%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.28%
Aggressive Fund
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
International Charles Schwab 9.92%
Opportunity
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.34%
Aggressive Fund
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Tomorrow's Scholar 66.88%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Roger J. Thompson 5.71%
Eagle, ID
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
International Select Charles Schwab 17.28% 96.92%
Value
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.47%
Aggressive Fund
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Statement of Additional Information - Oct. 3, 2005 Page 148
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Fund Shareholder name, Class A Class B Class C Class I Class Y Percent of
city and state Fund (if
greater
than 25%)
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
International Small Cap Ameriprise Financial 27.47% 18.17% 33.69%*
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Charles Schwab 14.79% 81.83%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Portfolio Builder Moderate 32.40%
Aggressive Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Funds with fiscal period ending November 30
- -----------------------------------------------------------------------------------------------------------------------------------
Intermediate Charles Schwab 12.26%
Tax-Exempt
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 100.00%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Mid Cap Growth Charles Schwab 7.07%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Trust Company 68.09%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Tax-Exempt Bond AEIS 6.57%
--------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Ameriprise Financial 100.00%
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
Tax-Exempt Ameriprise Financial 100.00%
High Income
- -----------------------------------------------------------------------------------------------------------------------------------
Funds with fiscal period ending December 31
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt None
Money Market
- ------------------------- --------------------------------- ----------- ----------- ---------- ----------- ----------- ------------
* Combination of Ameriprise Financial initial capital for Class A shares and
Portfolio Builder Fund investments in Class I shares.
** Ameriprise Trust Company is not the beneficial owner of these shares. The
shares are held of record by Ameriprise Trust Company and are normally
voted by various retirement plans and retirement participants.
*** American Enterprise Investment Services, Inc. (AEIS), Minneapolis, MN holds
of record 100% of Class D shares and 85.59% of Class E shares.
A fund may serve as an underlying investment of the RiverSource Portfolio
Builder Series, a group of six funds-of-funds (the Portfolio Builder Funds) that
principally invest in shares of other RiverSource funds (the underlying funds).
The underlying funds and the Portfolio Builder Funds share the same officers,
directors, and investment manager, RiverSource Investments. The Portfolio
Builder Funds do not invest in an underlying fund for the purpose of exercising
management or control; however, from time to time, investments by the Portfolio
Builder Funds in a fund may represent a significant portion of a fund. Because
the Portfolio Builder Funds may own a substantial portion of the shares of a
fund, procedures have been put into place to assure that public shareholders
will determine the outcome of all actions taken at underlying fund shareholder
meetings. In proxy voting, the Portfolio Builder Funds will vote on each
proposal in the same proportion that other shareholders vote on the proposal.
In addition, Ameriprise Financial or an affiliate may own shares of a fund as a
result of an initial capital investment at the inception of the fund or class.
To the extent RiverSource Investments, as manager of the Portfolio Builder
Funds, may be deemed a beneficial owner of the shares of an underlying fund held
by the Portfolio Builder Funds, and such shares, together with any initial
capital investment by Ameriprise Financial or an affiliate represent more than
25% of a fund, RiverSource Investments and its affiliated companies may be
deemed to control the fund.
Independent Registered Public Accounting Firm
The financial statements contained in a fund's Annual Report were audited by the
independent registered public accounting firm, KPMG LLP, 4200 Wells Fargo
Center, 90 S. Seventh St., Minneapolis, MN 55402-3900. The independent
registered public accounting firm also provides other accounting and tax-related
services as requested by the fund.
Statement of Additional Information - Oct. 3, 2005 Page 149
Appendix A
DESCRIPTION OF RATINGS
Standard & Poor's Long-Term Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
o Likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance
with the terms of the obligation.
o Nature of and provisions of the obligation.
o Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
Investment Grade
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Statement of Additional Information - Oct. 3, 2005 Page 150
Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
Debt rated CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
Debt rated C typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Long-Term Debt Ratings
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
Baa -- Bonds that are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds that are rated Ba are judged to have speculative elements -- their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Caa -- Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
Statement of Additional Information - Oct. 3, 2005 Page 151
C -- Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Fitch's Long-Term Debt Ratings
Fitch's bond ratings provide a guide to investors in determining the credit risk
associated with a particular security. The ratings represent Fitch's assessment
of the issuer's ability to meet the obligations of a specific debt issue in a
timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Fitch ratings are not recommendations to buy, sell or hold any security. Ratings
do not comment on the adequacy of market price, the suitability of any security
for a particular investor, or the tax-exempt nature of taxability of payments
made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
Investment Grade
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
Speculative Grade
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
Statement of Additional Information - Oct. 3, 2005 Page 152
CCC: Bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues are regarded as having only speculative capacity for timely payment.
C This rating is assigned to short-term debt obligations with doubtful capacity
for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
Standard & Poor's Muni Bond and Note Ratings
An S&P municipal bond or note rating reflects the liquidity factors and
market-access risks unique to these instruments. Notes maturing in three years
or less will likely receive a note rating. Notes maturing beyond three years
will most likely receive a long-term debt rating.
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to possess
very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
Municipal bond rating symbols and definitions are as follows:
Statement of Additional Information - Oct. 3, 2005 Page 153
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.
Moody's Short-Term Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-l (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-l repayment ability will
often be evidenced by many of the following characteristics: (i) leading market
positions in well-established industries, (ii) high rates of return on funds
employed, (iii) conservative capitalization structure with moderate reliance on
debt and ample asset protection, (iv) broad margins in earnings coverage of
fixed financial charges and high internal cash generation, and (v) well
established access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above, but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
Moody's Short-Term Muni Bonds and Notes
Short-term municipal bonds and notes are rated by Moody's. The ratings reflect
the liquidity concerns and market access risks unique to notes.
Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Moody's MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded as
required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Statement of Additional Information - Oct. 3, 2005 Page 154
Fitch's Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-S:Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
Statement of Additional Information - Oct. 3, 2005 Page 155
Appendix B
STATE TAX-EXEMPT FUNDS
STATE RISK FACTORS
The yields on the securities in which the Funds will invest generally are
dependent on a variety of factors, including the financial condition of the
issuer or other obligor, the revenue source from which the debt service is
payable, general economic and monetary conditions, conditions in the relevant
market, the size of a particular issue, the maturity of the obligation, and the
rating of the issue.
In addition to such factors, such securities will experience particular
sensitivity to local conditions -- including political and economic changes,
adverse conditions to an industry significant to the area, and other
developments within a particular locality including: ecological or environmental
concerns; litigation; natural disasters; and statutory limitations on an
issuer's ability to increase taxes. Because many tax-exempt bonds may be revenue
or general obligations of local governments or authorities, ratings on
tax-exempt bonds may be different from the ratings given to the general
obligation (GO) bonds of a particular state. A summary description of certain
factors and statistics describing the economies in each state is set forth
below. Such information is not specific to the issuer of a particular security
that a Fund may own and is only intended to provide a general overview. Such
information has been excerpted from publicly available offering documents and
from other research reports prepared by rating agencies such as Standards &
Poor's, Moody's Investors Services and Fitch Investors Services, Inc. No Fund
has independently verified this information and no Fund makes any
representations regarding this information.
In recessionary periods, an issuer's ability to pay interest on or repay
principal of securities in which the Funds will invest may be significantly
impaired.
Many uncertainties continue to exist as of mid-year 2005 in the current
forecasts for the national and state economies. Given the ongoing volatility in
the financial markets, such uncertainties are particularly pronounced at this
time. The timing and impact of changes in economic conditions are difficult to
estimate with a high degree of accuracy. Unforeseeable events may occur. Please
monitor your investment accordingly.
Factors Affecting California
California's large and diverse economy remains healthy overall and has regained
substantially all of its lost jobs from the 2001 recession. The state's economy
is showing solid to moderate growth in most regions, including Northern
California, which bore the brunt of the recent recession. Between May 2004 and
May 2005, employment grew by 1.8%, slightly faster than the U.S., as
unemployment declined to 5.3%- only slightly above the national employment rate
of 5.1%. California's economy continues to benefit from higher than average
wealth and income metrics.
Despite the improvement in the state's economy and significant upward revisions
in tax revenue estimates for 2005 and 2006, California continues to grapple with
a structural budget imbalance. Fiscal 2005 ended with a general fund reserve of
$6.1 billion, but $2 billion of the reserve was a result of a deficit financing
bond. The state has relied heavily on borrowing to fund accumulated operating
deficits over the past few years, but debt levels per capita remain moderate in
comparison to other states. California is currently projecting operating budget
deficits of 5-10% for fiscal 2006 and 2007. The Governor's revised fiscal 2006
budget proposal provides for no new deficit borrowing, but uses one-time capital
gains and tax amnesty revenues, along with general fund reserves, to cover the
$4.9 billion operating shortfall. Looking forward, a sizable gap of $5 billion
is currently projected in the governor's budget for fiscal 2007. Meanwhile, the
Governor has called a special election for this November to impose a cap on
annual state expenditure growth and budget revisions allowing for new
gubernatorial powers to reduce spending. California historically fails to pass a
budget by its required June15th deadline and began the current fiscal year on
July 1st without a budget in place- its fifth straight year without an on time
budget. A late budget does not have negative ramifications for the state's
general obligation debt service payments.
Statement of Additional Information - Oct. 3, 2005 Page 156
Factors Affecting Massachusetts
The Commonwealth of Massachusetts diverse economy, driven by high technology,
financial services, education and health care, has started to stabilize
following a three year period of decline. At the end of 2004, the Commonwealth
`s total non farm employment was down by approximately 158,000 jobs from the
high three years ago, a decline of 4.8% and among the highest in the nation.
Since then the economy shows some signs of stabilization as non-farm gains have
been achieved through the first four months of 2005 on a year-over-year basis.
Massachusetts' unemployment rate of 4.7% compares favorably to national average
of 5.2%. Stability results from the increasing role of services in the economy
and contributions made by high technology industries such as research
laboratories, computer software, management consulting and health care.
The recovering economy and conservative budget management allowed the
commonwealth to improve operations in fiscal 2005. The state anticipates
collecting approximately $17.1 billion in taxes at the end of fiscal 2005, an
increase of 7% from the prior year and projects ending with a closing General
Fund balance of $885 million on a $22.7 billion budget. The 2006 budget of $23.2
billion reflects a modest increase of 2.4% over fiscal 2005. Notable increases
take place in the areas of debt service, pensions, human services and education.
Similar to other states, Massachusetts is likely to face spending pressure in
the areas of Medicaid, despite the one-time use of accumulated surplus
set-aside, and pension funding. Despite spending down $1.7 billion of the Rainy
Day fund through the recession, the 2006 budget forecasts ending the year with a
balance of $1.2 billion. Key initiatives in the 2006 budget include the rollback
of the personal income tax from 5.3% to 5.0% and the lack of non-recurring
revenues to balance the budget. Massachusetts' high debt ratios are likely to
remain under pressure with a sizable capital plan, particularly in the areas of
schools and transportation.
Factors Affecting Michigan
Like certain other manufacturing based states, Michigan's economy continues to
under perform the national economy. Michigan's job losses have been both
protracted and severe. While many other states began adding jobs in 2003 or
2004, Michigan continues to lose jobs. Michigan's economy has lost 7% of its non
farm jobs since the mid-2000 peak while many other states lost 2% to 3% of their
jobs during the recession. As of May 2005 Michigan's unemployment rate currently
stands at 7.1% vs. a national unemployment rate of 5.1%. The weak job
environment is related to Michigan's dependence on manufacturing in general and
on autos in particular. The Big Three continue to struggle and are actively
searching for ways to reduce capacity. Due in part to expectations of continued
weak auto and manufacturing conditions, Michigan's state economists forecast
slower economic growth in 2005 and 2006 compared to 2004. Despite the difficult
economic conditions some pockets of strength exist in areas such as Lansing and
Ann Arbor which are more service oriented than areas such as Flint and Detroit.
Michigan continues to face budgetary pressures as spending pressures persist and
revenues remain soft. The State's May 2005 Consensus Revenue Forecast predicts a
continued weak revenue environment through Fiscal Year 2006. During the first
few years of the recession Michigan spent down its rainy day fund and has been
unable to significantly rebuild this financial cushion. Not all fiscal news is
negative however, Michigan benefits from a number of management controls that
enhance effectiveness and control over budgetary issues, e.g., balanced budget
requirement and gubernatorial line item veto power. Michigan also benefits from
a low debt burden and rapid debt amortization. Further, Michigan has a well
funded pension system relative to many other states. Michigan created a new
defined contribution plan for new state employees hired after 1997; effectively
closing the existing state employees defined benefit retirement system. Over
time, this move is expected to reduce budgetary pressure by limiting future
retirement costs.
Factors Affecting Minnesota
Minnesota's economy has regained substantially all of its lost jobs from the
2001 recession. The state's economy is less manufacturing dependent than many
other Midwestern states and, as a result, Minnesota's job picture has been
brighter than many other Midwestern states. The brighter job picture is
reflected in a lower than average unemployment rate. Minnesota's unemployment
rate of 4.3%, as of May 2005, is well below the nation unemployment rate of
5.1%. Minnesota's economy continues to benefit from higher than average wealth
and income metrics.
Statement of Additional Information - Oct. 3, 2005 Page 157
Minnesota's tax revenues have grown concomitantly with job growth. Fiscal year
2005 tax revenue growth for Minnesota was a healthy 5.8% from the prior year.
The strongest category of tax revenue growth was the corporate income tax which
grew by over 40% during the year. Despite the improving revenue environment, the
state has had difficulty passing its fiscal year 2006 budget. As we approach
fiscal year end a government shut down has been threatened as lawmakers argue
over how to allocate state revenues. The main issues of contention include
taxes, casinos and health care spending. Essential spending categories will
continue to be funded in the event of a shutdown, including debt service
payments on state general obligation debt. The projected fiscal year budget gap
is estimated to be a little less than $500MM or roughly 3% of the general fund
budget. Like other state's Minnesota used its rainy day fund during the
recession, but the state has made some progress replenishing its reserves. The
general fund cushion improved in fiscal year 2004 to 6.7% of expenditures vs.
2.7% in the prior year.
Factors Affecting New York
The State of New York's economy remains characterized by two distinct economies.
In upstate New York, the economy continues as primarily manufacturing based,
while downstate is anchored by the City of New York and its finance and services
oriented economy. New York's economy continues its recovery to levels prior to
the start of the recession and terrorist acts in 2001. The improvement has been
largely due to the economic performance of New York City and its surrounding
suburbs. With growth in the region supported by a rebounding Wall Street,
finance and insurance industries and the subsequent healthy profits and bonuses.
At the end of the first quarter in 2005, the state's unemployment rate dropped
to 4.6%, the lowest rate since June 2001, down from 5.1% in February and well
below the 6.1% March 2004 rate. This also compares favorably to the national
unemployment rate of 5.2% for the same period. Despite the overall job creation,
the manufacturing sector continues to bear the brunt of the state's job losses.
Employment in the manufacturing and mining sectors combined fell 2.7% in 2004,
although a significant improvement from the 6.0% decline in 2003.
As a result of the overall improvement in economic performance, along with a
temporary increase in the sales and income taxes, the state's fiscal condition
has benefited accordingly. The fiscal 2005 budget ended with a General Fund
closing balance of $1.2 billion or 2.6% of the General Fund, as well as an
increase of $352 million into a new Fiscal Stability Reserve Fund. The fiscal
2006 budget forecasts an increase of 4.7% over the prior year. Despite the
fiscal improvement, New York still grapples with a structural budget imbalance,
relying on $856 million of non-recurring revenue to close the budget gap. Going
forward, the primary issues pressuring the state's operations will continue to
be Medicaid, pension funding and school funding. Additional multi-billion dollar
annual costs are likely as a result of a court order finding education financing
to be unconstitutional. One event of note is that the Fiscal 2006 budget
represents the first budget passed on time in the past 21 years. The state
maintains large ongoing capital needs and outstanding debt levels which rank in
the top five states on a per capita and relative to personal income basis.
Factors Affecting Ohio
Like many other manufacturing based states, Ohio's economy experienced a period
of job loss during the recession. Ohio's economy lost 4% of its jobs from mid
2000 through 2003. The rate of job loss was worse than the national average but
not as severe as certain other nearby manufacturing states. Ohio appears to have
begun to gradually grow jobs, adding approximately 45,000 jobs since early 2004.
Despite recent job growth Ohio's unemployment rate of 6.1% remains above the
nation's unemployment rate of 5.1%, as of May 2005. The weaker unemployment
number reflects Ohio's exposure to and dependence on the manufacturing sector.
Despite the challenging manufacturing environment, certain service based areas
of the state appear to be pockets of strength. The regional differences are most
apparent in the differing rates of unemployment for various metropolitan areas
as of May 2005. Manufacturing based metropolitan areas like Canton (6.2%),
Toledo (6.3%) and Youngstown (6.4%) have higher unemployment rates than service
based metropolitan areas like Cincinnati (5.2%) and Columbus (5.2%).
Statement of Additional Information - Oct. 3, 2005 Page 158
Ohio's revenue environment seems to be improving. Fiscal year 2004 revenues were
stronger than anticipated and fiscal year 2005 tax receipts are coming in 3.7%
better than budget through May 2005. Most of the strength is due to strong
personal income tax receipts. Year to date personal income taxes are 14% above
last year's comparable number. Year to date spending is 1% below budget mostly
due to lower than expected health care and welfare expenditures. Like certain
other manufacturing based states, Ohio had to use the bulk of its rainy day fund
during the recession. The General Fund reserve balance is budgeted to fall to
$110MM in fiscal year 2005 vs. $533MM in the prior year. Ohio partly balanced
its Fiscal Year 2005 budget with a "temporary" sales tax increase of one penny.
The tax was scheduled to sunset in July 2005. Rather than letting the temporary
tax sunset, the 2006-2007 biennium budget makes half of the new penny permanent
and allows the other half to sunset. Like many states, Ohio will be challenged
by growing Medicaid spending, one of Ohio's largest expense categories. Ohio
benefits from the governor's strong ability to cut spending and the
constitutional balance budget requirement. Ohio's debt burden and pension
funding levels are better than national averages.
Factors Affecting Puerto Rico
Historically, the Commonwealth's economy has maintained a very close
relationship with that of the United States. Consequently, the slowdown and the
subsequent recovery in the United States have been reflected in the Puerto Rico
economy but with a lagging effect. Through the first nine months of fiscal year
2005 (6/30 year-end) Puerto Rico's GNP registered an increase of 2.3% while the
GDP growth rate of the U.S. came in at 3.7%. Unemployment, traditionally in the
double digits for the island, registered a rate of 10.8% through the first nine
months of fiscal 2005, an improvement from 11.6% for the same prior year period,
but still well above the 5.2% unemployment rate of the U.S. After decades as an
economy reliant on manufacturing and agriculture, the Commonwealth of Puerto
Rico continues its efforts to diversify its economy by focusing on services and
various technological sectors.
The commonwealth's fiscal position deteriorated significantly over the last two
fiscal years with large operating deficits that have reduced reserves and
liquidity to marginal levels. In 2004 Puerto Rico ended the year with an
operating deficit of $322 million that was subsequently closed through loans
from the Government Development Bank of Puerto Rico, the commonwealth's fiscal
agent and advisor. After starting fiscal 2005 with a budget gap of $550 million,
an inability to control expenditures led to a year-end gap of approximately $1
billion. In response to the deficits, the government of Puerto Rico issued
additional debt in the bond market to help work its way out of the deficit
position. Fiscal 2006 is starting with another sizable gap ($1.8 billion) that
will require the implementation of severe measures to raise revenues and cut
expenses. Historically, the island's debt burden has been very high, partly as a
function of the government's centralized role and assuming responsibility for
services typically handled at the local level in the United States. With the
issuance of the deficit financing and its annual borrowings to finance its
capital program, the Commonwealth's outstanding debt level stands at nearly 60%
of personal income. As a comparison, the State with the highest debt burden in
the United States (Hawaii) has a debt to personal income ratio of 11%.
As a result of the deterioration in its credit position, the Commonwealth's
general obligation bond ratings were downgraded from Baal and A- to Baa2 and BBB
by Moody's and Standard and Poor's, respectively and assigned negative outlooks.
Statement of Additional Information - Oct. 3, 2005 Page 159
Appendix C
INSURED TAX-EXEMPT FUND
Insurance
The Fund's entire portfolio of municipal obligations will at all times be fully
insured as to the scheduled payment of all installments of principal and
interest thereon, except as noted below. This insurance feature minimizes the
risks to the Fund and its shareholders associated with any defaults in the
municipal obligations owned by the Fund.
Each insured municipal obligation in the Fund's portfolio will be covered by
either a mutual fund Portfolio Insurance Policy issued by Financial Guaranty
Insurance Company (Financial Guaranty), MBIA Insurance Corporation (MBIA) or a
comparable insurer or a New Issue Insurance Policy obtained by the issuer of the
obligation at the time of its original issuance. If a municipal obligation is
already covered by a New Issue Insurance Policy then the obligation is not
required to be additionally insured under a Portfolio Insurance Policy. A New
Issue Insurance Policy may have been written by Financial Guaranty or other
insurers. Premiums are paid from the Fund's assets, and will reduce the current
yield on its portfolio by the amount thereof. Currently, there are no issuers
insured under a Portfolio Insurance Policy.
Both types of policies discussed above insure the scheduled payment of all
principal and interest on the municipal obligations as they fall due. The
insurance does not guarantee the market value of the municipal obligations nor
the value of the shares of the Fund and, except as described above, has no
effect on the net asset value or redemption price of the shares of the Fund. The
insurance of principal refers to the face or par value of the municipal
obligation, and is not affected by the price paid by the Fund or by the market
value.
The Fund may purchase municipal obligations on which the payment of interest and
principal is guaranteed by an agency or instrumentality of the U.S. government
or which are rated Aaa, MIG-1 or Prime-1 by Moody's or AAA, A-1 or SP-1 by S&P,
in either case without being required to insure the municipal obligations under
the Portfolio Insurance Policy.
New Issue Insurance. The New Issue Insurance Policies, if any, have been
obtained by the respective issuers or underwriters of the municipal obligations
and all premiums respecting the securities have been paid in advance by the
issuers or underwriters. The policies are noncancelable and will continue in
force so long as the municipal obligations are outstanding and the respective
insurers remain in business. Since New Issue Insurance remains in effect as long
as the insured municipal obligations are outstanding, the insurance may have an
effect on the resale value of municipal obligations so insured in the Fund's
portfolio.
Therefore, New Issue Insurance may be considered to represent an element of
market value in regard to municipal obligations thus insured, but the exact
effect, if any, of this insurance on market value cannot be estimated. The Fund
will acquire municipal obligations subject to New Issue Insurance Policies only
where the insurer is rated Aaa by Moody's or AAA by S&P.
Portfolio Insurance. The Portfolio Insurance Policy to be obtained by the Fund
from Financial Guaranty will be effective only so long as the Fund is in
existence, the insurer is still in business, and the municipal obligations
described in the Portfolio Insurance Policy continue to be held by the Fund. In
the event of a sale of any municipal obligation by the Fund or payment prior to
maturity, the Portfolio Insurance Policy terminates as to that municipal
obligation. Currently, there are no issuers insured under a Portfolio Insurance
Policy.
In determining whether to insure any municipal obligation, the insurer applies
its own standards, which are not necessarily the same as the criteria used in
regard to the selection of municipal obligations by the Fund's investment
manager. The insurer's decision is made prior to the Fund's purchase of the
municipal obligations. Contracts to purchase municipal obligations are not
covered by the Portfolio Insurance Policy although municipal obligations
underlying the contracts are covered by this insurance upon their physical
delivery to the Fund or its Custodian.
Statement of Additional Information - Oct. 3, 2005 Page 160
Secondary Market Insurance. The Fund may at any time purchase from MBIA,
Financial Guaranty or a comparable insurer a secondary market insurance policy
(Secondary Market Policy) on any municipal obligation currently covered by the
Portfolio Insurance Policy. The coverage and obligation to pay monthly premiums
under the Portfolio Insurance Policy would cease with the purchase by the Fund
of a Secondary Market Policy.
By purchasing a Secondary Market Policy, the Fund would, upon payment of a
single premium, obtain insurance against nonpayment of scheduled principal and
interest for the remaining term of the municipal obligation, regardless of
whether the Fund then owned the obligation. This insurance coverage would be
noncancelable and would continue in force so long as the municipal obligations
so insured are outstanding. The purpose of acquiring such a Policy would be to
enable the Fund to sell a municipal obligation to a third party as a Aaa/AAA
rated insured obligation at a market price higher than what otherwise might be
obtainable if the obligation were sold without the insurance coverage. This
rating is not automatic, however, and must specifically be requested for each
obligation. Any difference between the excess of an obligation's market value as
a Aaa/AAA rated security over its market value without this rating and the
single premium payment would inure to the Fund in determining the net capital
gain or loss realized by the Fund upon the sale of the obligation.
Since the Fund has the right to purchase a Secondary Market Policy for an
eligible municipal obligation even if the obligation is currently in default as
to any payments by the issuer, the Fund would have the opportunity to sell the
obligation rather than be obligated to hold it in its portfolio in order to
continue the Portfolio Insurance Policy in force. Because coverage under the
Portfolio Insurance Policy terminates upon sale of a municipal obligation
insured thereunder, the insurance does not have an effect on the resale value of
the obligation. Therefore, it is the intention of the Fund to retain any insured
municipal obligations which are in default or in significant risk of default,
and to place a value on the insurance which will be equal to the difference
between the market value of similar obligations which are not in default.
Because of this policy, the Fund's investment manager may be unable to manage
the Fund's portfolio to the extent that it holds defaulted municipal
obligations, which may limit its ability in certain circumstances to purchase
other municipal obligations. While a defaulted municipal obligation is held in
the Fund's portfolio, the Fund continues to pay the insurance premium but also
collects interest payments from the insurer and retains the right to collect the
full amount of principal from the insurer when the municipal obligation comes
due. This would not be applicable if the Fund elected to purchase a Secondary
Market Policy discussed above with respect to a municipal obligation.
The following information regarding these insurers has been derived from
information furnished by the insurers. The Fund has not independently verified
any of the information, but the Fund is not aware of facts which would render
such information inaccurate.
Financial Guaranty is a New York stock insurance company regulated by the New
York State Department of Insurance and authorized to provide insurance in 50
states and the District of Columbia. Financial Guaranty is a subsidiary of FGIC
Corporation, a Delaware holding company, which is a subsidiary of General
Electric Capital Corporation. Financial Guaranty, in addition to providing
insurance for the payment of interest on and principal of Municipal Bonds held
in unit investment trust and mutual fund portfolios, provides New Issue
Insurance and insurance for secondary market issues of Municipal Bonds and for
portions of new and secondary market issues of Municipal Bonds. The
claims-paying ability of Financial Guaranty is rated "AAA" by Standard & Poor's
Ratings Services ("S&P) and Fitch Ratings. ("Fitch") and "Aaa" by Moody's
Investor Service, Inc. ("Moody's") (collectively, the "Rating Agencies").
MBIA, formerly known as Municipal Bond Investors Assurance Corporation, is the
principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed
company. MBIA is domiciled in the State of New York and licensed to do business
in all 50 states and the District of Columbia, the Commonwealth of Puerto Rico,
the Commonwealth of Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. The claims-paying ability of MBIA is rated
"AAA" by S&P and Fitch and "Aaa" by Moody's.
Government Securities
The Fund may invest in securities guaranteed by an agency or instrumentality of
the United States government. These agencies include Federal National Mortgage
Association and Federal Housing Administration (FHA). In the case of a default
on a FHA security, the outstanding balance is subject to an assignment fee and
interest payments may be delayed. This will reduce the return to the Fund.
Statement of Additional Information - Oct. 3, 2005 Page 161
Appendix D
S&P 500 INDEX FUND
ADDITIONAL INFORMATION ABOUT THE S&P 500 INDEX
The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the shareholders of the Fund
or any member of the public regarding the advisability of investing in
securities generally or in the Fund particularly or the ability of the S&P 500
Index to track general stock market performance. S&P's only relationship to the
Fund is the licensing of certain trademarks and trade names of S&P and of the
S&P 500 Index, which are determined, composed and calculated by S&P without
regard to the Fund. S&P has no obligation to take the needs of the Fund or its
shareholders into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of the Fund or the timing of the issuance
or sale of the Fund or in the determination or calculation of the equation by
which the Fund's shares are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of Fund
shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN (THE S&P INDEX) AND S&P SHALL HAVE NO LIABILITY FOR
ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS
OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, ITS SHAREHOLDERS OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF
THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Statement of Additional Information - Oct. 3, 2005 Page 162