STATEMENT OF ADDITIONAL INFORMATION
NOV. 29, 2007
<Table>
RIVERSOURCE(R) BOND SERIES, INC.
RiverSource Core Bond Fund
RiverSource Floating Rate Fund
RiverSource Income Opportunities Fund
RiverSource Inflation Protected Securities
Fund
RiverSource Limited Duration Bond Fund
RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST
RiverSource California Tax-Exempt Fund
RIVERSOURCE DIMENSIONS SERIES, INC.
RiverSource Disciplined Small and Mid Cap
Equity Fund
RiverSource Disciplined Small Cap Value Fund
RIVERSOURCE DIVERSIFIED INCOME SERIES, INC.
RiverSource Diversified Bond Fund
RIVERSOURCE EQUITY SERIES, INC.
RiverSource Mid Cap Growth Fund
RIVERSOURCE GLOBAL SERIES, INC.
RiverSource Absolute Return Currency and
Income Fund
RiverSource Emerging Markets Bond Fund
RiverSource Emerging Markets Fund
RiverSource Global Bond Fund
RiverSource Global Equity Fund
RiverSource Global Technology Fund
RIVERSOURCE GOVERNMENT INCOME SERIES, INC.
RiverSource Short Duration U.S. Government
Fund
RiverSource U.S. Government Mortgage Fund
RIVERSOURCE HIGH YIELD INCOME SERIES, INC.
RiverSource High Yield Bond Fund
RIVERSOURCE INCOME SERIES, INC.
RiverSource Income Builder Basic Income Fund
RiverSource Income Builder Enhanced Income
Fund
RiverSource Income Builder Moderate Income
Fund
RIVERSOURCE INTERNATIONAL MANAGERS SERIES,
INC.
RiverSource International Aggressive Growth
Fund
RiverSource International Equity Fund
RiverSource International Select Value Fund
RiverSource International Small Cap Fund
RIVERSOURCE INTERNATIONAL SERIES, INC.
RiverSource Disciplined International Equity
Fund
RiverSource European Equity Fund
RiverSource International Opportunity Fund
RIVERSOURCE INVESTMENT SERIES, INC.
RiverSource Balanced Fund
RiverSource Disciplined Large Cap Growth
Fund
RiverSource Diversified Equity Income Fund
RiverSource Mid Cap Value Fund
RIVERSOURCE LARGE CAP SERIES, INC.
RiverSource Disciplined Equity Fund
RiverSource Growth Fund
RiverSource Large Cap Equity Fund
RiverSource Large Cap Value Fund
RIVERSOURCE MANAGERS SERIES, INC.
RiverSource 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
RIVERSOURCE MARKET ADVANTAGE SERIES, INC.
RiverSource Portfolio Builder Aggressive
Fund
RiverSource Portfolio Builder Conservative
Fund
RiverSource Portfolio Builder Moderate
Aggressive Fund
RiverSource Portfolio Builder Moderate
Conservative Fund
RiverSource Portfolio Builder Moderate Fund
RiverSource Portfolio Builder Total Equity
Fund
RiverSource S&P 500 Index Fund
RiverSource Small Company Index Fund
RIVERSOURCE MONEY MARKET SERIES, INC.
RiverSource Cash Management Fund
RIVERSOURCE SECTOR SERIES, INC.
RiverSource Dividend Opportunity Fund
RiverSource Real Estate Fund
RIVERSOURCE SELECTED SERIES, INC.
RiverSource Precious Metals and Mining Fund
RIVERSOURCE SERIES TRUST
RiverSource Retirement Plus(SM) 2010 Fund
RiverSource Retirement Plus 2015 Fund
RiverSource Retirement Plus 2020 Fund
RiverSource Retirement Plus 2025 Fund
RiverSource Retirement Plus 2030 Fund
RiverSource Retirement Plus 2035 Fund
RiverSource Retirement Plus 2040 Fund
RiverSource Retirement Plus 2045 Fund
RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
RiverSource 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
RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC.
RiverSource Strategic Allocation Fund
RiverSource Strategic Income Allocation Fund
RIVERSOURCE STRATEGY SERIES, INC.
RiverSource Equity Value Fund
RiverSource Small Cap Advantage Fund
RiverSource Small Cap Growth Fund
RIVERSOURCE TAX-EXEMPT INCOME SERIES, INC.
RiverSource Tax-Exempt High Income Fund
RIVERSOURCE TAX-EXEMPT MONEY MARKET SERIES,
INC.
RiverSource Tax-Exempt Money Market Fund
RIVERSOURCE TAX-EXEMPT SERIES, INC.
RiverSource Intermediate Tax-Exempt Fund
RiverSource Tax-Exempt Bond Fund
</Table>
This is the Statement of Additional Information (SAI) for each of the funds
listed on the previous page. This SAI is not a prospectus. It should be read
together with the appropriate current fund prospectus, the date of which can be
found in Table 1 of this SAI.
Each fund's financial statements for its most recent fiscal period are contained
in the fund's Annual or Semiannual Report to shareholders. The Independent
Registered Public Accounting Firm's Report and the Financial Statements,
including Notes to the Financial Statements and the Schedule of Investments in
Securities and any applicable Schedule of Affiliated Funds, contained in the
Annual Report, are incorporated in this SAI by reference. No other portion of
the Annual Report is incorporated by reference. For a free copy of a fund
prospectus, annual or semiannual report, contact your financial institution or
write to RiverSource Funds, 734 Ameriprise Financial Center, Minneapolis, MN
55474, call (888) 791-3380 or visit riversource.com/funds.
Each fund is governed by a Board of Directors/Trustees ("Board") that meets
regularly to review a wide variety of matters affecting the funds. Detailed
information about fund governance, the funds' investment manager, RiverSource
Investments, LLC (the "investment manager" or "RiverSource Investments"), a
wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"),
and other aspects of fund management can be found by referencing the Table of
Contents below.
TABLE OF CONTENTS
<Table>
Fundamental and Nonfundamental Investment Policies.............................. p. 6
Investment Strategies and Types of Investments.................................. p. 11
Information Regarding Risks and Investment Strategies........................... p. 13
Securities Transactions......................................................... p. 36
Brokerage Commissions Paid to Brokers Affiliated with the Investment Manager.... p. 51
Valuing Fund Shares............................................................. p. 55
Portfolio Holdings Disclosure................................................... p. 65
Proxy Voting.................................................................... p. 67
Investing in a Fund............................................................. p. 69
Selling Shares.................................................................. p. 74
Pay-out Plans................................................................... p. 74
Capital Loss Carryover.......................................................... p. 75
Taxes........................................................................... p. 79
Service Providers............................................................... p. 84
Investment Management Services................................................ p. 84
Administrative Services....................................................... p. 137
Transfer Agency Services...................................................... p. 141
Plan Administration Services.................................................. p. 142
Distribution Services......................................................... p. 142
Plan and Agreement of Distribution............................................ p. 145
Payment to Financial Institutions............................................. p. 148
Custodian Services............................................................ p. 149
Board Services Corporation.................................................... p. 150
Organizational Information...................................................... p. 150
Board Members and Officers...................................................... p. 155
Control Persons and Principal Holders of Securities............................. p. 169
Information Regarding Pending and Settled Legal Proceedings..................... p. 187
Independent Registered Public Accounting Firm................................... p. 188
Appendix A: Description of Ratings.............................................. p. A-1
Appendix B: State Risk Factors.................................................. p. B-1
Appendix C: Additional Information about the S&P 500 Index...................... p. C-1
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 2
LIST OF TABLES
<Table>
1. Fund Fiscal Year Ends, Prospectus Date and Investment Categories............. p. 4
2. Fundamental Policies......................................................... p. 6
3. Investment Strategies and Types of Investments............................... p. 11
4. Total Brokerage Commissions.................................................. p. 38
5. Brokerage Directed for Research and Turnover Rates........................... p. 41
6. Securities of Regular Brokers or Dealers..................................... p. 44
7. Brokerage Commissions Paid to Investment Manager or Affiliates............... p. 51
8. Valuing Fund Shares.......................................................... p. 55
9. Class A Sales Charge......................................................... p. 69
10. Public Offering Price........................................................ p. 70
11. Capital Loss Carryover....................................................... p. 75
12. Corporate Deduction and Qualified Dividend Income............................ p. 80
13. Investment Management Services Agreement Fee Schedule........................ p. 84
14. Lipper Indexes............................................................... p. 92
15. Performance Incentive Adjustment Calculation................................. p. 94
16. Management Fees and Nonadvisory Expenses..................................... p. 95
17. Subadvisers and Subadvisory Agreement Fee Schedules.......................... p. 98
18. Subadvisory Fees............................................................. p. 101
19. Portfolio Managers........................................................... p. 104
20. Administrative Services Agreement Fee Schedule............................... p. 137
21. Administrative Fees.......................................................... p. 139
22. Sales Charges Paid to Distributor............................................ p. 142
23. 12b-1 Fees................................................................... p. 146
24. Fund History Table for RiverSource Funds..................................... p. 151
25. Board Members................................................................ p. 155
26. Fund Officers................................................................ p. 156
27. Committee Meetings........................................................... p. 158
28. Board Member Holdings........................................................ p. 158
29. Board Member Holdings -- Individual Holdings as of Quarter End............... p. 161
30. Board Member Compensation -- All Funds....................................... p. 163
31. Supplemental Board Member Retirement Benefits -- All Funds................... p. 164
32. Board Member Compensation -- Individual Funds................................ p. 164
33. Control Persons and Principal Holders of Securities.......................... p. 169
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 3
TABLE 1. FUND FISCAL YEAR ENDS, PROSPECTUS DATE AND INVESTMENT CATEGORIES
<Table>
<Caption>
FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY*
- ---------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income October 31 Dec. 29, 2006 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Aggressive Growth May 31 July 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Balanced September 30 Nov. 29, 2007 Balanced
- ---------------------------------------------------------------------------------------------------------------
California Tax-Exempt** August 31 Oct. 30, 2007 State tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Cash Management July 31 Sept. 28, 2007 Taxable money market
- ---------------------------------------------------------------------------------------------------------------
Core Bond July 31 Sept. 28, 2007 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Disciplined Equity July 31 Sept. 28, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Disciplined International Equity October 31 Dec. 29, 2006 Equity
- ---------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth September 30 Nov. 29, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity July 31 Sept. 28, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value July 31 Sept. 28, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Diversified Bond August 31 Oct. 30, 2007 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Diversified Equity Income September 30 Nov. 29, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Dividend Opportunity June 30 Aug. 29, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Emerging Markets October 31 Dec. 29, 2006 Equity
- ---------------------------------------------------------------------------------------------------------------
Emerging Markets Bond October 31 Dec. 29, 2006 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Equity Value March 31 May 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
European Equity October 31 Dec. 29, 2006 Equity
- ---------------------------------------------------------------------------------------------------------------
Floating Rate July 31 Sept. 28, 2007 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Fundamental Growth May 31 July 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Fundamental Value May 31 July 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Global Bond October 31 Dec. 29, 2006 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Global Equity October 31 Dec. 29, 2006 Equity
- ---------------------------------------------------------------------------------------------------------------
Global Technology October 31 Dec. 29, 2006 Equity
- ---------------------------------------------------------------------------------------------------------------
Growth July 31 Sept. 28, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
High Yield Bond May 31 July 30, 2007 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Income Builder Basic Income May 31 July 30, 2007 Funds-of-funds - fixed income
- ---------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income May 31 July 30, 2007 Funds-of-funds - fixed income
- ---------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income May 31 July 30, 2007 Funds-of-funds - fixed income
- ---------------------------------------------------------------------------------------------------------------
Income Opportunities July 31 Sept. 28, 2007 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Inflation Protected Securities July 31 Sept. 28, 2007 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt November 30 Jan. 29, 2007 Tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
International Aggressive Growth October 31 Dec. 29, 2006 Equity
- ---------------------------------------------------------------------------------------------------------------
International Equity October 31 Dec. 29, 2006 Equity
- ---------------------------------------------------------------------------------------------------------------
International Opportunity October 31 Dec. 29, 2006 Equity
- ---------------------------------------------------------------------------------------------------------------
International Select Value October 31 Dec. 29, 2006 Equity
- ---------------------------------------------------------------------------------------------------------------
International Small Cap October 31 Dec. 29, 2006 Equity
- ---------------------------------------------------------------------------------------------------------------
Large Cap Equity July 31 Sept. 28, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Large Cap Value July 31 Sept. 28, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Limited Duration Bond July 31 Sept. 28, 2007 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt** August 31 Oct. 30, 2007 State tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Michigan Tax-Exempt** August 31 Oct. 30, 2007 State tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Mid Cap Growth November 30 Jan. 29, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Mid Cap Value September 30 Nov. 29, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt** August 31 Oct. 30, 2007 State tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
New York Tax-Exempt** August 31 Oct. 30, 2007 State tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Ohio Tax-Exempt** August 31 Oct. 30, 2007 State tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive January 31 March 30, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative January 31 March 30, 2007 Funds-of-funds - fixed income
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate January 31 March 30, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive January 31 March 30, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative January 31 March 30, 2007 Funds-of-funds - fixed income
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity January 31 March 30, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 4
<Table>
<Caption>
FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY*
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Precious Metals and Mining March 31 May 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Real Estate June 30 Aug. 29, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 April 30 June 29, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 April 30 June 29, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 April 30 June 29, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 April 30 June 29, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 April 30 June 29, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 April 30 June 29, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 April 30 June 29, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 April 30 June 29, 2007 Funds-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
S&P 500 Index January 31 March 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Select Value May 31 July 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government May 31 July 30, 2007 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Small Cap Advantage March 31 May 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Small Cap Equity May 31 July 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Small Cap Growth March 31 May 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Small Cap Value May 31 July 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Small Company Index January 31 March 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
Strategic Allocation September 30 Nov. 29, 2007 Balanced
- ---------------------------------------------------------------------------------------------------------------
Strategic Income Allocation September 30 Nov. 29, 2007 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond November 30 Jan. 29, 2007 Tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income November 30 Jan. 29, 2007 Tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market December 31 March 1, 2007 Tax-exempt money market
- ---------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage May 31 July 30, 2007 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Value May 31 July 30, 2007 Equity
- ---------------------------------------------------------------------------------------------------------------
</Table>
* The taxable fixed income fund investment category includes Absolute Return
Currency and Income Fund, which is an alternative investment strategy.
Although Strategic Income Allocation Fund is a taxable fixed income fund,
it may invest up to 10% of its portfolio in equity securities.
** The fund changed its fiscal period end in 2006 from June 30 to Aug. 31.
For 2006, the information shown is for the period from July 1, 2005
through Aug. 31, 2006. For years prior to 2006, the fiscal period ended
June 30.
FUNDS-OF-FUNDS
Funds-of-funds invest in a combination of underlying funds. These underlying
funds have their own investment policies that may be more or less restrictive
than the policies of the funds-of-funds. The policies of the underlying funds
may permit funds-of-funds to engage in investment strategies indirectly that
would otherwise be prohibited under the investment restrictions of the funds-of-
funds.
Statement of Additional Information - Nov. 29, 2007 Page 5
FUNDAMENTAL AND NONFUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies adopted by a fund cannot be changed without the
approval of a majority of the outstanding voting securities of the fund as
defined in the Investment Company Act of 1940, as amended (the 1940 Act).
Nonfundamental investment policies may be changed by the Board at any time.
Notwithstanding any of a fund's other investment policies, each fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies, and restrictions as the fund for the
purpose of having those assets managed as part of a combined pool.
FUNDAMENTAL POLICIES
Fundamental policies are policies that can be changed only with shareholder
approval.
FOR EACH FUND: The fund will not:
- Act as an underwriter (sell securities for others). However, under the
securities laws, the fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
- Lend securities or participate in an interfund lending program if the
total of all such loans would exceed 33 1/3% of the fund's total assets
except this fundamental investment policy shall not prohibit the fund from
purchasing money market securities, loans, loan participation or other
debt securities, or from entering into repurchase agreements. For funds-
of-funds - equity, under current Board policy, the fund has no current
intention to lend to a material extent.
- Borrow money, except for temporary purposes (not for leveraging or
investment) in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than borrowings)
immediately after the borrowings. For funds-of-funds - equity, under
current Board policy, the fund has no current intention to borrow to a
material extent.
- Issue senior securities, except as permitted under the 1940 Act.
ADDITIONALLY FOR CASH MANAGEMENT THE FUND WILL NOT:
- Buy on margin or sell short or deal in options to buy or sell securities.
- Purchase common stocks, preferred stocks, warrants, other equity
securities, corporate bonds or debentures, state bonds, municipal bonds,
or industrial revenue bonds.
ADDITIONALLY FOR TAX-EXEMPT MONEY MARKET THE FUND WILL NOT:
- Buy on margin or sell short.
In addition to the policies described above and any fundamental policy described
in the prospectus, the chart below shows fund-specific policies that may be
changed only with shareholder approval. The chart indicates whether or not the
fund has a policy on a particular topic. A shaded box indicates that the fund
does not have a policy on a particular topic. The specific policy is stated in
the paragraphs that follow the table.
TABLE 2. FUNDAMENTAL POLICIES
The fund will not:
<Table>
<Caption>
A C D E
BUY OR BUY MORE INVEST CONCEN- F
SELL B THAN MORE THAN TRATE IN INVEST
REAL BUY OR SELL 10% OF AN 5% IN AN ANY ONE LESS
FUND ESTATE COMMODITIES ISSUER ISSUER INDUSTRY THAN 80%
- -----------------------------------------------------------------------------------------------------
Absolute Return Currency and A1 B1 -- -- E7 --
Income
- -
Aggressive Growth A1 B1 C1 D1 E1 --
- -
Balanced A1 B1 C1 D1 E1 --
- -
California Tax-Exempt A1 B1 -- -- -- F1
- -
Cash Management A3 A3 C1 D1 --
- -
Core Bond A1 B1 C1 D1 E1 --
- -
Disciplined Equity A1 B1 C1 D1 E1 --
- -
Disciplined International Equity A1 B4 C1 D1 E1 --
- -
Disciplined Large Cap Growth A1 B3 C1 D1 E1 --
- -
Disciplined Small and Mid Cap A1 B4 C1 D1 E1 --
Equity
- -
Disciplined Small Cap Value A1 B4 C1 D1 E1 --
- -
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 6
<Table>
<Caption>
A C D E
BUY OR BUY MORE INVEST CONCEN- F
SELL B THAN MORE THAN TRATE IN INVEST
REAL BUY OR SELL 10% OF AN 5% IN AN ANY ONE LESS
FUND ESTATE COMMODITIES ISSUER ISSUER INDUSTRY THAN 80%
- -----------------------------------------------------------------------------------------------------
Diversified Bond A1 B1 C1 D1 E1 --
- -
Diversified Equity Income A1 B1 C1 D1 E1 --
- -
Dividend Opportunity A1 B1 C1 D1 --
- -
Emerging Markets A1 B1 C1 D1 E1 --
- -
Emerging Markets Bond A1 B4 -- -- E5 --
- -
Equity Value A1 B1 C1 D1 E1 --
- -
European Equity A1 B1 -- -- E1 --
- -
Floating Rate A1 B4 C1 D1 E6 --
- -
Fundamental Growth A1 B1 C1 D1 E1 --
- -
Fundamental Value A1 B3 C1 D1 E1 --
- -
Global Bond A1 B1 C1 -- E1 --
- -
Global Equity A1 B1 C1 D1 E1 --
- -
Global Technology A1 B1 --
- -
Growth A1 B1 C1 D1 E1 --
- -
High Yield Bond A1 B1 C1 D1 E1 --
- -
Income Builder Basic Income* A1 B4 -- -- E2 --
- -
Income Builder Enhanced Income* A1 B4 -- -- E2 --
- -
Income Builder Moderate Income* A1 B4 -- -- E2 --
- -
Income Opportunities A1 B1 C1 D1 E1 --
- -
Inflation Protected Securities A1 B1 -- -- E1 --
- -
Intermediate Tax-Exempt A1 B1 C1 D1 -- F3(i)
- -
International Aggressive Growth A1 B3 C1 D1 E1 --
- -
International Equity A1 B3 C1 D1 E1 --
- -
International Opportunity A1 B1 C1 D1 E1 --
- -
International Select Value A1 B3 C1 D1 E1 --
- -
International Small Cap A1 B3 C1 D1 E1 --
- -
Large Cap Equity A1 B1 C1 D1 E1 --
- -
Large Cap Value A1 B3 C1 D1 E1 --
- -
Limited Duration Bond A1 B1 C1 D1 E1 --
- -
Massachusetts Tax-Exempt A1 B1 -- -- -- F1
- -
Michigan Tax-Exempt A1 B1 -- -- -- F1
- -
Mid Cap Growth A1 B1 C1 D1 E1 --
- -
Mid Cap Value A1 B1 C1 D1 E1 --
- -
Minnesota Tax-Exempt A1 B1 -- -- -- F1
- -
New York Tax-Exempt A1 B1 -- -- -- F1
- -
Ohio Tax-Exempt A1 B1 -- -- -- F1
- -
Portfolio Builder Aggressive* A1 B1 -- -- E2 --
- -
Portfolio Builder Conservative* A1 B1 -- -- E2 --
- -
Portfolio Builder Moderate* A1 B1 -- -- E2 --
- -
Portfolio Builder Moderate A1 B1 -- -- E2 --
Aggressive*
- -
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 7
<Table>
<Caption>
A C D E
BUY OR BUY MORE INVEST CONCEN- F
SELL B THAN MORE THAN TRATE IN INVEST
REAL BUY OR SELL 10% OF AN 5% IN AN ANY ONE LESS
FUND ESTATE COMMODITIES ISSUER ISSUER INDUSTRY THAN 80%
- -----------------------------------------------------------------------------------------------------
Portfolio Builder Moderate A1 B1 -- -- E2 --
Conservative*
- -
Portfolio Builder Total Equity* A1 B1 -- -- E2 --
- -
Precious Metals and Mining A1 B1(ii) -- -- E3 --
- -
Real Estate A1 B1 --
- -
Retirement Plus 2010* A1 B4 -- -- E2 --
- -
Retirement Plus 2015* A1 B4 -- -- E2 --
- -
Retirement Plus 2020* A1 B4 -- -- E2 --
- -
Retirement Plus 2025* A1 B4 -- -- E2 --
- -
Retirement Plus 2030* A1 B4 -- -- E2 --
- -
Retirement Plus 2035* A1 B4 -- -- E2 --
- -
Retirement Plus 2040* A1 B4 -- -- E2 --
- -
Retirement Plus 2045* A1 B4 -- -- E2 --
- -
S&P 500 Index A1 B1 -- -- E4 --
- -
Select Value A1 B3 C1 D1 E1 --
- -
Short Duration U.S. Government A1 B1 C1 D1 E1 --
- -
Small Cap Advantage A1 B1 C1 D1 E1 --
- -
Small Cap Equity A1 B3 C1 D1 E1 --
- -
Small Cap Growth A1 B1 C1 D1 E1 --
- -
Small Cap Value A1 B3 -- -- E1 --
- -
Small Company Index A1 B1 C1 D1 E1 --
- -
Strategic Allocation A1 B1 C1 D1 E1 --
- -
Strategic Income Allocation A1 B3 C1 D1 E1 --
- -
Tax-Exempt Bond A1 B1 C1 D1 -- F3(iii)
- -
Tax-Exempt High Income A1 B1 C1 D1 -- F2
- -
Tax-Exempt Money Market A2 B2 C1 D1 -- F3
- -
U.S. Government Mortgage A1 B1 C1 D1 E1 --
- -
Value A1 B3 C1 D1 E1 --
- -
</Table>
* 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) For purposes of this policy, the fund will not include any investments
subject to the alternative minimum tax.
(ii) Additionally, the fund may purchase gold, silver, or other precious
metals, strategic metals or other metals occurring naturally with such
metals.
(iii) The fund does not intend to purchase bonds or other debt securities the
interest from which is subject to the alternative minimum tax.
A. BUY OR SELL REAL ESTATE
A1 - The fund will not buy or sell real estate, unless acquired as a result
of ownership of securities or other instruments, except this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business or real estate investment trusts. For purposes of this
policy, real estate includes real estate limited partnerships.
A2 - The fund will not invest in real estate, but the fund can invest in
municipal bonds and notes secured by real estate or interest therein.
For purposes of this policy, real estate includes real estate limited
partnerships.
A3 - The fund will not buy or sell real estate, commodities or commodity
contracts. For purposes of this policy, real estate includes real
estate limited partnerships.
B. BUY OR SELL PHYSICAL COMMODITIES
B1 - The fund will not buy or sell physical commodities unless acquired as
a result of ownership of securities or other instruments, except this
shall not prevent the fund from buying or selling options and futures
contracts or from investing in securities or other instruments backed
by, or whose value is derived from, physical commodities.
Statement of Additional Information - Nov. 29, 2007 Page 8
B2 - The fund will not invest in commodities or commodity contracts.
B3 - The fund will not buy or sell physical commodities unless acquired as
a result of ownership of securities or other instruments, except this
shall not prevent the fund from buying or selling options, futures
contracts and foreign currency or from investing in securities or
other instruments backed by, or whose value is derived from, physical
commodities.
B4 - The fund will not buy or sell physical commodities unless acquired as
a result of ownership of securities or other instruments, except this
shall not prevent the fund from buying or selling options, futures
contracts and foreign currency or from entering into forward currency
contracts or from investing in securities or other instruments backed
by, or whose value is derived from, physical commodities.
C. BUY MORE THAN 10% OF AN ISSUER
C1 - The fund will not purchase more than 10% of the outstanding voting
securities of an issuer, except that up to 25% of the fund's assets
may be invested without regard to this 10% limitation. For tax-exempt
funds, for purposes of this policy, the terms of a municipal security
determine the issuer.
D. INVEST MORE THAN 5% IN AN ISSUER
D1 - The fund will not invest more than 5% of its total assets in
securities of any company, government, or political subdivision
thereof, except the limitation will not apply to investments in
securities issued or guaranteed by the U.S. government, its agencies,
or instrumentalities, or other investment companies, and except that
up to 25% of the fund's total assets may be invested without regard to
this 5% limitation. For tax-exempt funds, for purposes of this policy,
the terms of a municipal security determine the issuer.
E. CONCENTRATE
E1 - The fund will not concentrate in any one industry. According to the
present interpretation by the Securities and Exchange Commission
(SEC), this means that up to 25% of the fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
E2 - The fund will not concentrate in any one industry. According to the
present interpretation by the SEC, this means that up to 25% of the
fund's total assets, based on current market value at time of
purchase, can be invested in any one industry. The fund itself does
not intend to concentrate, however the aggregation of holdings of the
underlying funds may result in the fund indirectly investing more than
25% of its assets in a particular industry. The fund does not control
the investments of the underlying funds and any indirect concentration
will occur only as a result of the fund following its investment
objectives by investing in the underlying funds.
E3 - The fund will not invest less than 25% of its total assets in the
precious metals industry, based on current market value at the time of
purchase, unless market conditions temporarily require a defensive
investment strategy.
E4 - The fund will not concentrate in any one industry unless that industry
represents more than 25% of the index tracked by the fund. For all
other industries, in accordance with the current interpretation by the
SEC, this means that up to 25% of the fund's total assets, based on
current market value at time of purchase, can be invested in any one
industry.
E5 - While the fund may invest 25% or more of its total assets in the
securities of foreign governmental and corporate entities located in
the same country, it will not invest 25% or more of its total assets
in any single foreign governmental issuer.
E6 - The fund will not concentrate in any one industry. According to the
present interpretation by the SEC, this means that up to 25% of the
fund's total assets, based on current market value at time of
purchase, can be invested in any one industry. For purposes of this
restriction, loans will be considered investments in the industry of
the underlying borrower, rather than that of the seller of the loan.
E7 - Concentrate in any one industry, provided however, that this
restriction shall not apply to securities or obligations issued or
guaranteed by the U.S. Government, banks or bank holding companies or
finance companies. For all other industries, this means that up to 25%
of the fund's total assets, based on current market value at the time
of purchase, can be invested in any one industry.
F. INVEST LESS THAN 80%
F1 - The fund will not under normal market conditions, invest less than 80%
of its net assets in municipal obligations that are generally exempt
from federal income tax as well as respective state and local income
tax.
Statement of Additional Information - Nov. 29, 2007 Page 9
F2 - The fund will not under normal market conditions, invest less than 80%
of its net assets in bonds and notes issued by or on behalf of state
and local governmental units whose interest, in the opinion of counsel
for the issuer, is exempt from federal income tax and is not subject
to the alternative minimum tax.
F3 - The fund will not under normal market conditions, invest less than 80%
of its net assets in bonds and other debt securities issued by or on
behalf of state or local governmental units whose interest, in the
opinion of counsel for the issuer, is exempt from federal income tax.
NONFUNDAMENTAL POLICIES
Nonfundamental policies are policies that can be changed by the Board without
shareholder approval. The following nonfundamental policies are in addition to
those described in the prospectus.
FOR FUNDS OTHER THAN MONEY MARKET FUNDS:
- No more than 15% of the fund's net assets will be held in securities and
other instruments that are illiquid.
FOR MONEY MARKET FUNDS:
- No more than 10% of the fund's net assets will be held in securities and
other instruments that are illiquid.
ADDITIONALLY, REGARDING LIMITING INVESTMENTS IN FOREIGN SECURITIES:
FOR AGGRESSIVE GROWTH, BALANCED, CORE BOND, DISCIPLINED EQUITY, DISCIPLINED
LARGE CAP GROWTH, DISCIPLINED SMALL AND MID CAP EQUITY, DISCIPLINED SMALL CAP
VALUE, DIVERSIFIED BOND, DIVERSIFIED EQUITY INCOME, DIVIDEND OPPORTUNITY, EQUITY
VALUE, FLOATING RATE, FUNDAMENTAL GROWTH, FUNDAMENTAL VALUE, GROWTH, HIGH YIELD
BOND, INCOME OPPORTUNITIES, INFLATION PROTECTED SECURITIES, LARGE CAP EQUITY,
LARGE CAP VALUE, LIMITED DURATION BOND, MID CAP GROWTH, MID CAP VALUE, REAL
ESTATE, SELECT VALUE, SMALL CAP ADVANTAGE, SMALL CAP EQUITY, SMALL CAP GROWTH,
SMALL CAP VALUE, AND VALUE:
- Up to 25% of the fund's net assets may be invested in foreign investments.
FOR PRECIOUS METALS AND MINING:
- Under normal market conditions, the fund intends to invest at least 50% of
its total assets in foreign investments.
FOR SHORT DURATION U.S. GOVERNMENT AND U.S. GOVERNMENT MORTGAGE:
- Up to 20% of the fund's net assets may be invested in foreign investments.
FOR STRATEGIC ALLOCATION:
- The fund may invest its total assets, up to 50%, in foreign investments.
Fund-of-fund's invest in a combination of underlying funds. These underlying
funds have adopted their own investment policies that may be more or less
restrictive than those of the fund. The policies of the underlying funds may
permit a fund to engage in investment strategies indirectly that would otherwise
be prohibited under the funds investment structure.
Statement of Additional Information - Nov. 29, 2007 Page 10
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 3. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
<Table>
<Caption>
FUNDS-OF-FUNDS - TAXABLE TAXABLE TAX-EXEMPT TAX-EXEMPT STATE
EQUITY AND FIXED MONEY MONEY FIXED TAX-EXEMPT
INVESTMENT STRATEGY BALANCED EQUITY FIXED INCOME INCOME MARKET MARKET INCOME FIXED INCOME
- ---------------------------------------------------------------------------------------------------------------------------------
Agency and government securities - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Borrowing - - - - - -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Cash/money market instruments - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Collateralized bond obligations - - A -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial paper - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Common stock - - -- - B -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Convertible securities - - -- - C -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate bonds - - -- - - -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Debt obligations - - -- - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Depositary receipts - - -- - -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Derivative instruments
(including options and futures) - - - - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Exchange-traded funds - - -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Floating rate loans - -- -- - -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign currency transactions - - -- - -- -- -
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign securities - - -- - - -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Funding agreements - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
High yield debt securities (junk
bonds) - - -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Illiquid and restricted securities - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Indexed securities - - -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Inflation protected securities - - -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Inverse floaters - D -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Investment companies - - - - - -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Lending of portfolio securities - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Loan participations - - -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage- and asset-backed securities - - E -- - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage dollar rolls - F -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Municipal obligations - - -- - -- - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred stock - - -- - G -- -- - G -
- ---------------------------------------------------------------------------------------------------------------------------------
Real estate investment trusts - - -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements - - -- - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreements - - -- - - -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Short sales H H H H -- -- H H
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 11
<Table>
<Caption>
FUNDS-OF-FUNDS - TAXABLE TAXABLE TAX-EXEMPT TAX-EXEMPT STATE
EQUITY AND FIXED MONEY MONEY FIXED TAX-EXEMPT
INVESTMENT STRATEGY BALANCED EQUITY FIXED INCOME INCOME MARKET MARKET INCOME FIXED INCOME
- ---------------------------------------------------------------------------------------------------------------------------------
Sovereign debt - - -- - - -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Structured investments - - -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Swap agreements - - -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Variable- or floating-rate securities - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Warrants - - -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
When-issued securities and forward
commitments - - -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Zero-coupon, step-coupon and pay-in-
kind securities - - -- - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
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, U.S. Government Mortgage.
C. The following funds are not authorized to invest in convertible
securities: Short Duration U.S. Government, U.S. Government Mortgage.
D. The following funds are authorized to invest in inverse floaters: Real
Estate.
E. 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.
F. The following funds are authorized to invest in mortgage dollar rolls:
Real Estate.
G. The following funds are not authorized to invest in preferred stock: Tax-
Exempt High Income, Intermediate Tax-Exempt, Tax-Exempt Bond, Short
Duration U.S. Government, U.S. Government Mortgage.
H. The funds are not prohibited from engaging in short sales, however, each
fund will seek Board approval prior to utilizing short sales as an active
part of its investment strategy.
Statement of Additional Information - Nov. 29, 2007 Page 12
INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES
RISKS
The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). A mutual fund's
risk profile is largely defined by the fund's primary securities and investment
strategies. However, most mutual funds are allowed to use certain other
strategies and investments that may have different risk characteristics.
Accordingly, one or more of the following types of risk may be associated with a
fund at any time (for a description of principal risks for an individual fund,
please see that fund's prospectus):
ACTIVE MANAGEMENT RISK. For a fund that is actively managed, its performance
will reflect in part the ability of the portfolio managers to select securities
and to make investment decisions that are suited to achieving the fund's
investment objective. Due to its active management, a fund could underperform
other mutual funds with similar investment objectives.
AFFILIATED FUND RISK. For funds-of-funds, the risk that the investment manager
may have potential conflicts of interest in selecting underlying funds because
the fees paid to it by some underlying funds are higher than the fees paid by
other underlying funds. However, the investment manager is a fiduciary to the
funds and is legally obligated to act in their best interests when selecting
underlying funds, without taking fees into consideration.
ALLOCATION RISK. For funds-of-funds, the risk that the investment manager's
evaluations regarding asset classes or underlying funds may be incorrect. There
is no guarantee that the underlying funds will achieve their investment
objectives. There is also a risk that the selected underlying funds' performance
may be lower than the performance of the asset class they were selected to
represent or may be lower than the performance of alternative underlying funds
that could have been selected to represent the asset class.
CREDIT RISK. Credit risk is the risk that the issuer of a security, or the
counterparty to a contract, will default or otherwise become unable or unwilling
to honor a financial obligation, such as payments due on a bond or a note. If
the fund purchases unrated securities, or if the rating of a security is reduced
after purchase, the fund will depend on the investment manager's analysis of
credit risk more heavily than usual.
CONFIDENTIAL INFORMATION ACCESS RISK. For funds investing in floating rate
loans, the investment manager normally will seek to avoid the receipt of
material, non-public information (Confidential Information) about the issuers of
floating rate loans being considered for acquisition by the fund, or held in the
fund. In many instances, issuers of floating rate loans offer to furnish
Confidential Information to prospective purchasers or holders of the issuer's
floating rate loans to help potential investors assess the value of the loan.
The investment manager's decision not to receive Confidential Information from
these issuers may disadvantage the fund as compared to other floating rate loan
investors, and may adversely affect the price the fund pays for the loans it
purchases, or the price at which the fund sells the loans. Further, in
situations when holders of floating rate loans are asked, for example, to grant
consents, waivers or amendments, the investment manager's ability to assess the
desirability of such consents, waivers or amendments may be compromised. For
these and other reasons, it is possible that the investment manager's decision
under normal circumstances not to receive Confidential Information could
adversely affect the fund's performance.
COUNTERPARTY RISK. Counterparty risk is the risk that a counterparty to a
financial instrument entered into by the fund or held by a special purpose or
structured vehicle becomes bankrupt or otherwise fails to perform its
obligations due to financial difficulties. The fund may experience significant
delays in obtaining any recovery in a bankruptcy or other reorganization
proceeding. The fund may obtain only limited recovery or may obtain no recovery
in such circumstances. The fund will typically enter into financial instrument
transactions with counterparties whose credit rating is investment grade, or, if
unrated, determined to be of comparable quality by the investment manager.
DERIVATIVES RISK. Derivatives are financial instruments that have a value which
depends upon, or is derived from, the value of something else, such as one or
more underlying securities, pools of securities, options, futures, indexes or
currencies. Gains or losses involving derivative instruments may be substantial,
because a relatively small price movement in the underlying security(ies),
instrument, currency or index may result in a substantial gain or loss for the
Fund. Derivative instruments in which the Fund invests will typically increase
the Fund's exposure to Principal Risks to which it is otherwise exposed, and may
expose the Fund to additional risks, including counterparty credit risk, hedging
risk, correlation risk, leverage risk, and liquidity risk.
Statement of Additional Information - Nov. 29, 2007 Page 13
Counterparty credit risk is the risk that a counterparty to the derivative
instrument becomes bankrupt or otherwise fails to perform its obligations due to
financial difficulties, and the Fund may obtain no recovery of its investment or
may only obtain a limited recovery, and any recovery may be delayed.
Hedging risk is the risk that derivative instruments used to hedge against an
opposite position may offset losses, but they may also offset gains.
Correlation risk is related to hedging risk and is the risk that there may be an
incomplete correlation between the hedge and the opposite position, which may
result in increased or unanticipated losses.
Leverage risk is the risk that losses from the derivative instrument may be
greater than the amount invested in the derivative instrument. Certain
derivatives have the potential for unlimited losses, regardless of the size of
the initial investment.
Liquidity risk is the risk that the derivative instrument may be difficult or
impossible to sell or terminate, which may cause the Fund to be in a position to
do something the investment manager would not otherwise choose, including
accepting a lower price for the derivative instrument, selling other investments
or foregoing another, more appealing investment opportunity.
DIVERSIFICATION RISK. A non-diversified fund may invest more of its assets in
fewer companies than if it were a diversified fund. Because each investment has
a greater effect on the fund's performance, the fund may be more exposed to the
risks of loss and volatility than a fund that invests more broadly.
For funds-of-funds, although most of the underlying funds are diversified funds,
because the fund invests in a limited number of underlying funds, it is
considered a non-diversified fund.
FOREIGN/EMERGING MARKETS RISK. The following are all components of
foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of the
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets. The liquidity of foreign investments may be
more limited than for most U.S. investments, which means that, at times it may
be difficult to sell foreign securities at desirable prices.
Currency risk results from the constantly changing exchange rates between local
currency and the U.S. dollar. Whenever the fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add to or
subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
Emerging markets risk includes the dramatic pace of change (economic, social,
and political) in these countries as well as the other considerations listed
above. These markets are in early stages of development and are extremely
volatile. They can be marked by extreme inflation, devaluation of currencies,
dependence on trade partners, and hostile relations with neighboring countries.
GEOGRAPHIC CONCENTRATION RISK. The fund may be particularly susceptible to
economic, political or regulatory events affecting companies and countries
within the specific geographic region in which the fund focuses its investments.
Currency devaluations could occur in countries that have not yet experienced
currency devaluation to date, or could continue to occur in countries that have
already experienced such devaluations. As a result, the fund may be more
volatile than a more geographically diversified fund.
For state-specific funds. Because state-specific tax-exempt funds invest
primarily in the municipal securities issued by the state and political sub-
divisions of the state, each fund will be particularly affected by political and
economic conditions and developments in the state in which it invests. This
vulnerability to factors affecting the state's tax-exempt investments will be
significantly greater than that of a more geographically diversified fund, which
may result in greater losses and volatility. See Appendix B for details. The
value of municipal securities owned by a fund also may be adversely affected by
future changes in federal or state income tax laws.
In addition, because of the relatively small number of issuers of tax-exempt
securities, the fund may invest a higher percentage of its assets in a single
issuer and, therefore, be more exposed to the risk of loss by investing in a few
issuers than a fund that invests more broadly. At times, the fund and other
accounts managed by the investment manager may own all or most of the debt of a
particular issuer. This concentration of ownership may make it more difficult to
sell, or to determine the fair value of, these investments.
Statement of Additional Information - Nov. 29, 2007 Page 14
HIGHLY LEVERAGED TRANSACTIONS RISK. Certain corporate loans and corporate debt
securities involve refinancings, recapitalizations, mergers and acquisitions,
and other financings for general corporate purposes. These investments also may
include senior obligations of a borrower issued in connection with a
restructuring pursuant to Chapter 11 of the U.S. Bankruptcy Code (commonly known
as "debtor-in-possession" financings), provided that such senior obligations are
determined by the fund's investment manager upon its credit analysis to be a
suitable investment by the fund. In such highly leveraged transactions, the
borrower assumes large amounts of debt in order to have the financial resources
to attempt to achieve its business objectives. Such business objectives may
include but are not limited to: management's taking over control of a company
(leveraged buy-out); reorganizing the assets and liabilities of a company
(leveraged recapitalization); or acquiring another company. Loans or securities
that are part of highly leveraged transactions involve a greater risk (including
default and bankruptcy) than other investments.
IMPAIRMENT OF COLLATERAL RISK. The value of collateral, if any, securing a
floating rate loan can decline, and may be insufficient to meet the borrower's
obligations or difficult to liquidate. In addition, the fund's access to
collateral may be limited by bankruptcy or other insolvency laws. Further,
certain floating rate loans may not be fully collateralized and may decline in
value.
INDEXING RISK. For funds that are managed to an index, the fund's performance
will rise and fall as the performance of the index rises and falls.
INFLATION PROTECTED SECURITIES RISK. Inflation-protected debt securities tend to
react to change in real interest rates. Real interest rates can be described as
nominal interest rates minus the expected impact of inflation. In general, the
price of an inflation-protected debt security falls when real interest rates
rise, and rises when real interest rates fall. Interest payments on inflation-
protected debt securities will vary as the principal and/or interest is adjusted
for inflation and may be more volatile than interest paid on ordinary bonds. In
periods of deflation, the fund may have no income at all. Income earned by a
shareholder depends on the amount of principal invested and that principal will
not grow with inflation unless the investor reinvests the portion of fund
distributions that comes from inflation adjustments.
INTEREST RATE RISK. The securities in the portfolio are subject to the risk of
losses attributable to changes in interest rates. Interest rate risk is
generally associated with bond prices: when interest rates rise, bond prices
fall. In general, the longer the maturity or duration of a bond, the greater its
sensitivity to changes in interest rates.
INITIAL PUBLIC OFFERING (IPO) RISK. IPOs are subject to many of the same risks
as investing in companies with smaller market capitalizations. To the extent a
fund determines to invest in IPOs it may not be able to invest to the extent
desired, because, for example, only a small portion (if any) of the securities
being offered in an IPO may be made available. The investment performance of a
fund during periods when it is unable to invest significantly or at all in IPOs
may be lower than during periods when the fund is able to do so. In addition, as
a fund increases in size, the impact of IPOs on the fund's performance will
generally decrease. IPOs will frequently be sold within 12 months of purchase.
This may result in increased short-term capital gains, which will be taxable to
shareholders as ordinary income.
ISSUER RISK. An issuer, or the value of its stocks or bonds, may perform poorly.
Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
LIQUIDITY RISK. The risk associated from a lack of marketability of securities
which may make it difficult or impossible to sell at desirable prices in order
to minimize loss. The Fund may have to lower the selling price, sell other
investments, or forego another, more appealing investment opportunity.
MARKET RISK. The market value of securities may fall or fail to rise. Market
risk may affect a single issuer, sector of the economy, industry, or the market
as a whole. The market value of securities may fluctuate, sometimes rapidly and
unpredictably. This risk is generally greater for small and mid-sized companies,
which tend to be more vulnerable to adverse developments. In addition, focus on
a particular style, for example, investment in growth or value securities, may
cause the Fund to underperform other mutual funds if that style falls out of
favor with the market.
PREPAYMENT AND EXTENSION RISK. The risk that a bond or other security might be
called, or otherwise converted, prepaid, or redeemed, before maturity. This risk
is primarily associated with asset-backed securities, including mortgage backed
securities. If a security is converted, prepaid, or redeemed, before maturity,
particularly during a time of declining interest rates, the portfolio managers
may not be able to reinvest in securities providing as high a level of income,
resulting in a reduced yield to the fund. Conversely, as interest rates rise,
the likelihood of prepayment decreases. The portfolio managers may be unable to
capitalize on securities with higher interest rates because the Fund's
investments are locked in at a lower rate for a longer period of time.
QUANTITATIVE MODEL RISK. Securities selected using quantitative methods may
perform differently from the market as a whole as a result of the factors used
in the quantitative method, the weight placed on each factor, and changes in the
factors'
Statement of Additional Information - Nov. 29, 2007 Page 15
historical trends. The quantitative methodology employed by the investment
manager has been extensively tested using historical securities market data, but
has only recently begun to be used to manage open-end mutual funds. There can be
no assurance that the methodology will enable the fund to achieve its objective.
REINVESTMENT RISK. The risk that an investor will not be able to reinvest income
or principal at the same rate it currently is earning.
SECTOR RISK. Investments that are concentrated in a particular issuer,
geographic region, or sector will be more susceptible to changes in price. The
more a fund diversifies, the more it spreads risk and potentially reduces the
risks of loss and volatility.
SMALL AND MID-SIZED COMPANY RISK. Investments in small and medium companies
often involve greater risks than investments in larger, more established
companies because small and medium companies may lack the management experience,
financial resources, product diversification, experience, and competitive
strengths of larger companies. Additionally, in many instances the securities of
small and medium companies are traded only over-the-counter or on regional
securities exchanges and the frequency and volume of their trading is
substantially less and may be more volatile than is typical of larger companies.
TAX RISK. As a regulated investment company, a fund must derive at least 90% of
its gross income for each taxable year from sources treated as "qualifying
income" under the Internal Revenue Code of 1986, as amended. The Fund currently
intends to take positions in forward currency contracts with notional value up
to the Fund's total net assets. Although foreign currency gains currently
constitute "qualifying income" the Treasury Department has the authority to
issue regulations excluding from the definition of "qualifying incomes" a fund's
foreign currency gains not "directly related" to its "principal business" of
investing in stocks or securities (or options and futures with respect thereto).
Such regulations might treat gains from some of the Fund's foreign currency-
denominated positions as not "qualifying income" and there is a remote
possibility that such regulations might be applied retroactively, in which case,
the Fund might not qualify as a regulated investment company for one or more
years. In the event the Treasury Department issues such regulations, the Fund's
Board of Directors may authorize a significant change in investment strategy or
Fund liquidation.
TRACKING ERROR RISK. For funds that are managed to an index, the fund may not
track the index perfectly because differences between the index and the fund's
portfolio can cause differences in performance. The investment manager purchases
securities and other instruments in an attempt to replicate the performance of
the index. However, the tools that the investment manager uses to replicate the
index are not perfect and the fund's performance is affected by factors such as
the size of the fund's portfolio, transaction costs, management fees and
expenses, brokerage commissions and fees, the extent and timing of cash flows in
and out of the fund and changes in the index.
In addition, the returns from a specific type of security (for example, mid-cap
stocks) may trail returns from other asset classes or the overall market. Each
type of security will go through cycles of doing better or worse than stocks or
bonds in general. These periods may last for several years.
UNDERLYING FUND SELECTION RISK. For funds-of-funds, the risk that the selected
underlying funds' performance may be lower than the performance of the asset
class they were selected to represent or may be lower than the performance of
alternative underlying funds that could have been selected to represent the
investment category.
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
Statement of Additional Information - Nov. 29, 2007 Page 16
360 days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Inflation Risk, Interest Rate Risk, Prepayment and Extension Risk, and
Reinvestment Risk.
BORROWING
A fund may borrow money for temporary purposes or to engage in transactions
permissible under the 1940 Act that may be considered a borrowing (such as
derivative instruments). Borrowings are subject to costs (in addition to any
interest that may be paid) and typically reduce a fund's total return. Except as
noted in the nonfundamental policies, however, a fund may not buy securities on
margin.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk.
CASH/MONEY MARKET INSTRUMENTS
Cash-equivalent investments include short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable fixed-time
deposits, bankers' acceptances, and letters of credit of banks or savings and
loan associations having capital, surplus, and undivided profits (as of the date
of its most recently published annual financial statements) in excess of $100
million (or the equivalent in the instance of a foreign branch of a U.S. bank)
at the date of investment. A fund also may purchase short-term notes and
obligations of U.S. and foreign banks and corporations and may use repurchase
agreements with broker-dealers registered under the Securities Exchange Act of
1934 and with commercial banks. (See also Commercial Paper, Debt Obligations,
Repurchase Agreements, and Variable- or Floating-Rate Securities.) These types
of instruments generally offer low rates of return and subject a fund to certain
costs and expenses. See Appendix A for a discussion of securities ratings.
Bankers' acceptances are marketable short-term credit instruments used to
finance the import, export, transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity.
Bank certificates of deposit are certificates issued against funds deposited in
a bank (including eligible foreign branches of U.S. banks), are for a definite
period of time, earn a specified rate of return and are normally negotiable.
A fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a
money market fund established for the exclusive use of the RiverSource funds and
other institutional clients of RiverSource Investments.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Credit Risk
and Inflation Risk.
COLLATERALIZED BOND OBLIGATIONS
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of bonds, which may include junk bonds. CBOs are similar in concept to
collateralized mortgage obligations (CMOs), but differ in that CBOs represent
different degrees of credit quality rather than different maturities. (See also
Mortgage- and Asset-Backed Securities.) Underwriters of CBOs package a large and
diversified pool of high-risk, high-yield junk bonds, which is then separated
into "tiers." Typically, the first tier represents the higher quality collateral
and pays the lowest interest rate; the second tier is backed by riskier bonds
and pays a higher rate; the third tier represents the lowest credit quality and
instead of receiving a fixed interest rate receives the residual interest
payments -- money that is left over after the higher tiers have been paid. CBOs,
like CMOs, are substantially overcollateralized and this, plus the
diversification of the pool backing them, may earn certain of the tiers
investment-grade bond ratings. Holders of third-tier CBOs stand to earn high
yields or less money depending on the rate of defaults in the collateral pool.
(See also High-Yield Debt Securities (Junk Bonds).)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Credit Risk, Interest Rate Risk and
Prepayment and Extension Risk.
COMMERCIAL PAPER
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk and
Liquidity Risk.
Statement of Additional Information - Nov. 29, 2007 Page 17
COMMON STOCK
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of common stock is generally determined by corporate earnings, type of
products or services offered, projected growth rates, experience of management,
liquidity, and general market conditions for the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Market Risk,
and Small and Mid-Sized Company Risk.
CONVERTIBLE SECURITIES
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common, preferred or other securities of
the same or a different issuer within a particular period of time at a specified
price. Some convertible securities, such as preferred equity-redemption
cumulative stock (PERCs), have mandatory conversion features. Others are
voluntary. A convertible security entitles the holder to receive interest
normally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted, or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Interest Rate
Risk, Issuer Risk, Market Risk, Prepayment and Extension Risk, and Reinvestment
Risk.
CORPORATE BONDS
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield Debt Securities (Junk Bonds).) Corporate bonds may be
either secured or unsecured. Unsecured corporate bonds are generally referred to
as "debentures." See Appendix A for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Credit Risk, Interest
Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk.
DEBT OBLIGATIONS
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a fixed, variable or floating rate on specified dates and to repay
principal on a specified maturity date. Certain debt obligations (usually
intermediate- and long-term bonds) have provisions that allow the issuer to
redeem or "call" a bond before its maturity. Issuers are most likely to call
these securities during periods of falling interest rates. When this happens, an
investor may have to replace these securities with lower yielding securities,
which could result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
Statement of Additional Information - Nov. 29, 2007 Page 18
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and High-
Yield Debt Securities (Junk Bonds).)
Generally, debt obligations that are investment grade are those that have been
rated in one of the top four credit quality categories by two out of the three
independent rating agencies. In the event that a debt obligation has been rated
by only two agencies, the most conservative, or lower, rating must be in one of
the top four credit quality categories in order for the security to be
considered investment grade. If only one agency has rated the debt obligation,
that rating must be in one of the top four credit quality categories for the
security to be considered investment grade. See Appendix A for a discussion of
securities ratings.
All ratings limitations are applied at the time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by a fund. Neither event will require
the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings change as a result of
changes in a rating agency or its rating system, a fund will attempt to use
comparable ratings as standards for selecting investments.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Credit Risk, Interest
Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk.
DEPOSITARY RECEIPTS
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, and Market Risk.
DERIVATIVE INSTRUMENTS
Derivative instruments are commonly defined to include securities or contracts
whose values depend, in whole or in part, on (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities.
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable percentage gain or loss in the price of
the derivative instrument.
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and exchange-
traded options on futures. Diverse types of derivatives may be created by
combining options or futures in different ways, and by applying these structures
to a wide range of underlying assets.
Options. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees for the length of the contract to sell the security at the set price when
the buyer wants to exercise the option, no matter what the market price of the
security is at that time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person who writes a
put option agrees to buy the security at the set price if the purchaser wants
Statement of Additional Information - Nov. 29, 2007 Page 19
to exercise the option during the length of the contract, no matter what the
market price of the security is at that time. An option is covered if the writer
owns the security (in the case of a call) or sets aside the cash or securities
of equivalent value (in the case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained whether or not the option is
exercised. A writer of a call option may have to sell the security for a below-
market price if the market price rises above the exercise price. A writer of a
put option may have to pay an above-market price for the security if its market
price decreases below the exercise price.
When an option is purchased, the buyer pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying security when
the option is exercised. For record keeping and tax purposes, the price obtained
on the sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Options on many securities are listed on options exchanges. If a fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, Chicago Board Options Exchange, or NASDAQ will be valued at
the last quoted sales price or, if such a price is not readily available, at the
mean of the last bid and ask prices.
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a buyer
(holding the "long" position) and a seller (holding the "short" position) for an
asset with delivery deferred until a future date. The buyer agrees to pay a
fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day a buyer
would pay out cash in an amount equal to any decline in the contract's value or
receive cash equal to any increase. At the time a futures contract is closed
out, a nominal commission is paid, which is generally lower than the commission
on a comparable transaction in the cash market.
Futures contracts may be based on various securities, securities indexes (such
as the S&P 500 Index), foreign currencies and other financial instruments and
indexes.
A fund may engage in futures and related options transactions to produce
incremental earnings, to hedge existing positions, and to increase flexibility.
The fund intends to comply with Rule 4.5 of the Commodity Futures Trading
Commission (CFTC), under which a mutual fund is exempt from the definition of a
"commodity pool operator." The fund, therefore, is not subject to registration
or regulation as a pool operator, meaning that the fund may invest in futures
contracts without registering with the CFTC.
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
Statement of Additional Information - Nov. 29, 2007 Page 20
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 part of a mixed straddle and not mark them to
market, that is, not treat them as having been sold at the end of the year at
market value. If a fund is using short futures contracts for hedging purposes,
the fund may be required to defer recognizing losses incurred on short futures
contracts and on underlying securities. Any losses incurred on securities that
are part of a straddle may be deferred to the extent there is unrealized
appreciation on the offsetting position until the offsetting position is sold.
Federal income tax treatment of gains or losses from transactions in options,
options on futures contracts and indexes will depend on whether the option is a
section 1256 contract. If the option is a non-equity option, a fund would either
make a 1256(d) election and treat the option as a mixed straddle or mark to
market the option at fiscal year end and treat the gain/loss as 40% short-term
and 60% long-term.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (a fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments will be made or received depending upon whether gains
or losses are incurred. All contracts and options will be valued at the last-
quoted sales price on their primary exchange.
Other Risks of Derivatives. The primary risk of derivatives is the same as the
risk of the underlying asset, namely that the value of the underlying asset may
go up or down. Adverse movements in the value of an underlying asset can expose
an investor to losses. Derivative instruments may include elements of leverage
and, accordingly, the fluctuation of the value of the derivative instrument in
relation to the underlying asset may be magnified. The successful use of
derivative instruments depends upon a variety of factors, particularly the
investment manager's ability to predict movements of the securities, currencies,
and commodity markets, which requires different skills than predicting changes
in the prices of individual securities. There can be no assurance that any
particular strategy will succeed.
Another risk is the risk that a loss may be sustained as a result of the failure
of a counterparty to comply with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative instruments is generally less
than for privately-negotiated or OTC derivative instruments, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
instruments, there is no similar clearing agency guarantee. In all transactions,
an investor will bear the risk that the counterparty will default, and this
could result in a loss of the expected benefit of the derivative transaction and
possibly other losses.
When a derivative transaction is used to completely hedge another position,
changes in the market value of the combined position (the derivative instrument
plus the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged for any change in the price of the
underlying asset. With an imperfect hedge, the values of the derivative
instrument and its hedge are not perfectly correlated. For example, if the value
of a derivative instrument used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investment, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
Derivatives also are subject to the risk that they cannot be sold, closed out,
or replaced quickly at or very close to their fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than exchange-
traded derivatives since they often can only be closed out with the other party
to the transaction.
Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
Statement of Additional Information - Nov. 29, 2007 Page 21
(See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Derivatives Risk
and Liquidity Risk.
EXCHANGE-TRADED FUNDS
Exchange-traded funds (ETFs) represent shares of ownership in mutual funds, unit
investment trusts or depositary receipts. ETFs hold portfolios of securities
that are designed to replicate, as closely as possible before expenses, the
price and yield of a specified market index. The performance results of ETFs
will not replicate exactly the performance of the pertinent index due to
transaction and other expenses, including fees to service providers, borne by
ETFs. ETF shares are sold and redeemed at net asset value only in large blocks
called creation units and redemption units, respectively. ETF shares also may be
purchased and sold in secondary market trading on national securities exchanges,
which allows investors to purchase and sell ETF shares at their market price
throughout the day.
Although one or more of the other risks described in this SAI may apply,
investments in ETFs involve the same risks associated with a direct investment
in the types of securities included in the indices the ETFs are designed to
replicate, including Market Risk. Shares of an ETF may trade at a market price
that is less than their net asset value and an active trading market in such
shares may not develop or continue. Finally, there can be no assurance that the
portfolio of securities purchased by an ETF to replicate a particular index will
replicate such index.
FLOATING RATE LOANS
Most floating rate loans are acquired directly from the agent bank or from
another holder of the loan by assignment. Most such loans are secured, and most
impose restrictive covenants which must be met by the borrower. These loans are
typically made by a syndicate of banks and institutional investors, represented
by an agent bank which has negotiated and structured the loan and which is
responsible generally for collecting interest, principal, and other amounts from
the borrower on its own behalf and on behalf of the other lending institutions
in the syndicate, and for enforcing its and their other rights against the
borrower. Each of the lending institutions, including the agent bank, lends to
the borrower a portion of the total amount of the loan, and retains the
corresponding interest in the loan. Floating rate loans may include delayed draw
term loans and prefunded or synthetic letters of credit.
A fund's ability to receive payments of principal and interest and other amounts
in connection with loans held by it will depend primarily on the financial
condition of the borrower. The failure by the fund to receive scheduled interest
or principal payments on a loan would adversely affect the income of the fund
and would likely reduce the value of its assets, which would be reflected in a
reduction in the fund's net asset value. Banks and other lending institutions
generally perform a credit analysis of the borrower before originating a loan or
purchasing an assignment in a loan. In selecting the loans in which the fund
will invest, however, the investment manager will not rely on that credit
analysis of the agent bank, but will perform its own investment analysis of the
borrowers. The investment manager's analysis may include consideration of the
borrower's financial strength and managerial experience, debt coverage,
additional borrowing requirements or debt maturity schedules, changing financial
conditions, and responsiveness to changes in business conditions and interest
rates. The majority of loans the fund will invest in will be rated by one or
more of the nationally recognized rating agencies. Investments in loans may be
of any quality, including "distressed" loans, and will be subject to the fund's
credit quality policy.
Loans may be structured in different forms, including assignments and
participations. In an assignment, a fund purchases an assignment of a portion of
a lender's interest in a loan. In this case, the fund may be required generally
to rely upon the assigning bank to demand payment and enforce its rights against
the borrower, but would otherwise be entitled to all of such bank's rights in
the loan.
The borrower of a loan may, either at its own election or pursuant to terms of
the loan documentation, prepay amounts of the loan from time to time. There is
no assurance that a fund will be able to reinvest the proceeds of any loan
prepayment at the same interest rate or on the same terms as those of the
original loan.
Corporate loans in which a fund may purchase a loan assignment are made
generally to finance internal growth, mergers, acquisitions, recapitalizations,
stock repurchases, leveraged buy-outs, dividend payments to sponsors and other
corporate activities. Under current market conditions, most of the corporate
loans purchased by the fund will represent loans made to highly leveraged
corporate borrowers. The highly leveraged capital structure of the borrowers in
such transactions may make such loans especially vulnerable to adverse changes
in economic or market conditions. The fund may hold investments in loans for a
very short period of time when opportunities to resell the investments that the
investment manager believes are attractive arise.
Certain of the loans acquired by a fund may involve revolving credit facilities
under which a borrower may from time to time borrow and repay amounts up to the
maximum amount of the facility. In such cases, the fund would have an obligation
Statement of Additional Information - Nov. 29, 2007 Page 22
to advance its portion of such additional borrowings upon the terms specified in
the loan assignment. To the extent that the fund is committed to make additional
loans under such an assignment, it will at all times designate cash or
securities in an amount sufficient to meet such commitments.
Notwithstanding its intention in certain situations to not receive material,
non-public information with respect to its management of investments in floating
rate loans, the investment manager may from time to time come into possession of
material, non-public information about the issuers of loans that may be held in
a fund's portfolio. Possession of such information may in some instances occur
despite the investment manager's efforts to avoid such possession, but in other
instances the investment manager may choose to receive such information (for
example, in connection with participation in a creditors' committee with respect
to a financially distressed issuer). As, and to the extent, required by
applicable law, the investment manager's ability to trade in these loans for the
account of the fund could potentially be limited by its possession of such
information. Such limitations on the investment manager's ability to trade could
have an adverse effect on the fund by, for example, preventing the fund from
selling a loan that is experiencing a material decline in value. In some
instances, these trading restrictions could continue in effect for a substantial
period of time.
In some instances, other accounts managed by the investment manager may hold
other securities issued by borrowers whose floating rate loans may be held in a
fund's portfolio. These other securities may include, for example, debt
securities that are subordinate to the floating rate loans held in the fund's
portfolio, convertible debt or common or preferred equity securities. In certain
circumstances, such as if the credit quality of the issuer deteriorates, the
interests of holders of these other securities may conflict with the interests
of the holders of the issuer's floating rate loans. In such cases, the
investment manager may owe conflicting fiduciary duties to the fund and other
client accounts. The investment manager will endeavor to carry out its
obligations to all of its clients to the fullest extent possible, recognizing
that in some cases certain clients may achieve a lower economic return, as a
result of these conflicting client interests, than if the investment manager's
client accounts collectively held only a single category of the issuer's
securities.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with floating rate loans include: Credit Risk and
Prepayment and Extension Risk.
FOREIGN CURRENCY TRANSACTIONS
Investments in foreign countries usually involve currencies of foreign
countries. In addition, a fund may hold cash and cash equivalent investments in
foreign currencies. As a result, the value of a fund's assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Also, a fund may incur costs in
connection with conversions between various currencies. Currency exchange rates
may fluctuate significantly over short periods of time causing a fund's NAV (Net
Asset Value) to fluctuate. Currency exchange rates are generally determined by
the forces of supply and demand in the foreign exchange markets, actual or
anticipated changes in interest rates, and other complex factors. Currency
exchange rates also can be affected by the intervention of U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments.
Spot Rates and Derivative Instruments. A fund may conduct its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts). (See also Derivative Instruments.) These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such derivative instruments, a
fund could be disadvantaged by having to deal in the odd lot market for the
underlying foreign currencies at prices that are less favorable than for round
lots.
A fund may enter into forward contracts for a variety of reasons, but primarily
it will enter into such contracts for risk management (hedging) or for
investment purposes.
A fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When a fund enters into a contract for
the purchase or sale of a security denominated in a foreign currency or has been
notified of a dividend or interest payment, it may desire to lock in the price
of the security or the amount of the payment, usually in U.S. dollars, although
it could desire to lock in the price of the security in another currency. By
entering into a forward contract, a fund would be able to protect itself against
a possible loss resulting from an adverse change in the relationship between
different currencies from the date the security is purchased or sold to the date
on which payment is made or received or when the dividend or interest is
actually received.
A fund may enter into forward contracts when management of the fund believes the
currency of a particular foreign country may decline in value relative to
another currency. When selling currencies forward in this fashion, a fund may
seek to hedge the value of foreign securities it holds against an adverse move
in exchange rates. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since the future
value of securities in foreign
Statement of Additional Information - Nov. 29, 2007 Page 23
currencies more than likely will change between the date the forward contract is
entered into and the date it matures. The projection of short-term currency
market movements is extremely difficult and successful execution of a short-term
hedging strategy is highly uncertain. Unless specifically permitted, a fund
would not enter into such forward contracts or maintain a net exposure to such
contracts when consummating the contracts would obligate it to deliver an amount
of foreign currency in excess of the value of its securities or other assets
denominated in that currency.
This method of protecting the value of the fund's securities against a decline
in the value of a currency does not eliminate fluctuations in the underlying
prices of the securities. It simply establishes a rate of exchange that can be
achieved at some point in time. Although forward contracts tend to minimize the
risk of loss due to a decline in value of hedged currency, they tend to limit
any potential gain that might result should the value of such currency increase.
A fund may also enter into forward contracts when its management believes the
currency of a particular country will increase in value relative to another
currency. A fund may buy currencies forward to gain exposure to a currency
without incurring the additional costs of purchasing securities denominated in
that currency.
Absolute Return Currency and Income Fund is designed to invest in a combination
of forward currency contracts and U.S. dollar-denominated market instruments in
an attempt to obtain an investment result that is substantially the same as a
direct investment in a foreign currency-denominated instrument. For example, the
combination of U.S. dollar-denominated instruments with long forward currency
exchange contracts creates a position economically equivalent to a position in
the foreign currency, in anticipation of an increase in the value of the foreign
currency against the U.S. dollar. Conversely, the combination of U.S. dollar-
denominated instruments with short forward currency exchange contracts is
economically equivalent to borrowing the foreign currency for delivery at a
specified date in the future, in anticipation of a decrease in the value of the
foreign currency against the U.S. dollar. This strategy may also be employed by
other funds. Unanticipated changes in the currency exchange results could result
in poorer performance for funds that enter into these types of transactions.
A fund may designate cash or securities in an amount equal to the value of the
fund's total assets committed to consummating forward contracts entered into
under the circumstance set forth above. If the value of the securities declines,
additional cash or securities will be designated on a daily basis so that the
value of the cash or securities will equal the amount of the fund's commitments
on such contracts.
At maturity of a forward contract, a fund may either deliver (if a contract to
sell) or take delivery of (if a contract to buy) the foreign currency or
terminate its contractual obligation by entering into an offsetting contract
with the same currency trader, the same maturity date, and covering the same
amount of foreign currency.
If a fund engages in an offsetting transaction, it would incur a gain or loss to
the extent there has been movement in forward contract prices. If a fund engages
in an offsetting transaction, it may subsequently enter into a new forward
contract to buy or sell the foreign currency.
Although a fund values its assets each business day in terms of U.S. dollars, it
may not intend to convert its foreign currencies into U.S. dollars on a daily
basis. It would do so from time to time, and shareholders should be aware of
currency conversion costs. Although foreign exchange dealers do not charge a fee
for conversion, they do realize a profit based on the difference (spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a fund at one rate, while
offering a lesser rate of exchange should a fund desire to resell that currency
to the dealer.
For Absolute Return Currency and Income Fund, it is possible, under certain
circumstances, including entering into forward currency contracts for investment
purposes, that the fund may have to limit or restructure its forward contract
currency transactions to qualify as a "regulated investment company" under the
Internal Revenue Code.
Options on Foreign Currencies. A fund may buy put and call options and write
covered call and cash-secured put options on foreign currencies for hedging
purposes and to gain exposure to foreign currencies. For example, a decline in
the dollar value of a foreign currency in which securities are denominated will
reduce the dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against the diminutions in the
value of securities, a fund may buy put options on the foreign currency. If the
value of the currency does decline, a fund would have the right to sell the
currency for a fixed amount in dollars and would offset, in whole or in part,
the adverse effect on its portfolio that otherwise would have resulted.
Conversely, where a change in the dollar value of a currency would increase the
cost of securities a fund plans to buy, or where a fund would benefit from
increased exposure to the currency, a fund may buy call options on the foreign
currency. The purchase of the options could offset, at least partially, the
changes in exchange rates.
Statement of Additional Information - Nov. 29, 2007 Page 24
As in the case of other types of options, however, the benefit to a fund derived
from purchases of foreign currency options would be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, a fund could
sustain losses on transactions in foreign currency options that would require it
to forego a portion or all of the benefits of advantageous changes in rates.
A fund may write options on foreign currencies for the same types of purposes.
For example, when a fund anticipates a decline in the dollar value of foreign-
denominated securities due to adverse fluctuations in exchange rates it could,
instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option would most likely not be
exercised and the diminution in value of securities would be fully or partially
offset by the amount of the premium received.
Similarly, instead of purchasing a call option when a foreign currency is
expected to appreciate, a fund could write a put option on the relevant
currency. If rates move in the manner projected, the put option would expire
unexercised and allow the fund to hedge increased cost up to the amount of the
premium.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the fund would be required to buy or sell
the underlying currency at a loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the fund also may
be required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if a fund holds currency sufficient to cover the
option or has an absolute and immediate right to acquire that currency without
additional cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An option writer
could lose amounts substantially in excess of its initial investments, due to
the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an over-the-
counter trading environment, many of the protections afforded to exchange
participants will not be available. For example, there are no daily price
fluctuation limits, and adverse market movements could therefore continue to an
unlimited extent over a period of time. Although the purchaser of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting a fund to liquidate
open positions at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for that purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. A fund may enter into currency
futures contracts to buy or sell currencies. It also may buy put and call
options and write covered call and cash-secured put options on currency futures.
Currency futures contracts are similar to currency forward contracts, except
that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures call
for payment of delivery in U.S. dollars. A fund may use currency futures for the
same purposes as currency forward contracts, subject to CFTC limitations.
Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the value of
the fund's investments. A currency hedge, for example, should protect a Yen-
denominated bond against a decline in the Yen, but will not protect a fund
against price decline if the issuer's creditworthiness deteriorates. Because the
value of a fund's investments denominated in foreign currency will change in
Statement of Additional Information - Nov. 29, 2007 Page 25
response to many factors other than exchange rates, it may not be possible to
match the amount of a forward contract to the value of a fund's investments
denominated in that currency over time.
A fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The fund would not enter into an option
or futures position that exposes the fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient to cover its
potential obligations. (See also Derivative Instruments and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign currency transactions include: Derivatives
Risk, Interest Rate Risk, and Liquidity Risk.
FOREIGN SECURITIES
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. Additionally, many foreign stock markets, while growing in
volume of trading activity, have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than the volume and liquidity in
the U.S. and, at times, volatility of price can be greater than in the U.S.
Further, foreign markets have different clearance, settlement, registration, and
communication procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in such
procedures could result in temporary periods when assets are uninvested and no
return is earned on them. The inability of an investor to make intended security
purchases due to such problems could cause the investor to miss attractive
investment opportunities.
Payment for securities without delivery may be required in certain foreign
markets and, when participating in new issues, some foreign countries require
payment to be made in advance of issuance (at the time of issuance, the market
value of the security may be more or less than the purchase price). Some foreign
markets also have compulsory depositories (i.e., an investor does not have a
choice as to where the securities are held). Fixed commissions on some foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. Further, an investor may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts. There is generally
less government supervision and regulation of business and industry practices,
stock exchanges, brokers, and listed companies than in the U.S. It may be more
difficult for an investor's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S., thus increasing the risk of delays or
loss of certificates for portfolio securities. In addition, with respect to
certain foreign countries, there is the possibility of nationalization,
expropriation, the imposition of additional withholding or confiscatory taxes,
political, social, or economic instability, diplomatic developments that could
affect investments in those countries, or other unforeseen actions by regulatory
bodies (such as changes to settlement or custody procedures).
The risks of foreign investing may be magnified for investments in emerging
markets, which may have relatively unstable governments, economies based on only
a few industries, and securities markets that trade a small number of
securities.
The introduction of a single currency, the euro, on Jan. 1, 1999 for
participating European nations in the Economic and Monetary Union (EU) presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after Jan. 1, 1999 that refer to existing currencies rather
than the euro; the establishment and maintenance of exchange rates; the
fluctuation of the euro relative to non-euro currencies; whether the interest
rate, tax or labor regimes of European countries participating in the euro will
converge over time; and whether the admission of other countries such as Poland,
Latvia, and Lithuania as members of the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Foreign/Emerging
Markets Risk and Issuer Risk.
FUNDING AGREEMENTS
A fund may invest in funding agreements issued by domestic insurance companies.
Funding agreements are short-term, privately placed, debt obligations of
insurance companies that offer a fixed- or floating-rate of interest. These
investments are not readily marketable and therefore are considered to be
illiquid securities. (See also Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with funding agreements include: Credit Risk and
Liquidity Risk.
Statement of Additional Information - Nov. 29, 2007 Page 26
HIGH-YIELD DEBT SECURITIES (JUNK BONDS)
High yield (high-risk) debt securities are sometimes referred to as junk bonds.
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.
See Appendix A for a discussion of securities ratings. (See also Debt
Obligations.)
All fixed rate interest-bearing securities typically experience appreciation
when interest rates decline and depreciation when interest rates rise. The
market values of lower-quality and comparable unrated securities tend to reflect
individual corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Lower-quality and comparable unrated securities also tend to be
more sensitive to economic conditions than are higher-rated securities. As a
result, they generally involve more credit risks than securities in the higher-
rated categories. During an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of lower-quality securities may
experience financial stress and may not have sufficient revenues to meet their
payment obligations. The issuer's ability to service its debt obligations also
may be adversely affected by specific corporate developments, the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by an issuer of these
securities is significantly greater than a default by issuers of higher-rated
securities because such securities are generally unsecured and are often
subordinated to other creditors. Further, if the issuer of a lower quality
security defaulted, an investor might incur additional expenses to seek
recovery.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for higher-
rated securities. The lack of a liquid secondary market may have an adverse
impact on the market price of the security. The lack of a liquid secondary
market for certain securities also may make it more difficult for an investor to
obtain accurate market quotations. Market quotations are generally available on
many lower-quality and comparable unrated issues only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or prices
for actual sales.
Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield debt securities include: Credit Risk,
Interest Rate Risk, and Prepayment and Extension Risk.
ILLIQUID AND RESTRICTED SECURITIES
Illiquid securities are securities that are not readily marketable. These
securities may include, but are not limited to, certain securities that are
subject to legal or contractual restrictions on resale, certain repurchase
agreements, and derivative instruments. To the extent a fund invests in illiquid
or restricted securities, it may encounter difficulty in determining a market
value for the securities. Disposing of illiquid or restricted securities may
involve time-consuming negotiations and legal expense, and it may be difficult
or impossible for a fund to sell the investment promptly and at an acceptable
price.
In determining the liquidity of all securities and derivatives, such as Rule
144A securities, which are unregistered securities offered to qualified
institutional buyers, and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its agencies and
instrumentalities the investment manager, under guidelines established by the
Board, will consider any relevant factors including the frequency of trades, the
number of dealers willing to purchase or sell the security and the nature of
marketplace trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk.
INDEXED SECURITIES
The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise
Statement of Additional Information - Nov. 29, 2007 Page 27
or fall according to the change in one or more specified underlying instruments.
Indexed securities may be more volatile than the underlying instrument itself
and they may be less liquid than the securities represented by the index. (See
also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Liquidity Risk and
Market Risk.
INFLATION PROTECTED SECURITIES
Inflation is a general rise in prices of goods and services. Inflation erodes
the purchasing power of an investor's assets. For example, if an investment
provides a total return of 7% in a given year and inflation is 3% during that
period, the inflation-adjusted, or real, return is 4%. Inflation-protected
securities are debt securities whose principal and/or interest payments are
adjusted for inflation, unlike debt securities that make fixed principal and
interest payments. One type of inflation-protected debt security is issued by
the U.S. Treasury. The principal of these securities is adjusted for inflation
as indicated by the Consumer Price Index for Urban Consumers (CPI) and interest
is paid on the adjusted amount. The CPI is a measurement of changes in the cost
of living, made up of components such as housing, food, transportation and
energy.
If the CPI falls, the principal value of inflation-protected securities will be
adjusted downward, and consequently the interest payable on these securities
(calculated with respect to a smaller principal amount) will be reduced.
Conversely, if the CPI rises, the principal value of inflation-protected
securities will be adjusted upward, and consequently the interest payable on
these securities will be increased. Repayment of the original bond principal
upon maturity is guaranteed in the case of U.S. Treasury inflation-protected
securities, even during a period of deflation. However, the current market value
of the inflation-protected securities is not guaranteed and will fluctuate.
Other inflation-indexed securities include inflation-related bonds, which may or
may not provide a similar guarantee. If a guarantee of principal is not
provided, the adjusted principal value of the bond repaid at maturity may be
less than the original principal.
Other issuers of inflation-protected debt securities include other U.S.
government agencies or instrumentalities, corporations and foreign governments.
There can be no assurance that the CPI or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.
If interest rates rise due to reasons other than inflation (for example, due to
changes in currency exchange rates), investors in these securities may not be
protected to the extent that the increase is not reflected in the bond's
inflation measure.
Any increase in principal for an inflation-protected security resulting from
inflation adjustments is considered by IRS regulations to be taxable income in
the year it occurs. For direct holders of an inflation-protected security, this
means that taxes must be paid on principal adjustments even though these amounts
are not received until the bond matures. By contrast, a fund holding these
securities distributes both interest income and the income attributable to
principal adjustments in the form of cash or reinvested shares, which are
taxable to shareholders.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inflation-protected securities include: Interest
Rate Risk and Market Risk.
INITIAL PUBLIC OFFERINGS (IPOS)
Companies issuing IPOs generally have limited operating histories, and their
prospects for future profitability are uncertain. These companies often are
engaged in new and evolving businesses and are particularly vulnerable to
competition and to changes in technology, markets and economic conditions. They
may be dependent on certain key managers and third parties, need more personnel
and other resources to manage growth and require significant additional capital.
They may also be dependent on limited product lines and uncertain property
rights and need regulatory approvals. Funds that invest in IPOs can be affected
by sales of additional shares and by concentration of control in existing
management and principal shareholders. Stock prices of IPOs can also be highly
unstable, due to the absence of a prior public market, the small number of
shares available for trading and limited investor information. Most IPOs involve
a high degree of risk not normally associated with offerings of more seasoned
companies.
Although one or more risks described in this SAI may apply, the largest risks
associated with IPOs include: Small and Mid-Sized Company Risk and Initial
Public Offering (IPO) Risk.
INVERSE FLOATERS
Inverse floaters or inverse floating rate securities are a type of derivative
long-term fixed income obligation with a floating or variable interest rate that
moves in the opposite direction of short-term interest rates. As short-term
interest rates go down, the holders of the inverse floaters receive more income
and, as short-term interest rates go up, the holders of the inverse floaters
receive less income. As with all long-term fixed income securities, the price of
the inverse floater moves inversely
Statement of Additional Information - Nov. 29, 2007 Page 28
with long-term interest rates; as long-term interest rates go down, the price of
the inverse floater moves up and, when long-term interest rates go up, the price
of the inverse floater moves down. While inverse floater securities tend to
provide more income than similar term and credit quality fixed-rate bonds, they
also exhibit greater volatility in price movement (both up and down).
In the municipal market an inverse floater is typically created when the owner
of a municipal fixed rate bond transfers that bond to a trust in exchange for
cash and a residual interest in the trust's assets and cash flows (inverse
floater certificates). The trust funds the purchase of the bond by issuing two
classes of certificates: short-term floating rate notes (typically sold to third
parties) and the inverse floaters (also known as residual certificates). No
additional income beyond that provided by the trust's underlying bond is
created; rather, that income is merely divided-up between the two classes of
certificates. The holder of the inverse floating rate securities typically has
the right to (1) cause the holders of the short-term floating rate notes to
tender their notes at par ($100) and (2) to return the inverse floaters and
withdraw the underlying bonds, thereby collapsing the trust. (See also
Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with transactions in inverse floaters include: Interest
Rate Risk, Credit Risk, Liquidity Risk and Market Risk.
INVESTMENT COMPANIES
Investing in securities issued by registered and unregistered investment
companies may involve the duplication of advisory fees and certain other
expenses.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the securities of other investment companies
include: Market Risk.
LENDING OF PORTFOLIO SECURITIES
A fund may lend certain of its portfolio securities. The current policy of the
Board is to make these loans, either long- or short-term, to broker-dealers.
Loans will be structured in a manner that will enable a fund to call the loan in
order to vote in a proxy solicitation if the fund has knowledge of a material
event to be voted on that would affect the fund's investment in the loaned
security. In making loans, the lender receives the market price in cash, U.S.
government securities, letters of credit, or such other collateral as may be
permitted by regulatory agencies and approved by the Board. If the market price
of the loaned securities goes up, the lender will get additional collateral on a
daily basis. If the market price of the loaned securities goes down, the
borrower may request that some collateral be returned. The risks are that the
borrower may not provide additional collateral when required or return the
securities when due. During the existence of the loan, the lender receives cash
payments equivalent to all interest or other distributions paid on the loaned
securities. The lender may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or money market instruments held as collateral to the borrower or
placing broker. The lender will receive reasonable interest on the loan or a
flat fee from the borrower and amounts equivalent to any dividends, interest, or
other distributions on the securities loaned.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Credit Risk.
LOAN PARTICIPATIONS
Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Credit Risk.
MORTGAGE- AND ASSET-BACKED SECURITIES
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental
Statement of Additional Information - Nov. 29, 2007 Page 29
credit enhancement. Commercial mortgage-backed securities (CMBS) are a specific
type of mortgage-backed security collateralized by a pool of mortgages on
commercial real estate.
Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder
to receive distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities. POs entitle the
holder to receive distributions consisting of all or a portion of the principal
of the underlying pool of mortgage loans or mortgage-backed securities. The cash
flows and yields on IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans or mortgage-
backed securities. A rapid rate of principal payments may adversely affect the
yield to maturity of IOs. A slow rate of principal payments may adversely affect
the yield to maturity of POs. If prepayments of principal are greater than
anticipated, an investor in IOs may incur substantial losses. If prepayments of
principal are slower than anticipated, the yield on a PO will be affected more
severely than would be the case with a traditional mortgage-backed security.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured into multiple
classes, often referred to as "tranches," with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal
and interest, including prepayments. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than its
stated maturity. The yield characteristics of mortgage-backed securities differ
from those of other debt securities. Among the differences are that interest and
principal payments are made more frequently on mortgage-backed securities,
usually monthly, and principal may be repaid at any time. These factors may
reduce the expected yield.
Asset-backed securities have structural characteristics similar to mortgage-
backed securities. Asset-backed debt obligations represent direct or indirect
participation in, or secured by and payable from, assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of property, and receivables from credit card or
other revolving credit arrangements. The credit quality of most asset-backed
securities depends primarily on the credit quality of the assets underlying such
securities, how well the entity issuing the security is insulated from the
credit risk of the originator or any other affiliated entities, and the amount
and quality of any credit enhancement of the securities. Payments or
distributions of principal and interest on asset-backed debt obligations may be
supported by non-governmental credit enhancements including letters of credit,
reserve funds, overcollateralization, and guarantees by third parties. The
market for privately issued asset-backed debt obligations is smaller and less
liquid than the market for government sponsored mortgage-backed securities. (See
also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage and asset-backed securities include:
Credit Risk, Interest Rate Risk, Liquidity Risk, and Prepayment and Extension
Risk.
MORTGAGE DOLLAR ROLLS
Mortgage dollar rolls are investments in which an investor sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
purchase substantially similar securities on a specified future date. While an
investor foregoes principal and interest paid on the mortgage-backed securities
during the roll period, the investor is compensated by the difference between
the current sales price and the lower price for the future purchase as well as
by any interest earned on the proceeds of the initial sale. The investor also
could be compensated through the receipt of fee income equivalent to a lower
forward price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Credit Risk and
Interest Rate Risk.
MUNICIPAL OBLIGATIONS
Municipal obligations include debt obligations issued by or on behalf of states,
territories, possessions, or sovereign nations within the territorial boundaries
of the United States (including the District of Columbia and Puerto Rico). The
interest on these obligations is generally exempt from federal income tax.
Municipal obligations are generally classified as either "general obligations"
or "revenue obligations."
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of interest and principal. Revenue
bonds are payable only from the revenues derived from a project or facility or
from the proceeds of a specified revenue source. Industrial development bonds
are generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional, and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax
Statement of Additional Information - Nov. 29, 2007 Page 30
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, and Market Risk.
PREFERRED STOCK
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Issuer Risk and Market
Risk.
REAL ESTATE INVESTMENT TRUSTS
Real estate investment trusts (REITs) are pooled investment vehicles that manage
a portfolio of real estate or real estate related loans to earn profits for
their shareholders. REITs are generally classified as equity REITs, mortgage
REITs or a combination of equity and mortgage REITs. Equity REITs invest the
majority of their assets directly in real property, such as shopping centers,
nursing homes, office buildings, apartment complexes, and hotels, and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs can be subject to extreme
volatility due to fluctuations in the demand for real estate, changes in
interest rates, and adverse economic conditions. Similar to investment
companies, REITs are not taxed on income distributed to shareholders provided
they comply with certain requirements under the tax law. The failure of a REIT
to continue to qualify as a REIT for tax purposes can materially affect its
value. A fund will indirectly bear its proportionate share of any expenses paid
by a REIT in which it invests.
REITs often do not provide complete tax information until after the calendar
year-end. Consequently, because of the delay, it may be necessary for a fund
investing in REITs to request permission to extend the deadline for issuance of
Forms 1099-DIV beyond January 31. In the alternative, amended Forms 1099-DIV may
be sent.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with REITs include: Interest Rate Risk, Issuer Risk and
Market Risk.
Statement of Additional Information - Nov. 29, 2007 Page 31
REPURCHASE AGREEMENTS
Repurchase agreements may be entered into with certain banks or non-bank
dealers. In a repurchase agreement, the purchaser buys a security at one price,
and at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement determines the yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
security. Repurchase agreements could involve certain risks in the event of a
default or insolvency of the other party to the agreement, including possible
delays or restrictions upon the purchaser's ability to dispose of the underlying
securities.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Credit Risk.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, an investor sells a security and enters into
an agreement to repurchase the security at a specified future date and price.
The investor generally retains the right to interest and principal payments on
the security. Since the investor receives cash upon entering into a reverse
repurchase agreement, it may be considered a borrowing. (See also Derivative
Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with reverse repurchase agreements include: Credit Risk
and Interest Rate Risk.
SHORT SALES
With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price at the time of replacement. The price at such
time may be more or less than the price at which the investor sold the security.
A fund that is allowed to engage in short sales will designate cash or liquid
securities to cover its open short positions. Those funds also may engage in
"short sales against the box," a form of short-selling that involves selling a
security that an investor owns (or has an unconditioned right to purchase) for
delivery at a specified date in the future. This technique allows an investor to
hedge protectively against anticipated declines in the market of its securities.
If the value of the securities sold short increased between the date of the
short sale and the date on which the borrowed security is replaced, the investor
loses the opportunity to participate in the gain. A "short sale against the box"
will result in a constructive sale of appreciated securities thereby generating
capital gains to a fund.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Market Risk.
SOVEREIGN DEBT
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.
Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness.
Sovereign debt includes Brady Bonds, which are securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with sovereign debt include: Credit Risk and
Foreign/Emerging Markets Risk.
STRUCTURED INVESTMENTS
A structured investment is a security whose return is tied to an underlying
index or to some other security or pool of assets. Structured investments
generally are individually negotiated agreements and may be traded over-the-
counter. Structured investments are created and operated to restructure the
investment characteristics of the underlying security. This
Statement of Additional Information - Nov. 29, 2007 Page 32
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments, such as commercial bank loans,
and the issuance by that entity of one or more classes of debt obligations
("structured securities") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured securities to create securities
with different investment characteristics, such as varying maturities, payment
priorities, and interest rate provisions. The extent of the payments made with
respect to structured securities is dependent on the extent of the cash flow on
the underlying instruments. Because structured securities typically involve no
credit enhancement, their credit risk generally will be equivalent to that of
the underlying instruments. Structured securities are often offered in different
classes. As a result a given class of a structured security may be either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured securities typically have higher yields and present
greater risks than unsubordinated structured securities. Structured securities
are typically sold in private placement transactions, and at any given time
there may be no active trading market for a particular structured security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with structured investments include: Credit Risk and
Liquidity Risk.
SWAP AGREEMENTS
Swap agreements are typically individually negotiated agreements that obligate
two parties to exchange payments based on a reference to a specified asset,
reference rate or index. Swap agreements will tend to shift a party's investment
exposure from one type of investment to another. A swap agreement can increase
or decrease the volatility of a fund's investments and its net asset value.
Swap agreements are traded in the over-the-counter market and may be considered
to be illiquid. Swap agreements entail the risk that a party will default on its
payment obligations. A fund will enter into a swap agreement only if the claims-
paying ability of the other party or its guarantor is considered to be
investment grade by the investment manager. Generally, the unsecured senior debt
or the claims-paying ability of the other party or its guarantor must be rated
in one of the three highest rating categories of at least one Nationally
Recognized Statistical Rating Organization (NRSRO) at the time of entering into
the transaction. If there is a default by the other party to such a transaction,
a fund will have to rely on its contractual remedies (which may be limited by
bankruptcy, insolvency or similar laws) pursuant to the agreements related to
the transaction. In certain circumstances, a fund may seek to minimize
counterparty risk by requiring the counterparty to post collateral.
Swap agreements are usually entered into without an upfront payment because the
value of each party's position is the same. The market values of the underlying
commitments will change over time resulting in one of the commitments being
worth more than the other and the net market value creating a risk exposure for
one counterparty or the other.
Interest Rate Swaps. Interest rate swap agreements are often used to obtain or
preserve a desired return or spread at a lower cost than through a direct
investment in an instrument that yields the desired return or spread. They are
financial instruments that involve the exchange of one type of interest rate for
another type of interest rate cash flow on specified dates in the future. In a
standard interest rate swap transaction, two parties agree to exchange their
respective commitments to pay fixed or floating rates on a predetermined
specified (notional) amount. The swap agreement notional amount is the
predetermined basis for calculating the obligations that the swap counterparties
have agreed to exchange. Under most swap agreements, the obligations of the
parties are exchanged on a net basis. The two payment streams are netted out,
with each party receiving or paying, as the case may be, only the net amount of
the two payments. Interest rate swaps can be based on various measures of
interest rates, including LIBOR, swap rates, treasury rates and other foreign
interest rates.
Cross Currency Swaps. Cross currency swaps are similar to interest rate swaps,
except that they involve multiple currencies. A fund may enter into a currency
swap when it has exposure to one currency and desires exposure to a different
currency. Typically the interest rates that determine the currency swap payments
are fixed, although occasionally one or both parties may pay a floating rate of
interest. Unlike an interest rate swap, however, the principal amounts are
exchanged at the beginning of the contract and returned at the end of the
contract. In addition to paying and receiving amounts at the beginning and
termination of the agreements, both sides will also have to pay in full
periodically based upon the currency they have borrowed. Change in foreign
exchange rates and changes in interest rates, as described above, may negatively
affect currency swaps.
Total Return Swaps. Total return swaps are contracts in which one party agrees
to make periodic payments based on the change in market value of the underlying
assets, which may include a specified security, basket of securities or security
indexes during the specified period, in return for periodic payments based on a
fixed or variable interest rate of the total return from other underlying
assets. Total return swap agreements may be used to obtain exposure to a
security or market without owning or taking physical custody of such security or
market. For example, CMBS total return swaps are bilateral financial contracts
designed to replicate synthetically the total returns of commercial mortgage-
backed securities. In a typical
Statement of Additional Information - Nov. 29, 2007 Page 33
total return equity swap, payments made by the fund or the counterparty are
based on the total return of a particular reference asset or assets (such as an
equity security, a combination of such securities, or an index). That is, one
party agrees to pay another party the return on a stock, basket of stocks, or
stock index in return for a specified interest rate. By entering into an equity
index swap, for example, the index receiver can gain exposure to stocks making
up the index of securities without actually purchasing those stocks. Total
return swaps involve not only the risk associated with the investment in the
underlying securities, but also the risk of the counterparty not fulfilling its
obligations under the agreement.
Swaption Transaction. A swaption is an option on a swap agreement and a contract
that gives a counterparty the right (but not the obligation) to enter into a new
swap agreement or to shorten, extend, cancel or otherwise modify an existing
swap agreement, at some designated future time on specified terms, in return for
payment of the purchase price (the "premium") of the option. The fund may write
(sell) and purchase put and call swaptions to the same extent it may make use of
standard options on securities or other instruments. The writer of the contract
receives the premium and bears the risk of unfavorable changes in the market
value on the underlying swap agreement.
Swaptions can be bundled and sold as a package. These are commonly called
interest rate caps, floors and collars. In interest rate cap transactions, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or cap. Interest rate floor
transactions require one party, in exchange for a premium to agree to make
payments to the other to the extent that interest rates fall below a specified
level, or floor. In interest rate collar transactions, one party sells a cap and
purchases a floor, or vice versa, in an attempt to protect itself against
interest rate movements exceeding given minimum or maximum levels or collar
amounts.
Credit Default Swaps. Credit default swaps are contracts in which third party
credit risk is transferred from one party to another party by one party, the
protection buyer, making payments to the other party, the protection seller, in
return for the ability of the protection buyer to deliver a reference
obligation, or portfolio of reference obligations, to the protection seller upon
the occurrence of certain credit events relating to the issuer of the reference
obligation and receive the notional amount of the reference obligation from the
protection seller. A fund may use credit default swaps for various purposes
including to increase or decrease its credit exposure to various issuers. For
example, as a seller in a transaction, a fund could use credit default swaps as
a way of increasing investment exposure to a particular issuer's bonds in lieu
of purchasing such bonds directly. Similarly, as a buyer in a transaction, a
fund may use credit default swaps to hedge its exposure on bonds that it owns or
in lieu of selling such bonds. A credit default swap agreement may have as
reference obligations one or more securities that are not currently held by the
fund. The fund may be either the buyer or seller in the transaction. Credit
default swaps may also be structured based on the debt of a basket of issuers,
rather than a single issuer, and may be customized with respect to the default
event that triggers purchase or other factors. As a seller, the fund generally
receives an up front payment or a fixed rate of income throughout the term of
the swap, which typically is between six months and three years, provided that
there is no credit event. If a credit event occurs, generally the seller must
pay the buyer the full face amount of deliverable obligations of the reference
obligations that may have little or no value. If the fund is a buyer and no
credit event occurs, the fund recovers nothing if the swap is held through its
termination date. However, if a credit event occurs, the buyer may elect to
receive the full notional value of the swap in exchange for an equal face amount
of deliverable obligations of the reference obligation that may have little or
no value.
Credit default swap agreements can involve greater risks than if a fund had
invested in the reference obligation directly since, in addition to general
market risks, credit default swaps are subject to counterparty credit risk,
leverage risk, hedging risk, correlation risk and liquidity risk. A fund will
enter into credit default swap agreements only with counterparties that meet
certain standards of creditworthiness. A buyer generally also will lose its
investment and recover nothing should no credit event occur and the swap is held
to its termination date. If a credit event were to occur, the value of any
deliverable obligation received by the seller, coupled with the upfront or
periodic payments previously received, may be less than the full notional value
it pays to the buyer, resulting in a loss of value to the seller. A fund's
obligations under a credit default swap agreement will be accrued daily (offset
against any amounts owing to the fund). In connection with credit default swaps
in which a fund is the buyer, the fund will segregate or "earmark" cash or other
liquid assets, or enter into certain offsetting positions, with a value at least
equal to the fund's exposure (any accrued but unpaid net amounts owed by the
fund to any counterparty), on a marked-to-market basis. In connection with
credit default swaps in which a fund is the seller, the fund will segregate or
"earmark" cash or other liquid assets, or enter into offsetting positions, with
a value at least equal to the full notional amount of the swap (minus any
amounts owed to the fund). Such segregation or "earmarking" will ensure that the
fund has assets available to satisfy its obligations with respect to the
transaction. Such segregation or "earmarking" will not limit the fund's exposure
to loss.
The use of swap agreements by a fund entails certain risks, which may be
different from, or possibly greater than, the risks associated with investing
directly in the securities and other investments that are the referenced asset
for the swap agreement. Swaps are highly specialized instruments that require
investment techniques, risk analyses, and tax planning different from those
associated with stocks, bonds, and other traditional investments. The use of a
swap requires an understanding not only
Statement of Additional Information - Nov. 29, 2007 Page 34
of the referenced asset, reference rate, or index, but also of the swap itself,
without the benefit of observing the performance of the swap under all the
possible market conditions. Because some swap agreements have a leverage
component, adverse changes in the value or level of the underlying asset,
reference rate, or index can result in a loss substantially greater than the
amount invested in the swap itself. Certain swaps have the potential for
unlimited loss, regardless of the size of the initial investment.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with swaps include: Credit Risk, Liquidity Risk and
Market Risk.
VARIABLE- OR FLOATING-RATE SECURITIES
Variable-rate securities provide for automatic establishment of a new interest
rate at fixed intervals (daily, monthly, semiannually, etc.). Floating-rate
securities generally provide for automatic adjustment of the interest rate
whenever some specified interest rate index changes. Variable- or floating-rate
securities frequently include a demand feature enabling the holder to sell the
securities to the issuer at par. In many cases, the demand feature can be
exercised at any time. Some securities that do not have variable or floating
interest rates may be accompanied by puts producing similar results and price
characteristics. Variable-rate demand notes include master demand notes that are
obligations that permit the investor to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the
investor as lender, and the borrower. The interest rates on these notes
fluctuate from time to time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. Because
these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded.
There generally is not an established secondary market for these obligations.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, the lender's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and may involve
heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk.
WARRANTS
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Market Risk.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
When-issued securities and forward commitments involve a commitment to purchase
or sell specific securities at a predetermined price or yield in which payment
and delivery take place after the customary settlement period for that type of
security. Normally, the settlement date occurs within 45 days of the purchase
although in some cases settlement may take longer. The investor does not pay for
the securities or receive dividends or interest on them until the contractual
settlement date. Such instruments involve the risk of loss if the value of the
security to be purchased declines prior to the settlement date and the risk that
the security will not be issued as anticipated. If the security is not issued as
anticipated, a fund may lose the opportunity to obtain a price and yield
considered to be advantageous.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities and forward commitments
include: Credit Risk.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See Appendix A for a discussion of securities ratings.
Statement of Additional Information - Nov. 29, 2007 Page 35
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero-coupon, step-coupon, and pay-in-kind
securities include: Credit Risk and Interest Rate Risk.
A fund cannot issue senior securities but this does not prohibit certain
investment activities for which assets of the fund are set aside, or margin,
collateral or escrow arrangements are established, to cover the related
obligations. Examples of those activities include borrowing money, delayed-
delivery and when-issued securities transactions, and contracts to buy or sell
options, derivatives, and hedging instruments.
SECURITIES TRANSACTIONS
Except as otherwise noted, the description of policies and procedures in this
section also applies to any fund subadviser. Subject to policies set by the
Board, as well as the terms of the investment management agreements, the
investment manager or subadviser is authorized to determine, consistent with a
fund's investment objective and policies, which securities will be purchased,
held, or sold. In determining where the buy and sell orders are to be placed,
the investment manager has been directed to use its best efforts to obtain the
best available price and the most favorable execution except where otherwise
authorized by the Board.
Each fund, the investment manager, any subadviser and RiverSource Distributors,
Inc. (each a principal underwriter and distributor of the Funds) has a strict
Code of Ethics that prohibits affiliated personnel from engaging in personal
investment activities that compete with or attempt to take advantage of planned
portfolio transactions for the fund.
A fund's securities may be traded on an agency basis with brokers or dealers or
on a principal basis with dealers. In an agency trade, the broker-dealer
generally is paid a commission. In a principal trade, the investment manager
will trade directly with the issuer or with a dealer who buys or sells for its
own account, rather than acting on behalf of another client. The investment
manager generally does not pay the dealer a commission. Instead, the dealer's
profit, if any, is the difference, or spread, between the dealer's purchase and
sale price for the security.
BROKER-DEALER SELECTION
In selecting broker-dealers to execute transactions, the investment manager and
each subadviser will consider from among such factors as the ability to minimize
trading costs, trading expertise, infrastructure, ability to provide information
or services, financial condition, confidentiality, competitiveness of commission
rates, evaluations of execution quality, promptness of execution, past history,
ability to prospect for and find liquidity, difficulty of trade, security's
trading characteristics, size of order, liquidity of market, block trading
capabilities, quality of settlement, specialized expertise, overall
responsiveness, willingness to commit capital and research services provided.
The Board has adopted a policy prohibiting the investment manager, or any
subadviser, from considering sales of shares of the funds as a factor in the
selection of broker-dealers through which to execute securities transactions.
On a periodic basis, the investment manager makes a comprehensive review of the
broker-dealers and the overall reasonableness of their commissions, including
review by an independent third-party evaluator. The review evaluates execution,
operational efficiency, and research services.
COMMISSION DOLLARS
Broker-dealers typically provide a bundle of services including research and
execution of transactions. The research provided can be either proprietary
(created and provided by the broker-dealer) or third party (created by a third
party but provided by the broker-dealer). Consistent with the interests of the
fund, the investment manager and each subadviser may use broker-dealers who
provide both types of research products and services in exchange for
commissions, known as "soft dollars," generated by transactions in fund
accounts.
The receipt of research and brokerage products and services is used by the
investment manager, and by each subadviser, to the extent it engages in such
transactions, to supplement its own research and analysis activities, by
receiving the views and information of individuals and research staffs of other
securities firms, and by gaining access to specialized expertise on individual
companies, industries, areas of the economy and market factors. Research and
brokerage products and services may include reports on the economy, industries,
sectors and individual companies or issuers; statistical information; accounting
and tax law interpretations; political analyses; reports on legal developments
affecting portfolio securities; information on technical market actions; credit
analyses; on-line quotation systems; risk measurement; analyses of corporate
responsibility issues; on-line news services; and financial and market database
services. Research services may be used by the investment manager in providing
advice to all RiverSource funds (or by any subadviser to any other client of the
subadviser) even though it is not possible to relate the benefits to any
particular fund.
Statement of Additional Information - Nov. 29, 2007 Page 36
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 or subadviser determines, in
good faith, that such commission is reasonable in relation to the value of the
brokerage or research services provided by a broker or dealer, viewed either in
the light of that transaction or the investment manager's or subadviser's
overall responsibilities with respect to a fund and the other funds or accounts
for which it acts as investment manager (or by any subadviser to any other
client of that subadviser).
As a result of these arrangements, some portfolio transactions may not be
effected at the lowest commission, but overall execution may be better. The
investment manager and each subadviser have represented that under its
procedures the amount of commission paid will be reasonable and competitive in
relation to the value of the brokerage services and research products and
services provided.
The investment manager or a subadviser may use step-out transactions. A "step-
out" is an arrangement in which the investment manager or subadviser executes a
trade through one broker-dealer but instructs that broker-dealer to step-out all
or a part of the trade to another broker-dealer. The second broker-dealer will
clear and settle, and receive commissions for, the stepped-out portion. The
investment manager or subadviser may receive research products and services in
connection with step-out transactions.
Use of fund commissions may create potential conflicts of interest between the
investment manager or subadviser and a fund. However, the investment manager and
each subadviser has policies and procedures in place intended to mitigate these
conflicts and ensure that the use of soft dollars falls within the "safe harbor"
of Section 28(e) of the Securities Exchange Act of 1934. Some products and
services may be used for both investment decision-making and non-investment
decision-making purposes ("mixed use" items). The investment manager and each
subadviser, to the extent it has mixed use items, has procedures in place to
assure that soft dollars pay only for the investment decision-making portion of
a mixed-use item.
TRADE AGGREGATION AND ALLOCATION
Generally, orders are processed and executed in the order received. When a fund
buys or sells the same security as another portfolio, fund, or account, the
investment manager or subadviser carries out the purchase or sale pursuant to
policies and procedures designed in such a way believed to be fair to the fund.
Purchase and sale orders may be combined or aggregated for more than one account
if it is believed it would be consistent with best execution. Aggregation may
reduce commission costs or market impact on a per-share and per-dollar basis,
although aggregation may have the opposite effect. There may be times when not
enough securities are received to fill an aggregated order, including in an
initial public offering, involving multiple accounts. In that event, the
investment manager and each subadviser has policies and procedures designed in
such a way believed to result in a fair allocation among accounts, including the
fund.
From time to time, different portfolio managers with the investment manager may
make differing investment decisions related to the same security. However, with
certain exceptions for funds managed using strictly quantitative methods, a
portfolio manager or portfolio management team may not sell a security short if
the security is owned in another portfolio managed by that portfolio manager or
portfolio management team. On occasion, a fund may purchase and sell a security
simultaneously in order to profit from short-term price disparities.
The investment manager has portfolio management teams in its Minneapolis and Los
Angeles offices that may share research information regarding leveraged loans.
The investment manager operates separate and independent trading desks in these
locations for the purpose of purchasing and selling leveraged loans. As a
result, the investment manager does not aggregate orders in leveraged loans
across portfolio management teams. For example, funds and other client accounts
being managed by these portfolio management teams may purchase and sell the same
leveraged loan in the secondary market on the same day at different times and at
different prices. There is also the potential for a particular account or group
of accounts, including a fund, to forego an opportunity or to receive a
different allocation (either larger or smaller) than might otherwise be obtained
if the investment manager were to aggregate trades in leveraged loans across the
portfolio management teams. Although the investment manager does not aggregate
orders in leveraged loans across its portfolio management teams in Minneapolis
and Los Angeles, it operates in this structure subject to its duty to seek best
execution.
Statement of Additional Information - Nov. 29, 2007 Page 37
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 4. TOTAL BROKERAGE COMMISSIONS
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------
TOTAL BROKERAGE COMMISSIONS
- -------------------------------------------------------------------------------------------------
FUND 2007 2006 2005
- -------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- -------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive $ 0 $ 0 $ 0(a)
- -------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 0 0 0(a)
- -------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 0 0 0(a)
- -------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive 0 0 0(a)
- -------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative 0 0 0(a)
- -------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 0 0 0(a)
- -------------------------------------------------------------------------------------------------
S&P 500 Index 21,050 22,575 49,048
- -------------------------------------------------------------------------------------------------
Small Company Index 56,843 78,951 37,118
- -------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- -------------------------------------------------------------------------------------------------
Equity Value 773,828 721,284 858,846
- -------------------------------------------------------------------------------------------------
Precious Metals and Mining 494,184 801,550 1,245,421
- -------------------------------------------------------------------------------------------------
Small Cap Advantage 7,171,421 3,938,697 3,294,757
- -------------------------------------------------------------------------------------------------
Small Cap Growth 1,543,208 1,410,791 2,105,168
- -------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- -------------------------------------------------------------------------------------------------
Retirement Plus 2010 0(b) N/A N/A
- -------------------------------------------------------------------------------------------------
Retirement Plus 2015 0(b) N/A N/A
- -------------------------------------------------------------------------------------------------
Retirement Plus 2020 0(b) N/A N/A
- -------------------------------------------------------------------------------------------------
Retirement Plus 2025 0(b) N/A N/A
- -------------------------------------------------------------------------------------------------
Retirement Plus 2030 0(b) N/A N/A
- -------------------------------------------------------------------------------------------------
Retirement Plus 2035 0(b) N/A N/A
- -------------------------------------------------------------------------------------------------
Retirement Plus 2040 0(b) N/A N/A
- -------------------------------------------------------------------------------------------------
Retirement Plus 2045 0(b) N/A N/A
- -------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- -------------------------------------------------------------------------------------------------
Aggressive Growth 2,321,264 964,028 181,981
- -------------------------------------------------------------------------------------------------
Fundamental Growth 450,943 178,639 180,023
- -------------------------------------------------------------------------------------------------
Fundamental Value 217,139 346,840 314,501
- -------------------------------------------------------------------------------------------------
High Yield Bond 0 0 0
- -------------------------------------------------------------------------------------------------
Income Builder Basic Income 0 0(c) N/A
- -------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 0 0(c) N/A
- -------------------------------------------------------------------------------------------------
Income Builder Moderate Income 0 0(c) N/A
- -------------------------------------------------------------------------------------------------
Select Value 3,361,507 445,429 310,913
- -------------------------------------------------------------------------------------------------
Short Duration U.S. Government 42,504 24,483 95,868
- -------------------------------------------------------------------------------------------------
Small Cap Equity 910,341 703,172 429,969
- -------------------------------------------------------------------------------------------------
Small Cap Value 2,844,320 2,860,490 2,439,209
- -------------------------------------------------------------------------------------------------
U.S. Government Mortgage 10,386 6,379 10,708
- -------------------------------------------------------------------------------------------------
Value 355,088 297,507 363,273
- -------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- -------------------------------------------------------------------------------------------------
Dividend Opportunity 576,524 456,446 621,168
- -------------------------------------------------------------------------------------------------
Real Estate 187,309 152,782 185,877
- -------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 38
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------
TOTAL BROKERAGE COMMISSIONS
- -------------------------------------------------------------------------------------------------
FUND 2007 2006 2005
- -------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- -------------------------------------------------------------------------------------------------
Cash Management 0 0 0
- -------------------------------------------------------------------------------------------------
Core Bond 7,599 4,241 3,612
- -------------------------------------------------------------------------------------------------
Disciplined Equity 1,577,337 987,624 35,948
- -------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity 156,759 8,916(d) N/A
- -------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 64,928 33,110(e) N/A
- -------------------------------------------------------------------------------------------------
Floating Rate 0 0(e) N/A
- -------------------------------------------------------------------------------------------------
Growth 12,096,184 10,375,981 15,623,111
- -------------------------------------------------------------------------------------------------
Income Opportunities 0 0 0
- -------------------------------------------------------------------------------------------------
Inflation Protected Securities 0 0 0
- -------------------------------------------------------------------------------------------------
Large Cap Equity 15,040,354 7,940,223 6,832,334
- -------------------------------------------------------------------------------------------------
Large Cap Value 88,935 138,363 189,029
- -------------------------------------------------------------------------------------------------
Limited Duration Bond 5,172 4,006 3,268
- -------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- -------------------------------------------------------------------------------------------------
California Tax-Exempt(f) 4,143 666 0
- -------------------------------------------------------------------------------------------------
Diversified Bond 91,815 108,055 161,336
- -------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt(f) 1,191 225 0
- -------------------------------------------------------------------------------------------------
Michigan Tax-Exempt(f) 1,029 189 0
- -------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt(f) 7,293 1,254 0
- -------------------------------------------------------------------------------------------------
New York Tax-Exempt(f) 1,524 255 0
- -------------------------------------------------------------------------------------------------
Ohio Tax-Exempt(f) 1,020 180 0
- -------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- -------------------------------------------------------------------------------------------------
Balanced 567,773 1,071,452 1,135,795
- -------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 45,978(g) N/A N/A
- -------------------------------------------------------------------------------------------------
Diversified Equity Income 3,790,954 2,923,490 3,191,513
- -------------------------------------------------------------------------------------------------
Mid Cap Value 1,219,474 1,354,225 919,813
- -------------------------------------------------------------------------------------------------
Strategic Allocation 1,425,483 1,494,804 502,448
- -------------------------------------------------------------------------------------------------
Strategic Income Allocation 6,639(g) N/A N/A
- -------------------------------------------------------------------------------------------------
<Caption>
2006 2005 2004
- -------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- -------------------------------------------------------------------------------------------------
Absolute Return Currency and Income 0(h) N/A N/A
- -------------------------------------------------------------------------------------------------
Disciplined International Equity 60,738(i) N/A N/A
- -------------------------------------------------------------------------------------------------
Emerging Markets 3,017,380 2,388,169 2,022,969
- -------------------------------------------------------------------------------------------------
Emerging Markets Bond 0(j) N/A N/A
- -------------------------------------------------------------------------------------------------
European Equity 160,239 211,729 324,079
- -------------------------------------------------------------------------------------------------
Global Bond 9,664 8,856 7,760
- -------------------------------------------------------------------------------------------------
Global Equity 1,249,847 1,393,982 1,992,985
- -------------------------------------------------------------------------------------------------
Global Technology 1,237,181 1,170,244 4,193,021
- -------------------------------------------------------------------------------------------------
International Aggressive Growth 1,179,455 673,010 598,644
- -------------------------------------------------------------------------------------------------
International Equity 405,405 556,407 315,047
- -------------------------------------------------------------------------------------------------
International Opportunity 989,118 1,320,088 1,303,677
- -------------------------------------------------------------------------------------------------
International Select Value 1,533,794 1,027,065 839,270
- -------------------------------------------------------------------------------------------------
International Small Cap 405,190 241,558 179,076
- -------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 39
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------
TOTAL BROKERAGE COMMISSIONS
- -------------------------------------------------------------------------------------------------
FUND 2006 2005 2004
- -------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- -------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 438 0 0
- -------------------------------------------------------------------------------------------------
Mid Cap Growth 1,867,241 1,764,250 1,630,670
- -------------------------------------------------------------------------------------------------
Tax-Exempt Bond 4,257 0 0
- -------------------------------------------------------------------------------------------------
Tax-Exempt High Income 17,679 0 0
- -------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- -------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 0 0 0
- -------------------------------------------------------------------------------------------------
</Table>
(a) For the period from March 4, 2004 (when shares became publicly available)
to Jan. 31, 2005.
(b) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(c) For the period from Feb. 16, 2006 (when shares became publicly available)
to May 31, 2006.
(d) For the period from May 18, 2006 (when shares became publicly available)
to July 31, 2006.
(e) For the period from Feb. 16, 2006 (when shares became publicly available)
to July 31, 2006.
(f) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For
2006, the information shown is for the period from July 1, 2005 through
Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June
30.
(g) For the period from May 17, 2007 (when shares became publicly available)
to Sept. 30, 2007.
(h) For the period from June 15, 2006 (when the Fund became available) to
Oct. 31, 2006.
(i) For the period from May 18, 2006 (when shares became publicly available)
to Oct. 31, 2006.
(j) For the period from Feb. 16, 2006 (when shares became publicly available)
to Oct. 31, 2006.
Statement of Additional Information - Nov. 29, 2007 Page 40
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 5. BROKERAGE DIRECTED FOR RESEARCH AND TURNOVER RATES
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------
BROKERAGE DIRECTED FOR
RESEARCH*
---------------------------------------------
AMOUNT OF
COMMIS-
SIONS TURNOVER RATES
AMOUNT OF IMPUTED OR -----------------------
FUND TRANSACTIONS PAID 2007 2006
- ----------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY
31
- ----------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive $ 0 $ 0 40% 24%
- ----------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 0 0 54 23
- ----------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 0 0 24 15
- ----------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive 0 0 29 20
- ----------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative 0 0 24 19
- ----------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 0 0 27 17
- ----------------------------------------------------------------------------------------------------
S&P 500 Index 0 0 20 7
- ----------------------------------------------------------------------------------------------------
Small Company Index 0 0 11 14
- ----------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH
31
- ----------------------------------------------------------------------------------------------------
Equity Value 149,974,876 177,268 37 28
- ----------------------------------------------------------------------------------------------------
Precious Metals and Mining 50,835,902 81,165 114 111
- ----------------------------------------------------------------------------------------------------
Small Cap Advantage 101,241,760 195,280 158 110
- ----------------------------------------------------------------------------------------------------
Small Cap Growth 22,409,122 241,054 119 152
- ----------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL
30
- ----------------------------------------------------------------------------------------------------
Retirement Plus 2010 0(a) 0(a) 80(a) N/A
- ----------------------------------------------------------------------------------------------------
Retirement Plus 2015 0(a) 0(a) 48(a) N/A
- ----------------------------------------------------------------------------------------------------
Retirement Plus 2020 0(a) 0(a) 40(a) N/A
- ----------------------------------------------------------------------------------------------------
Retirement Plus 2025 0(a) 0(a) 37(a) N/A
- ----------------------------------------------------------------------------------------------------
Retirement Plus 2030 0(a) 0(a) 32(a) N/A
- ----------------------------------------------------------------------------------------------------
Retirement Plus 2035 0(a) 0(a) 38(a) N/A
- ----------------------------------------------------------------------------------------------------
Retirement Plus 2040 0(a) 0(a) 33(a) N/A
- ----------------------------------------------------------------------------------------------------
Retirement Plus 2045 0(a) 0(a) 57(a) N/A
- ----------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ----------------------------------------------------------------------------------------------------
Aggressive Growth 96,699,167 94,353 163 202
- ----------------------------------------------------------------------------------------------------
Fundamental Growth 6,695,654 5,849 85 62
- ----------------------------------------------------------------------------------------------------
Fundamental Value 0 0 12 20
- ----------------------------------------------------------------------------------------------------
High Yield Bond 0 0 95 93
- ----------------------------------------------------------------------------------------------------
Income Builder Basic Income 0 0 27 1(b)
- ----------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 0 0 27 N/A(b)
- ----------------------------------------------------------------------------------------------------
Income Builder Moderate Income 0 0 29 N/A(b)
- ----------------------------------------------------------------------------------------------------
Select Value 187,860,272 553,344 159(c) 7
- ----------------------------------------------------------------------------------------------------
Short Duration U.S. Government 0 0 168 194
- ----------------------------------------------------------------------------------------------------
Small Cap Equity 5,987,119 7,391 70 88
- ----------------------------------------------------------------------------------------------------
Small Cap Value 61,919,111 69,119 58 77
- ----------------------------------------------------------------------------------------------------
U.S. Government Mortgage 0 0 306(d) 178
- ----------------------------------------------------------------------------------------------------
Value 0 0 77 46
- ----------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 41
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------
BROKERAGE DIRECTED FOR
RESEARCH*
---------------------------------------------
AMOUNT OF
COMMIS-
SIONS TURNOVER RATES
AMOUNT OF IMPUTED OR -----------------------
FUND TRANSACTIONS PAID 2007 2006
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ----------------------------------------------------------------------------------------------------
Dividend Opportunity $ 58,801,149 $ 66,674 17% 19%
- ----------------------------------------------------------------------------------------------------
Real Estate 3,614,424 3,275 38 47
- ----------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ----------------------------------------------------------------------------------------------------
Cash Management 0 0 N/A N/A
- ----------------------------------------------------------------------------------------------------
Core Bond 0 0 347(d) 301(d)
- ----------------------------------------------------------------------------------------------------
Disciplined Equity 0 0 62 137
- ----------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity 0 0 84 14(e)
- ----------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 0 0 127 40((f))
- ----------------------------------------------------------------------------------------------------
Floating Rate 0 0 91 49(f)
- ----------------------------------------------------------------------------------------------------
Growth 762,587,614 1,162,241 98 134
- ----------------------------------------------------------------------------------------------------
Income Opportunities 0 0 122 130
- ----------------------------------------------------------------------------------------------------
Inflation Protected Securities 0 0 76 58
- ----------------------------------------------------------------------------------------------------
Large Cap Equity 1,230,239,400 1,509,554 66 116
- ----------------------------------------------------------------------------------------------------
Large Cap Value 11,935,452 14,090 35 46
- ----------------------------------------------------------------------------------------------------
Limited Duration Bond 0 0 263 328(d)
- ----------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST
31
- ----------------------------------------------------------------------------------------------------
California Tax-Exempt(g) 0 0 62 7
- ----------------------------------------------------------------------------------------------------
Diversified Bond 0 0 295 281(d)
- ----------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt(g) 0 0 24 5
- ----------------------------------------------------------------------------------------------------
Michigan Tax-Exempt(g) 0 0 20 6
- ----------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt(g) 0 0 26 3
- ----------------------------------------------------------------------------------------------------
New York Tax-Exempt(g) 0 0 28 7
- ----------------------------------------------------------------------------------------------------
Ohio Tax-Exempt(g) 0 0 27 7
- ----------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING
SEPTEMBER 30
- ----------------------------------------------------------------------------------------------------
Balanced 15,439,643 25,217 124 126
- ----------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 0(h) 0(h) 21 N/A
- ----------------------------------------------------------------------------------------------------
Diversified Equity Income 51,961,586 37,213 31 28
- ----------------------------------------------------------------------------------------------------
Mid Cap Value 46,244,554 41,155 24 44
- ----------------------------------------------------------------------------------------------------
Strategic Allocation 0 0 123 122
- ----------------------------------------------------------------------------------------------------
Strategic Income Allocation 0(h) 0(h) 70 N/A
- ----------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 42
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------
BROKERAGE DIRECTED FOR
RESEARCH*
---------------------------------------------
AMOUNT OF
COMMIS-
SIONS TURNOVER RATES
AMOUNT OF IMPUTED OR -----------------------
FUND TRANSACTIONS PAID 2006 2005
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER
31
- ----------------------------------------------------------------------------------------------------
Absolute Return Currency and Income $ 0(i) $ 0(i) 12%((i)) N/A
- ----------------------------------------------------------------------------------------------------
Disciplined International Equity 0(j) 0(j) 10(j) N/A
- ----------------------------------------------------------------------------------------------------
Emerging Markets 0 0 145 124%
- ----------------------------------------------------------------------------------------------------
Emerging Markets Bond 0(k) 0(k) 32(k) N/A
- ----------------------------------------------------------------------------------------------------
European Equity 0 0 64 56
- ----------------------------------------------------------------------------------------------------
Global Bond 0 0 68 73
- ----------------------------------------------------------------------------------------------------
Global Equity 0 0 112 93
- ----------------------------------------------------------------------------------------------------
Global Technology 46,300,781 102,562 196 115
- ----------------------------------------------------------------------------------------------------
International Aggressive Growth 161,063,936 322,717 124 67
- ----------------------------------------------------------------------------------------------------
International Equity 10,571,131 11,011 89 110
- ----------------------------------------------------------------------------------------------------
International Opportunity 0 0 79 93
- ----------------------------------------------------------------------------------------------------
International Select Value 1,621,115 3,763 31 22
- ----------------------------------------------------------------------------------------------------
International Small Cap 2,518,662 4,542 157 80
- ----------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING
NOVEMBER 30
- ----------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 0 0 35 16
- ----------------------------------------------------------------------------------------------------
Mid Cap Growth 605,235,287 656,125 45 27
- ----------------------------------------------------------------------------------------------------
Tax-Exempt Bond 0 0 32 29
- ----------------------------------------------------------------------------------------------------
Tax-Exempt High Income 0 0 30 30
- ----------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING
DECEMBER 31
- ----------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 0 0 N/A N/A
- ----------------------------------------------------------------------------------------------------
</Table>
* Reported numbers include third party soft dollar commissions and
portfolio manager directed commissions directed for research. RiverSource
also receives proprietary research from brokers, but because these are
bundled commissions for which the research portion is not distinguishable
from the execution portion, their amounts have not been included in the
table.
(a) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(b) For the period from Feb. 16, 2006 (when shares became publicly available)
to May 31, 2006.
(c) The turnover rate increase from 2006 was the result of a change in
subadvisers during the fiscal period.
(d) A significant portion of the turnover was the result of "roll"
transactions in the liquid derivatives and Treasury securities. In the
derivative transactions, positions in expiring contracts are liquidated
and simultaneously replaced with positions in new contracts with
equivalent characteristics. In the Treasury transactions, existing
holdings are sold to purchase newly issued securities with slightly
longer maturity dates. Although these transactions affect the turnover
rate of the portfolio, they do not change the risk exposure or result in
material transaction costs. The remaining turnover resulted from
strategic reallocations and relative value trading. After transaction
costs, we expect this activity to enhance the returns on the overall
fund.
(e) For the period from May 18, 2006 (when shares became publicly available)
to July 31, 2006.
(f) For the period from Feb. 16, 2006 (when shares became publicly available)
to July 31, 2006.
(g) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For
2006, the information shown is for the period from July 1, 2005 through
Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June
30.
(h) For the period from May 17, 2007 (when shares became publicly available)
to Sept. 30, 2007.
(i) For the period from June 15, 2006 (when the Fund became available) to
Oct. 31, 2006.
(j) For the period from May 18, 2006 (when shares became publicly available)
to Oct. 31, 2006.
(k) For the period from Feb. 16, 2006 (when shares became publicly available)
to Oct. 31, 2006.
Statement of Additional Information - Nov. 29, 2007 Page 43
As of the end of the most recent fiscal period, the fund held securities of its
regular brokers or dealers or of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities as
presented below. The table is organized by fiscal year end. You can find your
fund's fiscal year end in Table 1.
TABLE 6. SECURITIES OF REGULAR BROKERS OR DEALERS
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER 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
- --------------------------------------------------------------------------------------------------------------------
S&P 500 Index Ameriprise Financial $ 323,985
--------------------------------------------------------------------
Bear Stearns Companies 439,490
--------------------------------------------------------------------
Charles Schwab 439,549
--------------------------------------------------------------------
Citigroup 6,152,453
--------------------------------------------------------------------
E*Trade Financial 236,486
--------------------------------------------------------------------
Franklin Resources 450,831
--------------------------------------------------------------------
Goldman Sachs Group 2,051,800
--------------------------------------------------------------------
Legg Mason 312,453
--------------------------------------------------------------------
Lehman Brothers Holdings 990,499
--------------------------------------------------------------------
JP Morgan Chase & Co. 4,012,826
--------------------------------------------------------------------
Merrill Lynch & Co. 1,878,217
--------------------------------------------------------------------
Morgan Stanley 1,990,354
--------------------------------------------------------------------
PNC Financial Services Group 492,267
- --------------------------------------------------------------------------------------------------------------------
Small Company Index Investment Technology Group 3,392,515
--------------------------------------------------------------------
LaBranche & Co. 884,769
--------------------------------------------------------------------
Piper Jaffray Companies 2,287,085
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- --------------------------------------------------------------------------------------------------------------------
Equity Value Citigroup 41,244,194
--------------------------------------------------------------------
Goldman Sachs Group 4,048,708
--------------------------------------------------------------------
Lehman Brothers Holdings 7,011,695
--------------------------------------------------------------------
Merrill Lynch & Co. 14,403,403
--------------------------------------------------------------------
Morgan Stanley 6,529,834
- --------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining None N/A
- --------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Knight Capital Group CI A 1,919,159
--------------------------------------------------------------------
Piper Jaffray Companies 1,300,740
- --------------------------------------------------------------------------------------------------------------------
Small Cap Growth None N/A
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- --------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 None N/A
- --------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 None N/A
- --------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 None N/A
- --------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 None N/A
- --------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 None N/A
- --------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 None N/A
- --------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 None N/A
- --------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 None N/A
- --------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 44
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER END OF FISCAL PERIOD
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- --------------------------------------------------------------------------------------------------------------------
Aggressive Growth Affiliated Managers Group $ 3,679,452
- --------------------------------------------------------------------------------------------------------------------
Fundamental Growth Charles Schwab 3,187,594
--------------------------------------------------------------------
Franklin Resources 2,099,898
--------------------------------------------------------------------
Goldman Sachs Group 888,657
--------------------------------------------------------------------
Legg Mason 2,427,751
--------------------------------------------------------------------
Morgan Stanley 1,225,426
- --------------------------------------------------------------------------------------------------------------------
Fundamental Value Citigroup 23,790,334
--------------------------------------------------------------------
E*TRADE Financial 1,609,440
--------------------------------------------------------------------
JP Morgan Chase & Co. 48,483,855
--------------------------------------------------------------------
Morgan Stanley 8,342,424
- --------------------------------------------------------------------------------------------------------------------
High Yield Bond LaBranche & Co. 9,982,753
- --------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income None N/A
- --------------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income None N/A
- --------------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income None N/A
- --------------------------------------------------------------------------------------------------------------------
Select Value AG Edwards 5,069,200
- --------------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government None N/A
- --------------------------------------------------------------------------------------------------------------------
Small Cap Equity optionsXpress Holdings 1,681,680
- --------------------------------------------------------------------------------------------------------------------
Small Cap Value Knight Capital Group Cl A 2,333,388
- --------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage None N/A
- --------------------------------------------------------------------------------------------------------------------
Value Charles Schwab 3,076,143
--------------------------------------------------------------------
Citigroup 17,197,044
--------------------------------------------------------------------
JP Morgan Chase & Co. 7,665,450
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- --------------------------------------------------------------------------------------------------------------------
Dividend Opportunity Citigroup 70,149,025
--------------------------------------------------------------------
Goldman Sachs Group 40,014,728
--------------------------------------------------------------------
JP Morgan Chase & Co. 30,705,333
--------------------------------------------------------------------
PNC Financial Services Group 4,844,463
- --------------------------------------------------------------------------------------------------------------------
Real Estate None N/A
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- --------------------------------------------------------------------------------------------------------------------
Cash Management Bear Stearns Companies $100,000,000
--------------------------------------------------------------------
Citigroup Funding 201,473,973
--------------------------------------------------------------------
Credit Suisse NY 149,000,000
--------------------------------------------------------------------
Goldman Sachs Group 25,000,000
--------------------------------------------------------------------
Lehman Brothers 40,000,000
--------------------------------------------------------------------
Merrill Lynch & Co. 118,000,000
- --------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 45
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER END OF FISCAL PERIOD
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Core Bond Bear Stearns Adjustable Rate Mortgage
Trust $ 432,111
--------------------------------------------------------------------
Bear Stearns Commercial Mtg Securities 1,066,250
--------------------------------------------------------------------
Citigroup 2,280,910
--------------------------------------------------------------------
Citigroup Commercial Mtge Trust 216,042
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mtge Trust 171,454
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 370,162
--------------------------------------------------------------------
CS First Boston Mtge Securities 261,282
--------------------------------------------------------------------
Goldman Sachs Group 1,222,356
--------------------------------------------------------------------
GS Mtge Securities II 2,711,489
--------------------------------------------------------------------
JP Morgan Chase Commercial Mtge
Securities 4,093,282
--------------------------------------------------------------------
JP Morgan Chase & Co. 2,055,760
--------------------------------------------------------------------
LB-UBS Commercial Mtge Trust 3,404,979
--------------------------------------------------------------------
Lehman Brothers Holdings 2,683,709
--------------------------------------------------------------------
Merrill Lynch & Co. 1,810,546
--------------------------------------------------------------------
Merrill Lynch Mtge Trust 1,241,879
--------------------------------------------------------------------
Morgan Stanley 2,631,963
--------------------------------------------------------------------
Morgan Stanley Capital I 1,795,243
- --------------------------------------------------------------------------------------------------------------------
Disciplined Equity Bear Stearns Companies 3,879,525
--------------------------------------------------------------------
Citigroup 45,535,774
--------------------------------------------------------------------
Franklin Resources 19,854,945
--------------------------------------------------------------------
Legg Mason 2,387,070
--------------------------------------------------------------------
Lehman Brothers Holdings 20,371,030
--------------------------------------------------------------------
Merrill Lynch & Co. 31,642,070
--------------------------------------------------------------------
Morgan Stanley 18,527,729
- --------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value Knight Capital Group Cl A 89,817
- --------------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity Eaton Vance 456,022
--------------------------------------------------------------------
Knight Capital Group Cl A 328,402
--------------------------------------------------------------------
Raymond James Financial 233,061
- --------------------------------------------------------------------------------------------------------------------
Floating Rate Ameritrade Holding Corp. 738,427
--------------------------------------------------------------------
Lehman Brothers Holdings 998,702
- --------------------------------------------------------------------------------------------------------------------
Growth Goldman Sachs Group 12,504,458
- --------------------------------------------------------------------------------------------------------------------
Income Opportunities None N/A
- --------------------------------------------------------------------------------------------------------------------
Inflation Protected Securities None N/A
- --------------------------------------------------------------------------------------------------------------------
Large Cap Equity Bear Stearns Companies 2,330,697
--------------------------------------------------------------------
Charles Schwab 2,492,859
--------------------------------------------------------------------
Citigroup 106,570,927
--------------------------------------------------------------------
Franklin Resources 8,476,601
--------------------------------------------------------------------
Goldman Sachs Group 26,394,909
--------------------------------------------------------------------
JP Morgan Chase & Co. 63,976,941
--------------------------------------------------------------------
Lehman Brothers Holdings 25,839,616
--------------------------------------------------------------------
Merrill Lynch & Co. 29,621,901
--------------------------------------------------------------------
Morgan Stanley 30,252,473
--------------------------------------------------------------------
PNC Financial Services Group 10,560,693
- --------------------------------------------------------------------------------------------------------------------
Large Cap Value Citigroup 3,230,654
--------------------------------------------------------------------
Franklin Resources 97,948
--------------------------------------------------------------------
Goldman Sachs Group 277,425
--------------------------------------------------------------------
JP Morgan Chase & Co. 1,855,242
--------------------------------------------------------------------
Lehman Brothers Holdings 969,617
--------------------------------------------------------------------
Merrill Lynch & Co. 896,559
--------------------------------------------------------------------
Morgan Stanley 910,020
--------------------------------------------------------------------
PNC Financial Services Group 323,119
- --------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 46
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER END OF FISCAL PERIOD
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Limited Duration Bond Bear Stearns Adjustable Rate Mortgage
Trust $ 336,086
--------------------------------------------------------------------
Bear Stearns Commercial Mtg Securities 657,725
--------------------------------------------------------------------
ChaseFlex Trust 298,088
--------------------------------------------------------------------
Citigroup 954,800
--------------------------------------------------------------------
Citigroup Commercial Mtge Trust 243,047
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mtge Trust 171,454
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 345,484
--------------------------------------------------------------------
CS First Boston Mtge Securities 599,807
--------------------------------------------------------------------
Goldman Sachs Group 487,995
--------------------------------------------------------------------
JP Morgan Chase Commercial Mtge
Securities 2,601,062
--------------------------------------------------------------------
JP Morgan Chase & Co. 878,139
--------------------------------------------------------------------
LB-UBS Commercial Mtge Trust 1,509,848
--------------------------------------------------------------------
Lehman Brothers Holdings 1,376,086
--------------------------------------------------------------------
Merrill Lynch & Co. 796,261
--------------------------------------------------------------------
Morgan Stanley 1,480,778
--------------------------------------------------------------------
Morgan Stanley Capital 1 560,613
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- --------------------------------------------------------------------------------------------------------------------
California Tax-Exempt None N/A
- --------------------------------------------------------------------------------------------------------------------
Diversified Bond Bear Stearns Adjustable Rate Mortgage
Trust 19,075,663
--------------------------------------------------------------------
Bear Stearns Commercial Mtg Securities 7,716,075
--------------------------------------------------------------------
Citigroup 13,476,047
--------------------------------------------------------------------
Citigroup Commercial Mtge Trust 17,776,577
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mtge Trust 3,011,088
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 10,812,580
--------------------------------------------------------------------
CS First Boston Mtge Securities 12,942,077
--------------------------------------------------------------------
GS Mortgate Securities II 30,427,394
--------------------------------------------------------------------
JP Morgan Chase Commercial Mtge
Securities 57,292,644
--------------------------------------------------------------------
JP Morgan Chase & Co. 10,280,773
--------------------------------------------------------------------
LB-UBS Commercial Mtge Trust 44,205,393
--------------------------------------------------------------------
Lehman Brothers Holdings 22,673,032
--------------------------------------------------------------------
Morgan Stanley 10,666,759
--------------------------------------------------------------------
Morgan Stanley Capital 1 18,466,575
--------------------------------------------------------------------
Morgan Stanley Mtge Loan Trust 16,611,510
- --------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 47
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER END OF FISCAL PERIOD
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- --------------------------------------------------------------------------------------------------------------------
Balanced Bear Stearns Adjustable Rate Mortgage
Trust $ 2,496,100
--------------------------------------------------------------------
--------------------------------------------------------------------
Bear Stearns Commercial Mtg Securities 1,691,784
--------------------------------------------------------------------
Bear Stearns Companies 1,085,518
--------------------------------------------------------------------
ChaseFlex Trust 1,218,953
--------------------------------------------------------------------
Citigroup 22,798,902
--------------------------------------------------------------------
Citigroup Commercial Mtge Trust 2,222,407
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mtge Trust 373,105
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 2,277,560
--------------------------------------------------------------------
CS First Boston Mtge Securities 1,532,621
--------------------------------------------------------------------
Franklin Resources 690,285
--------------------------------------------------------------------
Goldman Sachs Group 3,073,590
--------------------------------------------------------------------
GS Mortgage Securities II 3,840,950
--------------------------------------------------------------------
JP Morgan Chase & Co. 13,601,575
--------------------------------------------------------------------
JP Morgan Chase Commercial Mtge
Securities 8,999,129
--------------------------------------------------------------------
LB-UBS Commercial Mtge Trust 4,585,816
--------------------------------------------------------------------
Lehman Brothers Holdings 10,279,588
--------------------------------------------------------------------
Merrill Lynch & Co. 6,435,372
--------------------------------------------------------------------
Morgan Stanley 5,171,103
--------------------------------------------------------------------
Morgan Stanley Capital 1 2,460,214
--------------------------------------------------------------------
PNC Financial Services Group 2,325,002
- --------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth Eaton Vance 188,771
--------------------------------------------------------------------
Franklin Resources 182,070
--------------------------------------------------------------------
Goldman Sachs Group 749,704
--------------------------------------------------------------------
Lehman Brothers Holdings 82,286
--------------------------------------------------------------------
Merrill Lynch & Co. 599,892
--------------------------------------------------------------------
Morgan Stanley 817,425
- --------------------------------------------------------------------------------------------------------------------
Diversified Equity Income Citigroup 217,740,612
--------------------------------------------------------------------
JP Morgan Chase & Co. 55,352,255
- --------------------------------------------------------------------------------------------------------------------
Mid Cap Value None N/A
- --------------------------------------------------------------------------------------------------------------------
Strategic Allocation Bear Stearns Commercial Mtg Securities 1,397,521
--------------------------------------------------------------------
Bear Stearns Companies 904,987
--------------------------------------------------------------------
Citigroup 28,526,072
--------------------------------------------------------------------
Citigroup Commercial Mtge Trust 2,200,339
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mtge Trust 174,116
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 1,214,049
--------------------------------------------------------------------
CS First Boston Mtge Securities 1,832,214
--------------------------------------------------------------------
Eaton Vance 820,099
--------------------------------------------------------------------
Franklin Resources 5,384,835
--------------------------------------------------------------------
Goldman Sachs Group 1,481,635
--------------------------------------------------------------------
GS Mortgage Securities II 3,878,742
--------------------------------------------------------------------
JP Morgan Chase & Co. 9,615,770
--------------------------------------------------------------------
JP Morgan Chase Commercial Mtge
Securities 7,866,478
--------------------------------------------------------------------
LB-UBS Commercial Mtge Trust 4,808,011
--------------------------------------------------------------------
Lehman Brothers Holdings 6,303,744
--------------------------------------------------------------------
Merrill Lynch & Co. 10,556,567
--------------------------------------------------------------------
Morgan Stanley 9,273,978
--------------------------------------------------------------------
Morgan Stanley Capital 1 1,643,239
--------------------------------------------------------------------
Morgan Stanley Mtge Loan Trust 1,963,655
--------------------------------------------------------------------
Raymond James Financial - subsidiary 773,618
- --------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 48
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER END OF FISCAL PERIOD
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation Bear Stearns Adjustable Rate Mortgage
Trust $ 268,001
--------------------------------------------------------------------
Bear Stearns Companies 15,965
--------------------------------------------------------------------
Citigroup 391,364
--------------------------------------------------------------------
Franklin Resources 43,478
--------------------------------------------------------------------
JP Morgan Chase & Co. 62,178
--------------------------------------------------------------------
JP Morgan Chase Commercial Mtge
Securities 1,498,628
--------------------------------------------------------------------
Lehman Brothers Holdings 736,283
--------------------------------------------------------------------
Merrill Lynch & Co. 381,792
--------------------------------------------------------------------
Merrill Lynch Mtge Trust 487,267
--------------------------------------------------------------------
Morgan Stanley 706,627
--------------------------------------------------------------------
Morgan Stanley Capital 1 350,598
--------------------------------------------------------------------
Morgan Stanley Mtge Loan Trust 981,827
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- --------------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income Citigroup 641,723
--------------------------------------------------------------------
Credit Suisse First Boston USA 641,038
--------------------------------------------------------------------
Lehman Brothers Holdings 640,627
--------------------------------------------------------------------
JP Morgan Chase & Co. 400,500
--------------------------------------------------------------------
JP Morgan Chase Commercial Mtge
Securities 208,077
--------------------------------------------------------------------
Merrill Lynch & Co. 640,623
--------------------------------------------------------------------
Morgan Stanley 640,788
- --------------------------------------------------------------------------------------------------------------------
Disciplined International Equity None N/A
- --------------------------------------------------------------------------------------------------------------------
Emerging Markets None N/A
- --------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond None N/A
- --------------------------------------------------------------------------------------------------------------------
European Equity Credit Suisse Group 1,561,254
- --------------------------------------------------------------------------------------------------------------------
Global Bond Bear Stearns Commercial Mtge
Securities 1,928,687
--------------------------------------------------------------------
Citigroup 3,072,505
--------------------------------------------------------------------
Citigroup Commercial Mtge Trust 1,142,977
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 927,081
--------------------------------------------------------------------
CS First Boston Mtge Securities 580,252
--------------------------------------------------------------------
GS Mortgage Securities II 942,552
--------------------------------------------------------------------
JP Morgan Chase Commercial Mtge
Securities 8,255,847
--------------------------------------------------------------------
LaBranche & Co. 172,800
--------------------------------------------------------------------
LB-UBS Commercial Mtge Trust 4,108,805
--------------------------------------------------------------------
Morgan Stanley 360,721
--------------------------------------------------------------------
Morgan Stanley Capital 1 3,233,127
--------------------------------------------------------------------
Morgan Stanley, Dean Witter Capital 1 2,279,259
- --------------------------------------------------------------------------------------------------------------------
Global Equity Bear Stearns Companies 5,957,741
--------------------------------------------------------------------
Citigroup 5,305,273
--------------------------------------------------------------------
E*TRADE Financial 6,023,397
--------------------------------------------------------------------
Goldman Sachs Group 8,934,554
- --------------------------------------------------------------------------------------------------------------------
Global Technology None N/A
- --------------------------------------------------------------------------------------------------------------------
International Aggressive Growth None N/A
- --------------------------------------------------------------------------------------------------------------------
International Equity Credit Suisse Group 699,960
- --------------------------------------------------------------------------------------------------------------------
International Opportunity Credit Suisse Group 6,803,658
- --------------------------------------------------------------------------------------------------------------------
International Select Value Credit Suisse Group 21,282,154
- --------------------------------------------------------------------------------------------------------------------
International Small Cap None N/A
- --------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 49
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER END OF FISCAL PERIOD
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- --------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt None N/A
- --------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Ameritrade Holding $ 14,356,863
--------------------------------------------------------------------
Legg Mason - subsidiary 7,086,678
- --------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 50
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE INVESTMENT MANAGER
Affiliates of the investment manager may engage in brokerage and other
securities transactions on behalf of a fund according to procedures adopted by
the Board and to the extent consistent with applicable provisions of the federal
securities laws. Subject to approval by the Board, the same conditions apply to
transactions with broker-dealer affiliates of any subadviser. The investment
manager will use an affiliate only if (i) the investment manager determines that
the fund will receive prices and executions at least as favorable as those
offered by qualified independent brokers performing similar brokerage and other
services for the fund and (ii) the affiliate charges the fund commission rates
consistent with those the affiliate charges comparable unaffiliated customers in
similar transactions and if such use is consistent with terms of the Investment
Management Services Agreement.
Information about any brokerage commissions paid by a fund in the last three
fiscal periods to brokers affiliated with the fund's investment manager is
contained in the following table. The table is organized by fiscal year end. You
can find your fund's fiscal year end in Table 1.
TABLE 7. BROKERAGE COMMISSIONS PAID TO INVESTMENT MANAGER OR AFFILIATES
<Table>
<Caption>
PERCENT OF
AGGREGATE
AGGREGATE DOLLAR AGGREGATE AGGREGATE
DOLLAR AMOUNT OF DOLLAR DOLLAR
AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF
COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS
NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO
BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER
FUND -------------------------------------------------------------------------------------------
2007 2006 2005
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive None -- -- -- -- $ 0 $ 0(a)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative None -- -- -- -- 0 0(a)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate None -- -- -- -- 0 0(a)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate None -- -- -- -- 0 0(a)
Aggressive
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate None -- -- -- -- 0 0(a)
Conservative
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity None -- -- -- -- 0 0(a)
- --------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Small Company Index None 0 0
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- --------------------------------------------------------------------------------------------------------------------------------
Equity Value None -- -- -- -- 0 10,142*
- --------------------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining None -- -- -- -- 0 3,614*
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 51
<Table>
<Caption>
PERCENT OF
AGGREGATE
AGGREGATE DOLLAR AGGREGATE AGGREGATE
DOLLAR AMOUNT OF DOLLAR DOLLAR
AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF
COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS
NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO
BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER
FUND -------------------------------------------------------------------------------------------
2007 2006 2005
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 None(b) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 None(b) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 None(b) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 None(b) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 None(b) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 None(b) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 None(b) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 None(b) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- --------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth 4 $ 23 0.00% 0.00% $ 57* $ 27
JPMorgan
Securities,
Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Fundamental Value None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Fundamental Growth 5 0 -- -- 0 38
Goldman
Sachs & Co.
- --------------------------------------------------------------------------------------------------------------------------------
High Yield Bond None ---- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Income Builder None -- -- -- -- 0((c)) N/A
Basic Income
- --------------------------------------------------------------------------------------------------------------------------------
Income Builder None ---- -- -- -- 0((c)) N/A
Enhanced Income
- --------------------------------------------------------------------------------------------------------------------------------
Income Builder None -- -- -- -- 0((c)) N/A
Moderate Income
- --------------------------------------------------------------------------------------------------------------------------------
Select Value 7 7,352 0.42 0.51 14,216 143,463
Gabelli &
Co.
- --------------------------------------------------------------------------------------------------------------------------------
Short Duration None -- -- -- -- 0 0
U.S. Government
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap Equity 4 568 0.12 0.03 0 0
JPMorgan
Securities,
Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap Value 5 0 -- -- 1,821 1,943
Goldman
Sachs & Co.
- --------------------------------------------------------------------------------------------------------------------------------
8 0 -- -- 0 2,700
Legg Mason
Wood
Walker, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
9 0 -- -- 0 0
M.J. Whitman
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Gov't Mortgage None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Value None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- --------------------------------------------------------------------------------------------------------------------------------
Dividend Opportunity 1 0 -- -- 0 20,898*
AEIS
- --------------------------------------------------------------------------------------------------------------------------------
Real Estate None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 52
<Table>
<Caption>
PERCENT OF
AGGREGATE
AGGREGATE DOLLAR AGGREGATE AGGREGATE
DOLLAR AMOUNT OF DOLLAR DOLLAR
AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF
COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS
NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO
BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER
FUND -------------------------------------------------------------------------------------------
2007 2006 2005
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- --------------------------------------------------------------------------------------------------------------------------------
Cash Management None -- -- -- -- $ 0 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Core Bond None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Disciplined Equity None 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Disciplined Small and None -- -- -- -- None((d)) N/A
Mid Cap Equity
- --------------------------------------------------------------------------------------------------------------------------------
Disciplined Small None -- -- -- -- None((e)) N/A
Cap Value
- --------------------------------------------------------------------------------------------------------------------------------
Floating Rate None -- -- -- -- None((e)) N/A
- --------------------------------------------------------------------------------------------------------------------------------
Growth 1 $ 0 -- -- 0 13,720*
AEIS
- --------------------------------------------------------------------------------------------------------------------------------
Income Opportunities None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Protected Securities None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Large Cap Equity 1 0 -- -- 0 10,214*
AEIS
- --------------------------------------------------------------------------------------------------------------------------------
Large Cap Value 1 0 -- -- 0 276*
AEIS
- --------------------------------------------------------------------------------------------------------------------------------
Limited Duration Bond None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- --------------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt(f) None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Diversified Bond None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt(f) None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Michigan Tax-Exempt(f) None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt(f) None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
New York Tax-Exempt(f) None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Ohio Tax-Exempt(f) None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- --------------------------------------------------------------------------------------------------------------------------------
Balanced -- -- -- -- 0 0
None
- --------------------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth None(g) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Diversified Equity Income 1 0 -- -- 0 1,716*
AEIS
- --------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value -- -- -- -- 0 0
None
- --------------------------------------------------------------------------------------------------------------------------------
Strategic Allocation None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation None(g) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 53
<Table>
<Caption>
PERCENT OF
AGGREGATE
AGGREGATE DOLLAR AGGREGATE AGGREGATE
DOLLAR AMOUNT OF DOLLAR DOLLAR
AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF
COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS
NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO
BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER
FUND -------------------------------------------------------------------------------------------
2007 2006 2005
- --------------------------------------------------------------------------------------------------------------------------------
<Caption>
PERCENT OF
AGGREGATE
AGGREGATE DOLLAR AGGREGATE AGGREGATE
DOLLAR AMOUNT OF DOLLAR DOLLAR
AMOUNT OF PERCENT OF TRANSACTIONS AMOUNT OF AMOUNT OF
COMMISSIONS AGGREGATE INVOLVING COMMISSIONS COMMISSIONS
NATURE OF PAID TO BROKERAGE PAYMENT OF PAID TO PAID TO
BROKER AFFILIATION BROKER COMMISSIONS COMMISSIONS BROKER BROKER
FUND -------------------------------------------------------------------------------------------
2006 2005 2004
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- --------------------------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income None(h) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Disciplined International Equity None(i) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets None -- -- -- -- $ 0 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond None(j) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
European Equity None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Equity None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Global Technology 1 0 0 0 0 97,718*
AEIS
- --------------------------------------------------------------------------------------------------------------------------------
International Aggressive Growth JPMorgan 4 $8,149 1.24% 0.66% 9,426 22,343
Securities,
Inc.
- --------------------------------------------------------------------------------------------------------------------------------
4 0 0 0 339 0
Cazenove,
Inc.
- --------------------------------------------------------------------------------------------------------------------------------
International Equity None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
International Opportunity None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
International Select Value 10 0 0 0 8,829 20,637
Sanford C.
Bernstein &
Co. LLC
- --------------------------------------------------------------------------------------------------------------------------------
International Small Cap None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- --------------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth 1 0 0 0 0 17,994*
AEIS
- --------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market None -- -- -- 0 0 --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
* Represents brokerage clearing fees.
(1) American Enterprise Investment Services, Inc., a wholly-owned subsidiary
of Ameriprise Financial.
(2) Affiliate of UBS, a subadviser.
(3) Affiliate of Neuberger Berman Management, Inc., a former subadviser,
terminated July 24, 2003.
(4) Affiliate of American Century, a subadviser.
(5) Affiliate of Goldman Sachs Asset Management, L.P., a subadviser.
(6) Affiliate of Eagle Asset Management, Inc., a former subadviser,
terminated April 2005.
(7) Affiliate of GAMCO Investors, Inc. a former subadviser, terminated Sept.
29, 2006.
(8) Affiliate of Royce & Associates, LLC., a former subadviser, terminated
April 24, 2006.
(9) Affiliate of Third Avenue Management, LLC., a former subadviser,
terminated March 15, 2004.
(10) Affiliate of AllianceBernstein, a subadviser.
(a) For the period from March 4, 2004 (when shares became publicly
available) to Jan. 31, 2005.
(b) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(c) For the period from Feb. 16, 2006 (when shares became publicly
available) to May 31, 2006.
(d) For the period from May 18, 2006 (when shares became publicly available)
to July 31, 2006.
(e) For the period from Feb. 16, 2006 (when shares became publicly
available) to July 31, 2006.
Statement of Additional Information - Nov. 29, 2007 Page 54
(f) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31.
For 2006, the information shown is for the period from July 1, 2005
through Aug. 31, 2006. For years prior to 2006, the fiscal period ended
on June 30.
(g) For the period from May 17, 2007 (when shares became publicly available)
to Sept. 30, 2007.
(h) For the period from June 15, 2006 (when the Fund became available) to
Oct. 31, 2006.
(i) For the period from May 18, 2006 (when shares became publicly available)
to Oct. 31, 2006.
(j) For the period from Feb. 16, 2006 (when shares became publicly
available) to Oct. 31, 2006.
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 8. VALUING FUND SHARES
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive
Class A $ 400,073,034 32,781,390 $12.20
Class B 98,479,846 8,131,609 12.11
Class C 12,215,638 1,011,229 12.08
Class R4(a) 76,765 6,275 12.23
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative
Class A 82,673,511 7,926,810 10.43
Class B 35,957,945 3,458,347 10.40
Class C 5,208,785 500,413 10.41
Class R4(a) 23,731 2,296 10.34
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate
Class A 600,269,888 52,846,837 11.36
Class B 188,670,967 16,679,954 11.31
Class C 27,189,749 2,401,836 11.32
Class R4(a) 111,556 9,835 11.34
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive
Class A 801,243,094 68,285,569 11.73
Class B 202,093,816 17,295,309 11.68
Class C 25,618,875 2,193,231 11.68
Class R4(a) 339,106 28,867 11.75
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative
Class A 197,884,478 18,243,067 10.85
Class B 70,978,040 6,562,786 10.82
Class C 12,991,707 1,200,747 10.82
Class R4(a) 28,252 2,615 10.80
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity
Class A 364,207,385 28,873,885 12.61
Class B 91,174,410 7,283,997 12.52
Class C 11,361,042 909,754 12.49
Class R4(a) 194,364 15,365 12.65
- -----------------------------------------------------------------------------------------------------------------
S&P 500 Index
Class D 57,268,626 10,342,190 5.54
Class E 241,190,686 43,377,282 5.56
- -----------------------------------------------------------------------------------------------------------------
Small Company Index
Class A 834,954,281 99,373,376 8.40
Class B 229,997,889 30,755,493 7.48
Class R4(a) 10,300,727 1,199,527 8.59
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 55
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- -----------------------------------------------------------------------------------------------------------------
Equity Value
Class A $1,038,420,343 77,344,252 $13.43
Class B 185,258,605 13,764,180 13.46
Class C 6,274,898 470,398 13.34
Class I 14,387 1,070 13.45
Class R2 5,024 374 13.43
Class R3 5,024 374 13.43
Class R4(a) 11,834,082 880,545 13.44
Class R5 5,024 374 13.43
Class W 5,102 380 13.43
- -----------------------------------------------------------------------------------------------------------------
Precious Metals and Mining
Class A 97,644,562 6,936,869 14.08
Class B 17,659,188 1,336,794 13.21
Class C 1,801,852 137,792 13.08
Class I 14,068 989 14.22
Class R4(a) 90,369 6,356 14.22
- -----------------------------------------------------------------------------------------------------------------
Small Cap Advantage
Class A 441,693,595 73,720,330 5.99
Class B 129,336,345 23,611,177 5.48
Class C 8,769,589 1,600,573 5.48
Class I 9,161 1,484 6.17
Class R2 4,138 679 6.09
Class R3 4,143 679 6.10
Class R4(a) 407,304 66,765 6.10
Class R5 4,149 679 6.11
- -----------------------------------------------------------------------------------------------------------------
Small Cap Growth
Class A 113,612,985 22,851,570 4.97
Class B 43,605,178 9,235,700 4.72
Class C 4,604,901 974,784 4.72
Class I 51,300,183 10,105,257 5.08
Class R2 4,770 951 5.02
Class R3 4,771 951 5.02
Class R4(a) 270,967 53,975 5.02
Class R5 4,779 951 5.03
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2010
Class A 570,807 52,343 10.91
Class R2 5,101 468 10.90
Class R3 5,102 468 10.90
Class R4 5,103 468 10.90
Class R5 5,103 468 10.90
Class Y 17,027,528 1,561,292 10.91
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2015
Class A 1,558,139 141,208 11.03
Class R2 5,124 465 11.02
Class R3 5,128 465 11.03
Class R4 5,133 465 11.04
Class R5 5,137 465 11.05
Class Y 24,335,322 2,202,953 11.05
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2020
Class A 1,811,990 163,746 11.07
Class R2 5,138 464 11.07
Class R3 5,142 464 11.08
Class R4 5,147 464 11.09
Class R5 5,152 464 11.10
Class Y 36,822,853 3,319,542 11.09
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 56
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2025
Class A $ 1,626,912 146,790 $11.08
Class R2 5,166 466 11.09
Class R3 5,171 466 11.10
Class R4 5,168 465 11.11
Class R5 5,173 465 11.12
Class Y 36,511,597 3,284,899 11.11
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2030
Class A 1,234,023 110,886 11.13
Class R2 5,159 464 11.12
Class R3 5,164 464 11.13
Class R4 5,169 464 11.14
Class R5 5,173 464 11.15
Class Y 34,804,136 3,120,579 11.15
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2035
Class A 856,259 77,424 11.06
Class R2 5,163 467 11.06
Class R3 5,168 467 11.07
Class R4 5,173 467 11.08
Class R5 5,177 467 11.09
Class Y 20,424,143 1,842,764 11.08
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2040
Class A 408,307 36,765 11.11
Class R2 5,152 464 11.10
Class R3 5,157 464 11.11
Class R4 5,161 464 11.12
Class R5 5,166 464 11.13
Class Y 26,163,420 2,350,709 11.13
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2045
Class A 449,557 40,512 11.10
Class R2 5,165 466 11.08
Class R3 5,170 466 11.09
Class R4 5,174 466 11.10
Class R5 5,179 466 11.11
Class Y 6,194,498 557,075 11.12
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- -----------------------------------------------------------------------------------------------------------------
Aggressive Growth
Class A 399,711,131 40,595,431 9.85
Class B 97,376,249 10,200,166 9.55
Class C 1,777,567 186,186 9.55
Class I 98,651,692 9,896,891 9.97
Class R2 5,658 572 9.89
Class R3 5,665 572 9.90
Class R4(a) 90,912 9,173 9.91
Class R5 5,679 572 9.93
- -----------------------------------------------------------------------------------------------------------------
Fundamental Growth
Class A 18,943,663 2,707,778 7.00
Class B 5,745,289 848,868 6.77
Class C 758,297 111,896 6.78
Class I 212,413,837 29,927,715 7.10
Class R4(a) 48,276 6,836 7.06
- -----------------------------------------------------------------------------------------------------------------
Fundamental Value
Class A 822,766,661 117,196,079 7.02
Class B 257,797,220 37,969,190 6.79
Class C 19,629,840 2,880,002 6.82
Class I 90,894,421 12,814,095 7.09
Class R4(a) 1,044,983 148,002 7.06
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 57
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
High Yield Bond
Class A $1,462,714,531 484,680,021 $ 3.02
Class B 320,767,041 106,329,088 3.02
Class C 25,659,465 8,557,601 3.00
Class I 97,100,427 32,190,847 3.02
Class R2 5,120 1,695 3.02
Class R3 5,119 1,695 3.02
Class R4(a) 1,252,245 415,365 3.01
Class R5 5,120 1,695 3.02
Class W 30,060,498 10,016,119 3.00
- -----------------------------------------------------------------------------------------------------------------
Income Builder Basic Income
Class A 197,480,474 18,306,514 10.79
Class B 33,369,169 3,098,661 10.77
Class C 8,088,151 750,276 10.78
Class R4(a) 106,546 9,868 10.80
- -----------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income
Class A 266,493,709 24,047,577 11.08
Class B 38,769,941 3,502,670 11.07
Class C 10,729,906 969,089 11.07
Class R4(a) 39,068 3,524 11.09
- -----------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income
Class A 458,497,113 41,715,177 10.99
Class B 68,996,638 6,291,731 10.97
Class C 15,332,314 1,396,682 10.98
Class R4(a) 19,870 1,806 11.00
- -----------------------------------------------------------------------------------------------------------------
Select Value
Class A 448,392,699 75,595,343 5.93
Class B 125,804,793 22,107,427 5.69
Class C 8,953,531 1,574,251 5.69
Class I 30,305,964 5,025,259 6.03
Class R4(a) 95,049 15,886 5.98
- -----------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government
Class A 513,555,337 108,496,677 4.73
Class B 216,252,753 45,676,904 4.73
Class C 10,269,796 2,169,685 4.73
Class I 54,815,256 11,563,982 4.74
Class R4(a) 3,856,258 814,685 4.73
Class W 4,980 1,053 4.73
- -----------------------------------------------------------------------------------------------------------------
Small Cap Equity
Class A 274,668,755 40,475,947 6.79
Class B 43,661,999 6,746,392 6.47
Class C 3,367,966 521,089 6.46
Class I 11,768 1,724 6.83
Class R4(a) 4,055,830 590,525 6.87
- -----------------------------------------------------------------------------------------------------------------
Small Cap Value
Class A 682,266,694 104,074,892 6.56
Class B 260,475,063 41,623,621 6.26
Class C 18,231,415 2,907,017 6.27
Class I 26,529,768 3,966,668 6.69
Class R2 4,526 685 6.61
Class R3 4,532 685 6.62
Class R4(a) 349,188 52,748 6.62
Class R5 4,543 685 6.63
- -----------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage
Class A 110,626,774 22,121,800 5.00
Class B 44,391,082 8,873,574 5.00
Class C 4,878,851 975,139 5.00
Class I 207,377,398 41,508,753 5.00
Class R4(a) 39,842,143 7,972,479 5.00
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 58
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Value
Class A $ 211,688,779 37,389,078 $ 5.66
Class B 88,890,354 16,146,970 5.51
Class C 6,587,937 1,193,612 5.52
Class I 60,205,362 10,545,615 5.71
Class R4(a) 126,927 22,309 5.69
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Dividend Opportunity
Class A 1,452,870,794 150,496,501 9.65
Class B 303,235,001 31,632,609 9.59
Class C 25,821,807 2,697,582 9.57
Class I 241,944,888 25,013,097 9.67
Class R4(a) 1,327,869 137,249 9.67
Class W 5,493 568 9.67
- -----------------------------------------------------------------------------------------------------------------
Real Estate
Class A 146,543,348 9,256,921 15.83
Class B 29,348,848 1,867,016 15.72
Class C 2,336,410 148,656 15.72
Class I 94,663,945 5,966,761 15.87
Class R4(a) 189,682 12,014 15.79
Class W 4,340 275 15.78
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- -----------------------------------------------------------------------------------------------------------------
Cash Management
Class A 4,662,135,661 4,661,926,326 1.00
Class B 75,691,552 75,887,752 1.00
Class C 3,601,400 3,602,252 1.00
Class I 49,244,173 49,241,684 1.00
Class R5 4,999 5,000 1.00
Class W 120,154,895 120,156,352 1.00
Class Y 43,544,377 43,630,241 1.00
- -----------------------------------------------------------------------------------------------------------------
Core Bond
Class A 39,913,930 4,212,416 9.48
Class B 10,154,475 1,070,928 9.48
Class C 587,688 61,965 9.48
Class I 259,104,810 27,376,402 9.46
Class R2 4,912 518 9.48
Class R3 4,912 518 9.48
Class R4(a) 9,474 1,000 9.47
Class R5 4,912 518 9.48
Class W 4,889 516 9.47
- -----------------------------------------------------------------------------------------------------------------
Disciplined Equity
Class A 1,410,073,147 195,317,511 7.22
Class B 62,090,519 8,724,783 7.12
Class C 3,322,979 467,585 7.11
Class I 441,406,784 60,689,061 7.27
Class R2 4,763 661 7.21
Class R3 4,770 661 7.22
Class R4(a) 157,584,051 21,739,173 7.25
Class R5 4,783 661 7.24
Class W 744,887,615 103,164,030 7.22
- -----------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity
Class A 18,372,667 1,924,399 9.55
Class B 1,365,013 144,191 9.47
Class C 183,734 19,407 9.47
Class I 38,785,276 4,051,418 9.57
Class R4(a) 15,157 1,586 9.56
Class W 57,063,032 5,979,419 9.54
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 59
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value
Class A $ 13,618,506 1,361,629 $10.00
Class B 551,233 55,679 9.90
Class C 46,126 4,657 9.90
Class I 25,166,988 2,509,791 10.03
Class R2 4,536 455 9.97
Class R3 4,544 455 9.99
Class R4(a) 10,004 1,000 10.00
Class R5 4,557 455 10.02
- -----------------------------------------------------------------------------------------------------------------
Floating Rate
Class A 426,098,639 43,927,296 9.70
Class B 48,127,927 4,961,642 9.70
Class C 23,742,707 2,447,587 9.70
Class I 186,030,163 19,185,525 9.70
Class R4(a) 294,089 30,330 9.70
Class W 4,822 497 9.70
- -----------------------------------------------------------------------------------------------------------------
Growth
Class A 2,392,774,288 73,100,079 32.73
Class B 369,487,313 12,401,019 29.79
Class C 20,332,352 682,923 29.77
Class I 298,304,650 8,893,003 33.54
Class R2 5,135 155 33.13
Class R3 5,143 155 33.18
Class R4(a) 145,831,935 4,373,779 33.34
Class R5 5,159 155 33.28
Class W 5,214 157 33.21
- -----------------------------------------------------------------------------------------------------------------
Income Opportunities
Class A 177,438,822 17,763,829 9.99
Class B 43,356,468 4,342,532 9.98
Class C 4,788,510 479,660 9.98
Class I 85,512,402 8,550,686 10.00
Class R4(a) 152,957 15,307 9.99
- -----------------------------------------------------------------------------------------------------------------
Inflation Protected Securities
Class A 65,959,818 6,807,001 9.69
Class B 16,143,740 1,666,752 9.69
Class C 1,784,275 184,194 9.69
Class I 310,160,205 32,014,702 9.69
Class R4(a) 9,661 1,000 9.66
Class W 4,932 509 9.69
- -----------------------------------------------------------------------------------------------------------------
Large Cap Equity
Class A 5,038,950,020 833,522,641 6.05
Class B 833,234,754 140,889,101 5.91
Class C 31,622,901 5,341,167 5.92
Class I 67,937,053 11,159,673 6.09
Class R2 5,001 822 6.08
Class R3 5,009 822 6.09
Class R4(a) 330,120,266 53,887,010 6.13
Class R5 25,375,778 4,153,053 6.11
- -----------------------------------------------------------------------------------------------------------------
Large Cap Value
Class A 62,421,177 10,928,420 5.71
Class B 15,116,287 2,672,256 5.66
Class C 1,041,705 184,547 5.64
Class I 16,865,439 2,934,662 5.75
Class R2 4,345 763 5.69
Class R3 4,352 763 5.70
Class R4(a) 37,830 6,589 5.74
Class R5 4,364 763 5.72
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 60
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Limited Duration Bond
Class A $ 61,546,982 6,425,229 $ 9.58
Class B 9,671,171 1,009,974 9.58
Class C 1,598,714 167,013 9.57
Class I 78,906,235 8,234,187 9.58
Class R4(a) 9,580 1,000 9.58
Class W 4,907 512 9.58
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- -----------------------------------------------------------------------------------------------------------------
California Tax-Exempt
Class A 164,203,362 32,628,583 5.03
Class B 6,098,994 1,212,728 5.03
Class C 1,892,236 375,541 5.04
- -----------------------------------------------------------------------------------------------------------------
Diversified Bond
Class A 1,936,988,090 402,638,195 4.81
Class B 303,507,236 63,093,643 4.81
Class C 16,840,412 3,499,861 4.81
Class I 386,010,354 80,134,097 4.82
Class R2 4,993 1,040 4.80
Class R3 4,993 1,040 4.80
Class R4(a) 77,835,688 16,200,659 4.80
Class R5 4,993 1,040 4.80
Class W 223,104,264 46,359,028 4.81
- -----------------------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt
Class A 40,717,606 7,820,119 5.21
Class B 5,814,908 1,116,878 5.21
Class C 544,269 104,584 5.20
- -----------------------------------------------------------------------------------------------------------------
Michigan Tax-Exempt
Class A 37,592,746 7,275,112 5.17
Class B 1,227,309 237,390 5.17
Class C 1,036,661 200,598 5.17
- -----------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt
Class A 287,817,910 55,944,378 5.14
Class B 19,653,652 3,819,066 5.15
Class C 7,032,169 1,366,714 5.15
- -----------------------------------------------------------------------------------------------------------------
New York Tax-Exempt
Class A 58,346,141 11,846,759 4.93
Class B 4,552,447 924,299 4.93
Class C 792,261 160,882 4.92
- -----------------------------------------------------------------------------------------------------------------
Ohio Tax-Exempt
Class A 37,930,078 7,353,281 5.16
Class B 3,179,195 616,144 5.16
Class C 946,879 183,489 5.16
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- -----------------------------------------------------------------------------------------------------------------
Balanced
Class A 928,530,399 80,993,116 11.46
Class B 51,600,913 4,530,330 11.39
Class C 5,095,786 447,856 11.38
Class R4(a) 66,243,594 5,777,310 11.47
- -----------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth
Class A 4,279,021 413,231 10.36
Class B 326,632 31,617 10.33
Class C 31,221 3,023 10.33
Class I 76,002,552 7,326,008 10.37
Class R2 10,341 1,000 10.34
Class R3 10,351 1,000 10.35
Class R4 10,361 1,000 10.36
Class R5 10,371 1,000 10.37
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 61
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Diversified Equity Income
Class A $6,501,873,578 453,432,458 $14.34
Class B 1,113,206,377 77,559,340 14.35
Class C 113,516,275 7,925,624 14.32
Class I 131,741,947 9,192,333 14.33
Class R2 30,353 2,118 14.33
Class R3 118,360,158 8,262,415 14.33
Class R4(a) 209,638,131 14,606,415 14.35
Class R5 9,908,675 690,653 14.35
Class W 5,179 361 14.35
- -----------------------------------------------------------------------------------------------------------------
Mid Cap Value
Class A 2,025,925,988 199,669,660 10.15
Class B 306,040,101 31,110,273 9.84
Class C 41,928,292 4,260,232 9.84
Class I 29,272,035 2,842,058 10.30
Class R2 286,713 28,176 10.18
Class R3 1,378,297 135,282 10.19
Class R4(a) 157,136,066 15,373,885 10.22
Class R5 11,647 1,138 10.23
Class W 5,162 506 10.20
- -----------------------------------------------------------------------------------------------------------------
Strategic Allocation
Class A 1,871,507,235 150,019,394 12.48
Class B 243,036,227 19,659,018 12.36
Class C 66,994,896 5,441,062 12.31
Class I 5,413 434 12.47
Class R2 5,412 434 12.47
Class R3 5,412 434 12.47
Class R4(a) 16,864,439 1,351,237 12.48
Class R5 5,413 434 12.47
- -----------------------------------------------------------------------------------------------------------------
Strategic Income Allocation
Class A 111,724,275 11,351,342 9.84
Class B 7,178,608 729,232 9.84
Class C 2,293,610 233,160 9.84
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- -----------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income
Class A 10,053,611 996,000 10.09
Class B 10,093 1,000 10.09
Class C 10,093 1,000 10.09
Class I 68,129,549 6,743,149 10.10
Class R4(a) 10,094 1,000 10.09
Class W N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Disciplined International Equity
Class A 10,874,410 1,107,013 9.82
Class B 190,838 19,499 9.79
Class C 31,275 3,195 9.79
Class I 62,926,083 6,399,203 9.83
Class R4(a) 11,885 1,209 9.83
Class W N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Emerging Markets
Class A 425,229,317 37,571,472 11.32
Class B 76,605,821 7,204,484 10.63
Class C 4,798,555 450,159 10.66
Class I 41,144,243 3,576,427 11.50
Class R4(a) 5,734,130 498,653 11.50
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 62
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Emerging Markets Bond
Class A $ 11,663,305 1,147,539 $10.16
Class B 510,005 50,209 10.16
Class C 38,734 3,818 10.15
Class I 47,400,407 4,663,886 10.16
Class R4(a) 14,378 1,415 10.16
Class W N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
European Equity
Class A 85,143,488 15,798,323 5.39
Class B 29,438,905 5,546,040 5.31
Class C 1,489,197 280,865 5.30
Class I 15,461 2,865 5.40
Class R4(a) 4,340 802 5.41
- -----------------------------------------------------------------------------------------------------------------
Global Bond
Class A 276,081,128 41,822,802 6.60
Class B 63,316,660 9,495,713 6.67
Class C 3,116,080 470,447 6.62
Class I 144,623,214 21,955,114 6.59
Class R4(a) 80,561 12,204 6.60
Class W N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Global Equity
Class A 608,153,308 80,859,119 7.52
Class B 110,122,992 15,600,152 7.06
Class C 5,663,445 807,287 7.02
Class R2 N/A N/A N/A
Class R3 N/A N/A N/A
Class R4(a) 9,464,690 1,246,167 7.60
Class R5 N/A N/A N/A
Class W N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Global Technology
Class A 122,944,396 50,874,610 2.42
Class B 42,498,835 20,342,056 2.09
Class C 3,415,678 1,630,088 2.10
Class I 14,460 5,882 2.46
Class R4(a) 544,605 223,793 2.43
- -----------------------------------------------------------------------------------------------------------------
International Aggressive Growth
Class A 293,775,958 31,171,014 9.42
Class B 66,512,481 7,289,751 9.12
Class C 4,436,253 486,251 9.12
Class I 127,665,491 13,394,495 9.53
Class R4(a) 830,516 87,614 9.48
- -----------------------------------------------------------------------------------------------------------------
International Equity
Class A 99,431,354 11,739,511 8.47
Class B 25,438,560 3,052,687 8.33
Class C 1,752,171 210,053 8.34
Class I 68,401,947 8,030,624 8.52
Class R4(a) 208,406 24,590 8.48
- -----------------------------------------------------------------------------------------------------------------
International Opportunity
Class A 464,197,404 48,662,459 9.54
Class B 77,061,945 8,313,137 9.27
Class C 3,350,335 364,611 9.19
Class I 105,055,917 10,892,334 9.64
Class R2 N/A N/A N/A
Class R3 N/A N/A N/A
Class R4(a) 814,767 83,796 9.72
Class R5 N/A N/A N/A
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 63
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
International Select Value
Class A $1,541,660,931 140,143,797 $11.00
Class B 380,209,275 35,755,399 10.63
Class C 25,603,920 2,411,018 10.62
Class I 89,262,817 8,020,468 11.13
Class R4(a) 1,779,472 160,592 11.08
- -----------------------------------------------------------------------------------------------------------------
International Small Cap
Class A 66,757,092 7,136,008 9.35
Class B 16,957,050 1,862,179 9.11
Class C 992,519 108,850 9.12
Class I 15,421,576 1,630,325 9.46
Class R4(a) 105,171 11,180 9.41
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- -----------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt
Class A 79,222,404 14,870,237 5.33
Class B 10,105,406 1,898,265 5.32
Class C 3,889,860 730,718 5.32
- -----------------------------------------------------------------------------------------------------------------
Mid Cap Growth
Class A 1,092,797,106 75,865,923 14.40
Class B 207,104,427 15,809,072 13.10
Class C 8,971,125 684,902 13.10
Class I 5,584 379 14.73
Class R4(a) 28,734,870 1,966,443 14.61
- -----------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond
Class A 788,062,658 202,199,047 3.90
Class B 42,861,116 10,998,990 3.90
Class C 6,544,550 1,678,589 3.90
- -----------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income
Class A 3,042,227,492 684,487,152 4.44
Class B 126,941,031 28,569,339 4.44
Class C 17,942,164 4,035,449 4.45
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 117,705,960 117,733,876 1.00
- -----------------------------------------------------------------------------------------------------------------
</Table>
(a) Effective Dec. 11, 2006, Class Y was renamed Class R4.
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):
- Securities traded on a securities exchange for which a last-quoted sales
price is readily available are valued at the last-quoted sales price on
the exchange where such security is primarily traded.
- Securities traded on a securities exchange for which a last-quoted sales
price is not readily available are valued at the mean of the closing bid
and asked prices, looking first to the bid and asked prices on the
exchange where the security is primarily traded and, if none exist, to the
over-the-counter market.
- Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
- Securities included in the NASDAQ National Market System for which a last-
quoted sales price is not readily available, and other securities traded
over-the-counter but not included in the NASDAQ National Market System are
valued at the mean of the closing bid and asked prices.
- Futures and options traded on major exchanges are valued at the last-
quoted sales price on their primary exchange.
- Foreign securities traded outside the United States are generally valued
as of the time their trading is complete, which is usually different from
the close of the Exchange. Foreign securities quoted in foreign currencies
are translated into U.S. dollars utilizing spot exchange rates at the
close of regular trading on the NYSE.
- Occasionally, events affecting the value of securities occur between the
time the primary market on which the securities are traded closes and the
close of the Exchange. If events materially affect the value of
securities, the securities will be valued at their fair value according to
procedures decided upon in good faith by the Board. This
Statement of Additional Information - Nov. 29, 2007 Page 64
occurs most commonly with foreign securities, but may occur in other
cases. The fair value of a security is likely to be different from the
quoted or published price.
- Short-term securities maturing more than 60 days from the valuation date
are valued at the readily available market price or approximate market
value based on current interest rates. Short-term securities maturing in
60 days or less that originally had maturities of more than 60 days at
acquisition date are valued at amortized cost using the market value on
the 61st day before maturity. Short-term securities maturing in 60 days or
less at acquisition date are valued at amortized cost. Amortized cost is
an approximation of market value determined by systematically increasing
the carrying value of a security if acquired at a discount, or reducing
the carrying value if acquired at a premium, so that the carrying value is
equal to maturity value on the maturity date.
- Securities without a readily available market price and securities for
which the price quotations or valuations received from other sources are
deemed unreliable or not reflective of market value are valued at fair
value as determined in good faith by the Board. The Board is responsible
for selecting methods it believes provide fair value.
- When possible, bonds are valued by a pricing service independent from the
funds. If a valuation of a bond is not available from a pricing service,
the bond will be valued by a dealer knowledgeable about the bond if such a
dealer is available.
The assets of funds-of-funds consist primarily of shares of the underlying
funds, which are valued at their NAVs. Other securities held by funds-of-funds
are valued as described above.
FOR MONEY MARKET FUNDS. In accordance with Rule 2a-7 of the 1940 Act, all of the
securities in the fund's portfolio are valued at amortized cost. The amortized
cost method of valuation is an approximation of market value determined by
systematically increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium, so that the
carrying value is equal to maturity value on the maturity date. Amortized cost
does not take into consideration unrealized capital gains or losses.
The Board has established procedures designed to stabilize the fund's price per
share for purposes of sales and redemptions at $1, to the extent that it is
reasonably possible to do so. These procedures include review of the fund's
securities by the Board, at intervals deemed appropriate by it, to determine
whether the fund's net asset value per share computed by using available market
quotations deviates from a share value of $1 as computed using the amortized
cost method. The Board must consider any deviation that appears and, if it
exceeds 0.5%, it must determine what action, if any, needs to be taken. If the
Board determines a deviation exists that may result in a material dilution of
the holdings of current shareholders or investors, or in any other unfair
consequences for shareholders, it must undertake remedial action that it deems
necessary and appropriate. Such action may include withholding dividends,
calculating net asset value per share for purposes of sales and redemptions
using available market quotations, making redemptions in kind, and selling
securities before maturity in order to realize capital gains or losses or to
shorten average portfolio maturity.
While the amortized cost method provides certainty and consistency in portfolio
valuation, it may result in valuations of securities that are either somewhat
higher or lower than the prices at which the securities could be sold. This
means that during times of declining interest rates the yield on the fund's
shares may be higher than if valuations of securities were made based on actual
market prices and estimates of market prices. Accordingly, if using the
amortized cost method were to result in a lower portfolio value, a prospective
investor in the fund would be able to obtain a somewhat higher yield than the
investor would get if portfolio valuations were based on actual market values.
Existing shareholders, on the other hand, would receive a somewhat lower yield
than they would otherwise receive. The opposite would happen during a period of
rising interest rates.
PORTFOLIO HOLDINGS DISCLOSURE
Each fund's Board and the investment manager believe that the investment ideas
of the investment manager with respect to management of a fund should benefit
the fund and its shareholders, and do not want to afford speculators an
opportunity to profit by anticipating fund trading strategies or by using fund
portfolio holdings information for stock picking. However, each fund's Board
also believes that knowledge of the fund's portfolio holdings can assist
shareholders in monitoring their investments, making asset allocation decisions,
and evaluating portfolio management techniques.
Each fund's Board has therefore adopted the investment manager's policies and
approved the investment manager's procedures, including the investment manager's
oversight of subadviser practices, relating to disclosure of the fund's
portfolio securities. These policies and procedures are intended to protect the
confidentiality of fund portfolio holdings information and generally prohibit
the release of such information until such information is made public, unless
such persons have been authorized to receive such information on a selective
basis, as described below. It is the policy of the fund not to provide or
Statement of Additional Information - Nov. 29, 2007 Page 65
permit others to provide holdings information on a selective basis, and the
investment manager does not intend to selectively disclose holdings information
or expect that such holdings information will be selectively disclosed, except
where necessary for the fund's operation or where there are legitimate business
purposes for doing so and, in any case, where conditions are met that are
designed to protect the interests of the fund and its shareholders. Although the
investment manager seeks to limit the selective disclosure of portfolio holdings
information and such selective disclosure is monitored under the fund's
compliance program for conformity with the policies and procedures, there can be
no assurance that these policies will protect the fund from the potential misuse
of holdings information by individuals or firms in possession of that
information. Under no circumstances may the investment manager, its affiliates
or any employee thereof receive any consideration or compensation for disclosing
such holdings information.
A complete schedule of each fund's portfolio holdings is available semi-annually
and annually in shareholder reports filed on Form N-CSR and, after the first and
third fiscal quarters, in regulatory filings on Form N-Q. These shareholder
reports and regulatory filings are filed with the SEC in accordance with federal
securities laws and are generally available within sixty (60) days of the end of
a fund's fiscal quarter, on the SEC's website. Once holdings information is
filed with the SEC, it will also be posted on the funds' website
(riversource.com/funds), and it may be mailed, e-mailed or otherwise transmitted
to any person.
In addition, the investment manager makes publicly available information
regarding a fund's top ten holdings (including name and percentage of a fund's
assets invested in each such holding) and the percentage breakdown of a fund's
investments by country, sector and industry, as applicable. This holdings
information is generally made available through the website, marketing
communications (including printed advertisements and sales literature), and/or
telephone customer service centers that support the fund. This holdings
information is generally as of a month-end and is not released until it is at
least thirty (30) days old.
From time to time, the investment manager may make partial or complete fund
holdings information that is not publicly available on the website or otherwise
available in advance of the time restrictions noted above (1) to its affiliated
and unaffiliated service providers that require the information in the normal
course of business in order to provide services to the fund (including, without
limitation entities identified by name in the fund's prospectus or this SAI,
such as custodians, auditors, subadvisers, financial printers (Cenveo, Inc.,
Vestek), pricing services (including Reuters Pricing Service, FT Interactive
Data Corporation, Bear Stearns Pricing Service, and Kenny S&P), proxy voting
services (Institutional Shareholder Services), and companies that deliver or
support systems that provide analytical or statistical information (including
Factset Research Systems, Bloomberg, L.P.), (2) to facilitate the review and/or
rating of the fund by ratings and rankings agencies (including Morningstar,
Inc., Thomson Financial and Lipper Inc.), (3) entities that provide trading,
research or other investment related services (including Citigroup, Lehman
Brothers Holdings, Merrill Lynch & Co., and Morgan Stanley), and (4) fund
intermediaries that include the funds in discretionary wrap or other investment
programs that request such information in order to support the services provided
to investors in the programs. In such situations, the information is released
subject to confidentiality agreements, duties imposed under applicable policies
and procedures (for example, applicable codes of ethics) designed to prevent the
misuse of confidential information, general duties under applicable laws and
regulations, or other such duties of confidentiality. In addition, the fund
discloses holdings information as required by federal, state or international
securities laws, and may disclose holdings information in response to requests
by governmental authorities, or in connection with litigation or potential
litigation, a restructuring of a holding, where such disclosure is necessary to
participate or explore participation in a restructuring of the holding (e.g., as
part of a bondholder group), or to the issuer of a holding, pursuant to a
request of the issuer or any other party who is duly authorized by the issuer.
Each fund's Board has adopted the policies of the investment manager and
approved the procedures Ameriprise Financial has established to ensure that the
fund's holdings information is only disclosed in accordance with these policies.
Before any selective disclosure of holdings information is permitted, the person
seeking to disclose such holdings information must submit a written request to
the Portfolio Holdings Committee ("PHC"). The PHC is comprised of members from
the investment manager's General Counsel's Office, Compliance, and
Communications. The PHC has been authorized by the fund's Board to perform an
initial review of requests for disclosure of holdings information to evaluate
whether there is a legitimate business purpose for selective disclosure, whether
selective disclosure is in the best interests of a fund and its shareholders, to
consider any potential conflicts of interest between the fund, the investment
manager, and its affiliates, and to safeguard against improper use of holdings
information. Factors considered in this analysis are whether the recipient has
agreed to or has a duty to keep the holdings information confidential and
whether risks have been mitigated such that the recipient has agreed or has a
duty to use the holdings information only as necessary to effectuate the purpose
for which selective disclosure was authorized, including a duty not to trade on
such information. Before portfolio holdings may be 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
Statement of Additional Information - Nov. 29, 2007 Page 66
their release to individual investors, institutional investors, intermediaries
that distribute the fund's shares, and other parties, until such holdings
information is made public or unless such persons have been authorized to
receive such holdings information on a selective basis, as set forth above.
Although the investment manager has set up these procedures to monitor and
control selective disclosure of holdings information, there can be no assurance
that these procedures will protect a fund from the potential misuse of holdings
information by individuals or firms in possession of that information.
PROXY VOTING
GENERAL GUIDELINES, POLICIES AND PROCEDURES
The funds uphold a long tradition of supporting sound and principled corporate
governance. For over 30 years, the Board, which consists of a majority of
independent Board members, has determined policies and voted proxies. The funds'
investment manager, RiverSource Investments, and the funds' administrator,
Ameriprise Financial, provide support to the Board in connection with the proxy
voting process.
GENERAL GUIDELINES
CORPORATE GOVERNANCE MATTERS -- The Board supports proxy proposals that it
believes are tied to the interests of shareholders and votes against proxy
proposals that appear to entrench management. For example:
- The Board generally votes in favor of proposals for an independent
chairman or, if the chairman is not independent, in favor of a lead
independent director.
- The Board supports annual election of all directors and proposals to
eliminate classes of directors.
- In a routine election of directors, the Board will generally vote with
management's recommendations because the Board believes that management
and nominating committees of independent directors are in the best
position to know what qualifications are required of directors to form an
effective board. However, the Board will generally vote against a nominee
who has been assigned to the audit, compensation, or nominating committee
if the nominee is not independent of management based on established
criteria. The Board will also withhold support for any director who fails
to attend 75% of meetings or has other activities that appear to interfere
with his or her ability to commit sufficient attention to the company and,
in general, will vote against nominees who are determined to have been
involved in options backdating.
- The Board generally supports proposals requiring director nominees to
receive a majority of affirmative votes cast in order to be elected to the
board, and opposes cumulative voting based on the view that each director
elected should represent the interests of all shareholders.
- Votes in a contested election of directors are evaluated on a case-by-case
basis. In general, the Board believes that incumbent management and
nominating committees, with access to more and better information, are in
the best position to make strategic business decisions. However, the Board
will consider an opposing slate if it makes a compelling business case for
leading the company in a new direction.
SHAREHOLDER RIGHTS PLANS -- The Board generally supports shareholder rights
plans based on a belief that such plans force uninvited bidders to negotiate
with a company's board. The Board believes these negotiations allow time for the
company to maximize value for shareholders by forcing a higher premium from a
bidder, attracting a better bid from a competing bidder or allowing the company
to pursue its own strategy for enhancing shareholder value. The Board supports
proposals to submit shareholder rights plans to shareholders and supports
limiting the vote required for approval of such plans to a majority of the votes
cast.
AUDITORS -- The Board values the independence of auditors based on established
criteria. The Board supports a reasonable review of matters that may raise
concerns regarding an auditor's service that may cause the Board to vote against
a management recommendation, including, for example, auditor involvement in
significant financial restatements, options backdating, material weaknesses in
control, attempts to limit auditor liability or situations where independence
has been compromised.
STOCK OPTION PLANS AND OTHER MANAGEMENT COMPENSATION ISSUES -- The Board expects
company management to give thoughtful consideration to providing competitive
long-term employee incentives directly tied to the interest of shareholders. The
Board votes against proxy proposals that it believes dilute shareholder value
excessively.
Statement of Additional Information - Nov. 29, 2007 Page 67
The Board believes that equity compensation awards can be a useful tool, when
not abused, for retaining employees and giving them incentives to engage in
conduct that will improve the performance of the company. In this regard, the
Board generally favors minimum holding periods of stock obtained by senior
management pursuant to an option plan and will vote against compensation plans
for executives that it deems excessive.
SOCIAL AND CORPORATE POLICY ISSUES -- The Board believes proxy proposals should
address the business interests of the corporation. Shareholder proposals
sometime seek to have the company disclose or amend certain business practices
based purely on social or environmental issues rather than compelling business
arguments. In general, the Board recognizes our fund shareholders are likely to
have differing views of social and environmental issues and believes that these
matters are primarily the responsibility of a company's management and its board
of directors.
POLICIES AND PROCEDURES
The policy of the Board is to vote all proxies of the companies in which a fund
holds investments. Because of the volume and complexity of the proxy voting
process, including inherent inefficiencies in the process that are outside the
control of the Board or the Proxy Team (below), not all proxies may be voted.
The Board has implemented policies and procedures that have been reasonably
designed to vote proxies and to ensure that there are no conflicts between
interests of a fund's shareholders and those of the funds' principal
underwriters, RiverSource Investments, or other affiliated persons. In
exercising its proxy voting responsibilities, the Board may rely upon the
research or recommendations of one or more third party service providers.
The administration of the proxy voting process is handled by the RiverSource
Proxy Administration Team ("Proxy Team"). In exercising its responsibilities,
the Proxy Team may rely upon one or more third party service providers. The
Proxy Team assists the Board in identifying situations where its guidelines do
not clearly require a vote in a particular manner and assists in researching
matters and making voting recommendations. RiverSource Investments may recommend
that a proxy be voted in a manner contrary to the Board's guidelines. In making
recommendations to the Board about voting on a proposal, the investment manager
relies on its own investment personnel (or the investment personnel of a fund's
subadviser(s)) and information obtained from an independent research firm. The
investment manager makes the recommendation in writing. The process requires
that Board members who are independent from the investment manager consider the
recommendation and decide how to vote the proxy proposal or establish a protocol
for voting the proposal.
On an annual basis, or more frequently as determined necessary, the Board
reviews recommendations to revise the existing guidelines or add new guidelines.
Recommendations are based on, among other things, industry trends and the
frequency that similar proposals appear on company ballots.
The Board considers management's recommendations as set out in the company's
proxy statement. In each instance in which a fund votes against management's
recommendation (except when withholding votes from a nominated director), the
Board sends a letter to senior management of the company explaining the basis
for its vote. This permits both the company's management and the Board to have
an opportunity to gain better insight into issues presented by the proxy
proposal(s).
VOTING IN COUNTRIES OUTSIDE THE UNITED STATES (NON-U.S. COUNTRIES) -- Voting
proxies for companies not domiciled in the United States may involve greater
effort and cost due to the variety of regulatory schemes and corporate
practices. For example, certain non-U.S. countries require securities to be
blocked prior to a vote, which means that the securities to be voted may not be
traded within a specified number of days before the shareholder meeting. The
Board typically will not vote securities in non-U.S. countries that require
securities to be blocked as the need for liquidity of the securities in the
funds will typically outweigh the benefit of voting. There may be additional
costs associated with voting in non-U.S. countries such that the Board may
determine that the cost of voting outweighs the potential benefit.
SECURITIES ON LOAN -- The Board will generally refrain from recalling securities
on loan based upon its determination that the costs and lost revenue to the
funds, combined with the administrative effects of recalling the securities,
generally outweigh the benefit of voting the proxy. While neither the Board nor
the funds' administrator assesses the economic impact and benefits of voting
loaned securities on a case-by-case basis, situations may arise where the Board
requests that loaned securities be recalled in order to vote a proxy. In this
regard, if a proxy relates to matters that may impact the nature of a company,
such as a proposed merger or acquisition, and the funds' ownership position is
more significant, the Board has established a guideline to direct the funds'
administrator to use its best efforts to recall such securities based upon its
determination that, in these situations, the benefits of voting such proxies
generally outweigh the costs or lost revenue to the funds, or any potential
adverse administrative effects to the funds, of not recalling such securities.
INVESTMENT IN AFFILIATED FUNDS -- Certain RiverSource funds may invest in shares
of other RiverSource funds (referred to in this context as "underlying funds")
and may own substantial portions of these underlying funds. The proxy policy of
the funds is to ensure that direct public shareholders of underlying funds
control the outcome of any shareholder vote. To help
Statement of Additional Information - Nov. 29, 2007 Page 68
manage this potential conflict of interest, recognizing that the direct public
shareholders of these underlying funds may represent only a minority interest,
the policy of the funds is to vote proxies of the underlying funds in the same
proportion as the vote of the direct public shareholders. If there are no direct
public shareholders of an underlying fund, the policy is to cast votes in
accordance with instructions from the independent members of the Board.
OBTAIN A PROXY VOTING RECORD
Each year the RiverSource funds file their proxy voting records with the SEC and
make them available by August 31 for the 12-month period ending June 30 of that
year. The records can be obtained without charge through riversource.com/funds
or searching the website of the SEC at www.sec.gov.
INVESTING IN A FUND
Absolute Return Currency and Income Fund is available to investors purchasing
Classes A, C, I, R4, R5 and W shares in authorized investment programs managed
by investment professionals, including discretionary managed account programs.
Class B shares are closed to investors.
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, Class R2, Class R3, Class R4, Class
R5, Class W 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 tables. The first table
is organized by investment category. You can find your fund's investment
category in Table 1.
TABLE 9. CLASS A SALES CHARGE
For all funds EXCEPT Absolute Return Currency and Income
<Table>
<Caption>
- ---------------------------------------------------------------------------------
FUND OF FUNDS - FIXED
INCOME, STATE TAX-EXEMPT
FIXED INCOME, TAXABLE FIXED
BALANCED, EQUITY, FUND OF INCOME, TAX-EXEMPT FIXED
FUNDS - EQUITY INCOME
----------------------------------------------------------
FUND CATEGORY SALES CHARGE* AS A PERCENTAGE OF:
- ---------------------------------------------------------------------------------
PUBLIC PUBLIC
OFFERING NET AMOUNT OFFERING NET AMOUNT
TOTAL MARKET VALUE PRICE** INVESTED PRICE** INVESTED
- ---------------------------------------------------------------------------------
Up to $49,999 5.75% 6.10% 4.75% 4.99%
- ---------------------------------------------------------------------------------
$50,000 - $99,999 4.75% 4.99% 4.25% 4.44%
- ---------------------------------------------------------------------------------
$100,000 - $249,999 3.50% 3.63% 3.50% 3.63%
- ---------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 2.56% 2.50% 2.56%
- ---------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 2.04% 2.00% 2.04%
- ---------------------------------------------------------------------------------
$1,000,000 or more*** 0.00% 0.00% 0.00% 0.00%
- ---------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 69
For Absolute Return Currency and Income
<Table>
<Caption>
- -----------------------------------------------------------------------------------------
SALES CHARGE* AS A
PERCENTAGE OF SALES CHARGE* AS A
PUBLIC OFFERING PERCENTAGE OF
TOTAL MARKET VALUE PRICE** NET AMOUNT INVESTED
- -----------------------------------------------------------------------------------------
Up to $49,999 3.00% 3.09%
- -----------------------------------------------------------------------------------------
$50,000 - $99,999 3.00% 3.09%
- -----------------------------------------------------------------------------------------
$100,000 - $249,999 2.50% 2.56%
- -----------------------------------------------------------------------------------------
$250,000 - $499,999 2.00% 2.04%
- -----------------------------------------------------------------------------------------
$500,000 - $999,999 1.50% 1.52%
- -----------------------------------------------------------------------------------------
$1,000,000 or more*** 0.00% 0.00%
- -----------------------------------------------------------------------------------------
</Table>
* Because of rounding in the calculation of purchase price, the portion of
the sales charge retained by the distributor may vary and the actual
sales charge you pay may be more or less than the sales charge calculated
using these percentages.
** Purchase price includes the sales charge.
*** Although there is no sales charge for purchases with a total market value
over $1,000,000, and therefore no re-allowance, the distributor may pay a
financial institution the following: a sales commission of up to 1.00%
for a sale with a total market value of $1,000,000 to $2,999,999; a sales
commission up to 0.50% for a sale of $3,000,000 to $9,999,999; and a
sales commission up to 0.25% for a sale of $10,000,000 or more.
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.
TABLE 10. PUBLIC OFFERING PRICE
<Table>
<Caption>
1.0 MINUS PUBLIC
NET ASSET MAXIMUM OFFERING
FUND VALUE SALES CHARGE PRICE
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- -----------------------------------------------------------------------------------------
Portfolio Builder Aggressive $12.20 0.9425 $12.94
- -----------------------------------------------------------------------------------------
Portfolio Builder Conservative 10.43 0.9525 10.95
- -----------------------------------------------------------------------------------------
Portfolio Builder Moderate 11.36 0.9425 12.05
- -----------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive 11.73 0.9425 12.45
- -----------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative 10.85 0.9525 11.39
- -----------------------------------------------------------------------------------------
Portfolio Builder Total Equity 12.61 0.9425 13.38
- -----------------------------------------------------------------------------------------
S&P 500 Index (for Class D) No sales
5.54 charge 5.54
- -----------------------------------------------------------------------------------------
Small Company Index 8.40 0.9425 8.91
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- -----------------------------------------------------------------------------------------
Equity Value 13.43 0.9425 14.25
- -----------------------------------------------------------------------------------------
Precious Metals and Mining 14.08 0.9425 14.94
- -----------------------------------------------------------------------------------------
Small Cap Advantage 5.99 0.9425 6.36
- -----------------------------------------------------------------------------------------
Small Cap Growth 4.97 0.9425 5.27
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- -----------------------------------------------------------------------------------------
Retirement Plus 2010 10.91 0.9425 11.58
- -----------------------------------------------------------------------------------------
Retirement Plus 2015 11.03 0.9425 11.70
- -----------------------------------------------------------------------------------------
Retirement Plus 2020 11.07 0.9425 11.75
- -----------------------------------------------------------------------------------------
Retirement Plus 2025 11.08 0.9425 11.76
- -----------------------------------------------------------------------------------------
Retirement Plus 2030 11.13 0.9425 11.81
- -----------------------------------------------------------------------------------------
Retirement Plus 2035 11.06 0.9425 11.73
- -----------------------------------------------------------------------------------------
Retirement Plus 2040 11.11 0.9425 11.79
- -----------------------------------------------------------------------------------------
Retirement Plus 2045 11.10 0.9425 11.78
- -----------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 70
<Table>
<Caption>
1.0 MINUS PUBLIC
NET ASSET MAXIMUM OFFERING
FUND VALUE SALES CHARGE PRICE
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- -----------------------------------------------------------------------------------------
Aggressive Growth $ 9.85 0.9425 $10.45
- -----------------------------------------------------------------------------------------
Fundamental Growth 7.00 0.9425 7.43
- -----------------------------------------------------------------------------------------
Fundamental Value 7.02 0.9425 7.45
- -----------------------------------------------------------------------------------------
High Yield Bond 3.02 0.9525 3.17
- -----------------------------------------------------------------------------------------
Income Builder Basic Income 10.79 0.9525 11.33
- -----------------------------------------------------------------------------------------
Income Builder Enhanced Income 11.08 0.9525 11.63
- -----------------------------------------------------------------------------------------
Income Builder Moderate Income 10.99 0.9525 11.54
- -----------------------------------------------------------------------------------------
Select Value 5.93 0.9425 6.29
- -----------------------------------------------------------------------------------------
Short Duration U.S. Government 4.73 0.9525 4.97
- -----------------------------------------------------------------------------------------
Small Cap Equity 6.79 0.9425 7.20
- -----------------------------------------------------------------------------------------
Small Cap Value 6.56 0.9425 6.96
- -----------------------------------------------------------------------------------------
U.S. Government Mortgage 5.00 0.9525 5.25
- -----------------------------------------------------------------------------------------
Value 5.66 0.9425 6.01
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- -----------------------------------------------------------------------------------------
Dividend Opportunity 9.65 0.9425 10.24
- -----------------------------------------------------------------------------------------
Real Estate 15.83 0.9425 16.80
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- -----------------------------------------------------------------------------------------
Cash Management No sales
1.00 charge 1.00
- -----------------------------------------------------------------------------------------
Core Bond 9.48 0.9525 9.95
- -----------------------------------------------------------------------------------------
Disciplined Equity 7.22 0.9425 7.66
- -----------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity 9.55 0.9425 10.13
- -----------------------------------------------------------------------------------------
Disciplined Small Cap Value 10.00 0.9425 10.61
- -----------------------------------------------------------------------------------------
Floating Rate 9.70 0.9525 10.18
- -----------------------------------------------------------------------------------------
Growth 32.73 0.9425 34.73
- -----------------------------------------------------------------------------------------
Income Opportunities 9.99 0.9525 10.49
- -----------------------------------------------------------------------------------------
Inflation Protected Securities 9.69 0.9525 10.17
- -----------------------------------------------------------------------------------------
Large Cap Equity 6.05 0.9425 6.42
- -----------------------------------------------------------------------------------------
Large Cap Value 5.71 0.9425 6.06
- -----------------------------------------------------------------------------------------
Limited Duration Bond 9.58 0.9525 10.06
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- -----------------------------------------------------------------------------------------
California Tax-Exempt 5.03 0.9525 5.28
- -----------------------------------------------------------------------------------------
Diversified Bond 4.81 0.9525 5.05
- -----------------------------------------------------------------------------------------
Massachusetts Tax-Exempt 5.21 0.9525 5.47
- -----------------------------------------------------------------------------------------
Michigan Tax-Exempt 5.17 0.9525 5.43
- -----------------------------------------------------------------------------------------
Minnesota Tax-Exempt 5.14 0.9525 5.40
- -----------------------------------------------------------------------------------------
New York Tax-Exempt 4.93 0.9525 5.18
- -----------------------------------------------------------------------------------------
Ohio Tax-Exempt 5.16 0.9525 5.42
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- -----------------------------------------------------------------------------------------
Balanced 11.46 0.9425 12.16
- -----------------------------------------------------------------------------------------
Disciplined Large Cap Growth 10.36 0.9425 10.99
- -----------------------------------------------------------------------------------------
Diversified Equity Income 14.34 0.9425 15.21
- -----------------------------------------------------------------------------------------
Mid Cap Value 10.15 0.9425 10.77
- -----------------------------------------------------------------------------------------
Strategic Allocation 12.48 0.9425 13.24
- -----------------------------------------------------------------------------------------
Strategic Income Allocation 9.84 0.9525 10.33
- -----------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 71
<Table>
<Caption>
1.0 MINUS PUBLIC
NET ASSET MAXIMUM OFFERING
FUND VALUE SALES CHARGE PRICE
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- -----------------------------------------------------------------------------------------
Absolute Return Currency and Income $10.09 0.9525 $10.59
- -----------------------------------------------------------------------------------------
Disciplined International Equity 9.82 0.9425 10.42
- -----------------------------------------------------------------------------------------
Emerging Markets 11.32 0.9425 12.01
- -----------------------------------------------------------------------------------------
Emerging Markets Bond 10.16 0.9525 10.67
- -----------------------------------------------------------------------------------------
European Equity 5.39 0.9425 5.72
- -----------------------------------------------------------------------------------------
Global Bond 6.60 0.9525 6.93
- -----------------------------------------------------------------------------------------
Global Equity 7.52 0.9425 7.98
- -----------------------------------------------------------------------------------------
Global Technology 2.42 0.9425 2.57
- -----------------------------------------------------------------------------------------
International Aggressive Growth 9.42 0.9425 9.99
- -----------------------------------------------------------------------------------------
International Equity 8.47 0.9425 8.99
- -----------------------------------------------------------------------------------------
International Opportunity 9.54 0.9425 10.12
- -----------------------------------------------------------------------------------------
International Select Value 11.00 0.9425 11.67
- -----------------------------------------------------------------------------------------
International Small Cap 9.35 0.9425 9.92
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- -----------------------------------------------------------------------------------------
Intermediate Tax-Exempt 5.33 0.9525 5.60
- -----------------------------------------------------------------------------------------
Mid Cap Growth 14.40 0.9425 15.28
- -----------------------------------------------------------------------------------------
Tax-Exempt Bond 3.90 0.9525 4.09
- -----------------------------------------------------------------------------------------
Tax-Exempt High Income 4.44 0.9525 4.66
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- -----------------------------------------------------------------------------------------
Tax-Exempt Money Market No sales
1.00 charge 1.00
- -----------------------------------------------------------------------------------------
</Table>
CLASS A - LETTER OF INTENT (LOI)
If you intend to invest $50,000 or more over a period of time, you may be able
to reduce the sales charge for investments in Class A by completing a LOI form
and committing to invest a certain amount. The LOI must be filed with and
accepted in good order by the distributor. The LOI can start at any time and you
will have up to 13 months to fulfill your commitment. The LOI start date can be
backdated by up to 90 days, but backdating the LOI will shorten the going
forward window by the length of the backdating. Your holdings in RiverSource
funds acquired more than 90 days before your financial institution receives your
signed LOI will not be counted towards the LOI commitment amount and cannot be
used as the starting point for the LOI. While these purchases cannot be included
within an LOI, you may still be able to take advantage of a reduced sales charge
on future purchases because the historic purchases may count toward the combined
market value for Rights of Accumulation. For example, if you made an investment
more than 90 days ago, and that investment's current market value is $75,000,
the sales charge you would pay on additional investment is 4.5% until the market
value of your accounts is $100,000, at which point your sales charge will be
reduced to 3.5%. If you plan to invest another $50,000 over the next 13 month
period, you may not rely on a letter of intent to take immediate advantage of
the lower 3.5% sales charge, but instead would naturally realize the lower sales
charge of 3.5% (under Rights of Accumulation) after you invested $25,000. To
take immediate advantage of the 3.5% sales charge level, you would need to sign
a $100,000 LOI and then invest another $100,000. Your investments will be
charged the sales charge that applies to the amount you have committed to invest
under the LOI. Five percent of the commitment amount will be placed in escrow.
The LOI will remain in effect for the entire 13 months, even if you reach your
commitment amount. At the end of the 13-month period, the LOI will end and the
shares will be released from escrow. Once the LOI has ended, future sales
charges will be determined by Rights of Accumulation or the total value of the
new investment combined with the market value of the existing RiverSource fund
investments as described in the prospectus. If you do not invest the commitment
amount by the end of the 13 months, the remaining unpaid sales charge will be
redeemed from the escrowed shares and the remaining balance released from
escrow. The commitment amount does not include purchases in any class of
RiverSource funds other than Class A; does not include reinvested dividends and
directed dividends earned in any RiverSource funds; purchases in RiverSource
funds held within a wrap product; and purchases of RiverSource Cash Management
Fund and RiverSource Tax-Exempt Money Market Fund unless they are subsequently
exchanged to Class A shares of a RiverSource fund within the 13 month period. A
LOI is not an option (absolute right) to buy shares. If you purchase shares
through different channels, for example, in a brokerage account or through a
third party, you must inform your financial institution in writing about the LOI
when placing any purchase orders during the period of the LOI. If you do not
complete and file the LOI form, or do not request the reduced sales charge at
the time of purchase, you will not be eligible for the reduced sales charge.
Statement of Additional Information - Nov. 29, 2007 Page 72
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 C SHARES
Class C shares are available to all investors. Class C shares are sold without a
front-end sales charge. For Class C shares, a 1% CDSC may apply if shares are
sold within one year after purchase. Class C shares are subject to a
distribution fee.
CLASS D SHARES
Class D shares are offered through wrap fee programs or other investment
products. Class D shares are sold without a front-end sales charge or CDSC.
Class D shares are subject to a distribution fee.
CLASS E SHARES
Class E shares are offered to qualifying institutional investors and brokerage
accounts. Class E shares are sold without a front-end sales charge or CDSC.
Class E shares are subject to a plan administration fee.
CLASS I SHARES
Class I shares are offered to qualifying institutional investors. Class I shares
are sold without a front-end sales charge or CDSC.
CLASS R SHARES
Class R2, Class R3, Class R4 and Class R5 shares are offered to certain
institutional investors. Class R2, Class R3, Class R4 and Class R5 shares are
sold without a front-end sales charge or a CDSC. Class R2 and Class R3 shares
are subject to a distribution fee. Class R2, Class R3 and R4 shares are subject
to a plan administration fee. The following investors are eligible to purchase
Class R2, Class R3, Class R4 and Class R5 shares:
- Qualified employee benefit plans;
- Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code;
- Nonqualified deferred compensation plans;
- State sponsored college savings plans established under Section 529 of the
Internal Revenue Code;
- Health Savings Accounts (HSAs) created pursuant to public law 108-173.
Additionally, the following eligible investors may purchase Class R5 shares:
- Institutional or corporate accounts above a threshold established by the
distributor (currently $1 million per fund or $10 million in all
RiverSource funds); and
- Bank Trusts.
CLASS W SHARES
Class W shares are offered to qualifying discretionary accounts. Class W shares
are sold without a front-end sales charge or CDSC. Class W shares are subject to
a distribution fee.
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. Class Y shares are subject
to a plan administration fee. The following investors are eligible to purchase
Class Y shares:
- Qualified employee benefit plans;
- Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code;
- Nonqualified deferred compensation plans; and
- State sponsored college savings plans established under Section 529 of the
Internal Revenue Code.
MONEY MARKET FUNDS
The minimum purchase amount for Board members, 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
Statement of Additional Information - Nov. 29, 2007 Page 73
purchase amount of $100 on a monthly systematic purchase plan. The minimum
amount for additional purchases in a direct-at-fund account is $25 monthly.
SYSTEMATIC INVESTMENT PROGRAMS
You decide how often to make payments - monthly, quarterly, or semiannually.
Provided your account meets the minimum balance requirement, you are not
obligated to make any payments. You can omit payments or discontinue the
investment program altogether. A fund also can change the program or end it at
any time.
REJECTION OF BUSINESS
Each fund and RiverSource Service Corporation reserve the right to reject any
business, in its sole discretion.
SELLING SHARES
You have a right to sell your shares at any time. For an explanation of sales
procedures, please see the applicable prospectus.
During an emergency, the Board can suspend the computation of NAV, stop
accepting payments for purchase of shares, or suspend the duty of a fund to
redeem shares for more than seven days. Such emergency situations would occur
if:
- The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
- Disposal of a fund's securities is not reasonably practicable or it is not
reasonably practicable for the fund to determine the fair value of its net
assets, or,
- The SEC, under the provisions of the 1940 Act, declares a period of
emergency to exist.
Should a fund stop selling shares, the Board may make a deduction from the value
of the assets held by the fund to cover the cost of future liquidations of the
assets so as to distribute these costs fairly among all shareholders.
Each fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the fund as determined by the Board. In these
circumstances, the securities distributed would be valued as set forth in this
SAI. Should a fund distribute securities, a shareholder may incur brokerage fees
or other transaction costs in converting the securities to cash.
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem shares, you may be subject to a contingent deferred
sales charge as discussed in the prospectus. While the plans differ on how the
pay-out is figured, they all are based on the redemption of your investment. Net
investment income dividends and any capital gain distributions will
automatically be reinvested, unless you elect to receive them in cash. If you
redeem an IRA or a qualified retirement account, certain restrictions, federal
tax penalties, and special federal income tax reporting requirements may apply.
You should consult your tax advisor about this complex area of the tax law.
Applications for a systematic investment in a class of a fund subject to a sales
charge normally will not be accepted while a pay-out plan for any of those funds
is in effect. Occasional investments, however, may be accepted.
To start any of these plans, please consult your financial institution. Your
authorization must be received at least five days before the date you want your
payments to begin. Payments will be made on a monthly, bimonthly, quarterly,
semiannual, or annual basis. Your choice is effective until you change or cancel
it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way that can be handled efficiently and at a reasonable cost.
If you need a more irregular schedule of payments, it may be necessary for you
to make a series of individual redemptions, in which case you will have to send
in a separate redemption request for each pay-out. Each fund reserves the right
to change or stop any pay-out plan and to stop making such plans available.
PLAN #1: PAY-OUT FOR A FIXED PERIOD OF TIME
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Statement of Additional Information - Nov. 29, 2007 Page 74
PLAN #2: REDEMPTION OF A FIXED NUMBER OF SHARES
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in your account.
PLAN #3: REDEMPTION OF A FIXED DOLLAR AMOUNT
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
PLAN #4: REDEMPTION OF A PERCENTAGE OF NET ASSET VALUE
Payments are made based on a fixed percentage of the net asset value of the
shares in the account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $100 if the value of your account is $20,000 on
the payment date.
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. Because the measurement periods for a
regulated investment company's income are different for excise tax purposes
verses income tax purposes, special rules are in place to protect the amount of
earnings and profits needed to support excise tax distributions. As a result,
the funds are permitted to treat net capital losses realized between November 1
and its fiscal year end ("post-October loss") as occurring on the first day of
the following tax year. The total capital loss carryovers below include post-
October losses, if applicable. 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. The table is organized by fiscal year end. You can find your
fund's fiscal year end in Table 1.
TABLE 11. CAPITAL LOSS CARRYOVER
<Table>
<Caption>
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
CAPITAL EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
LOSS IN IN IN IN IN IN IN IN IN
FUND CARRYOVERS 2008 2009 2010 2011 2012 2013 2014 2015 2016
- -----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Builder
Aggressive $ 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Builder
Conservative 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Builder
Moderate 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Builder
Moderate
Aggressive 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Builder
Moderate
Conservative 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Builder
Total Equity 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
10,331,1- 2,387,- 5,430,- 2,512,-
S&P 500 Index 19 0 603 872 0 0 644 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Small Company
Index 0 -- -- -- -- -- -- -- -- --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 75
<Table>
<Caption>
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
CAPITAL EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
LOSS IN IN IN IN IN IN IN IN IN
FUND CARRYOVERS 2008 2009 2010 2011 2012 2013 2014 2015 2016
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- -----------------------------------------------------------------------------------------------------------------------
Equity Value $ 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Precious Metals
and Mining 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Small Cap
Advantage 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Small Cap Growth 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- -----------------------------------------------------------------------------------------------------------------------
Retirement Plus
2010 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Retirement Plus
2015 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Retirement Plus
2020 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Retirement Plus
2025 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Retirement Plus
2030 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Retirement Plus
2035 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Retirement Plus
2040 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Retirement Plus
2045 0 -- -- -- -- -- -- -- -- --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 76
<Table>
<Caption>
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
CAPITAL EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
LOSS IN IN IN IN IN IN IN IN IN
FUND CARRYOVERS 2008 2009 2010 2011 2012 2013 2014 2015 2016
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- -----------------------------------------------------------------------------------------------------------------------
$1,192,60- 826,40- 315,34- 23,741- 27,111-
Aggressive Growth 7,972 0 6,866 8,051 ,111 ,944 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Fundamental
Growth 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Fundamental Value 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
1,365,33- 50,473- 226,00- 517,12- 552,66- 19,078-
High Yield Bond 9,132 ,765 1,198 1,802 4,309 0 0 ,058 0 0
- -----------------------------------------------------------------------------------------------------------------------
Income Builder 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Basic Income -- -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Income Builder
Enhanced Income 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Income Builder
Moderate Income 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
2,366,- 2,508,-
Select Value 4,875,220 0 0 0 790 430 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Short Duration 220,701,- 35,174- 117,35- 36,267- 20,469- 9,579,- 1,854,-
U.S. Government 443 ,077 6,906 0 0 0 ,962 ,230 187 081
- -----------------------------------------------------------------------------------------------------------------------
28,072,0- 28,072-
Small Cap Equity 92 0 0 ,092 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Small Cap Value 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government
Mortgage 1,209,634 0 0 0 0 0 0 545,026 664,608 0
- -----------------------------------------------------------------------------------------------------------------------
Value 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- -----------------------------------------------------------------------------------------------------------------------
Dividend 398,074,- 398,07-
Opportunity 003 0 0 0 4,003 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Real Estate 0 -- -- -- -- -- -- -- -- --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 77
<Table>
<Caption>
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
CAPITAL EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
LOSS IN IN IN IN IN IN IN IN IN
FUND CARRYOVERS 2008 2009 2010 2011 2012 2013 2014 2015 2016
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- -----------------------------------------------------------------------------------------------------------------------
Cash Management $ 6,554 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 6,554
- -----------------------------------------------------------------------------------------------------------------------
1,632,-
Core Bond 2,830,266 0 0 0 0 0 0 526,700 056 671,570
- -----------------------------------------------------------------------------------------------------------------------
Disciplined
Equity 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Small
and Mid Cap
Equity 121,627 0 0 0 0 0 0 93,125 21,904 6,598
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Small
Cap Value 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
1,885,-
Floating Rate 1,918,822 0 0 0 0 0 0 0 33,562 260
- -----------------------------------------------------------------------------------------------------------------------
284,278,- 284,27-
Growth 656 0 0 0 8,656 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Income
Opportunities 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Inflation
Protected 2,136,- 1,836,-
Securities 3,973,349 0 0 0 0 0 0 0 395 954
- -----------------------------------------------------------------------------------------------------------------------
158,388,- 51,243- 70,190- 24,231- 12,722-
Large Cap Equity 854 ,861 ,395 ,893 ,705 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Large Cap Value 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Limited Duration 2,946,-
Bond 3,394,837 0 0 0 0 0 0 388,116 394 60,327
- -----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- -----------------------------------------------------------------------------------------------------------------------
California Tax-
Exempt 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
154,484,- 75,831- 49,658- 5,227,- 12,836- 10,930-
Diversified Bond 363 0 ,798 ,521 0 159 0 ,807 0 ,078
- -----------------------------------------------------------------------------------------------------------------------
Massachusetts
Tax-Exempt 121,051 0 0 0 0 0 0 32,687 0 88,364
- -----------------------------------------------------------------------------------------------------------------------
Michigan Tax-
Exempt 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Minnesota Tax-
Exempt 2,437,360 0 0 0 0 0 993,611 913,006 -- 530,743
- -----------------------------------------------------------------------------------------------------------------------
New York Tax-
Exempt 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Ohio Tax-Exempt 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- -----------------------------------------------------------------------------------------------------------------------
695,010,- 300,68- 368,67- 24,886-
Balanced 276 0 757,502 8,916 6,980 ,878 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Large
Cap Growth 245,720 0 0 0 0 0 0 0 245,720 0
- -----------------------------------------------------------------------------------------------------------------------
Diversified
Equity Income 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Mid Cap
Value 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Strategic
Allocation 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Strategic Income
Allocation 27,193 0 0 0 0 0 0 0 27,193 0
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 78
<Table>
<Caption>
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
CAPITAL EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
LOSS IN IN IN IN IN IN IN IN IN
FUND CARRYOVERS 2008 2009 2010 2011 2012 2013 2014 2015 2016
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- -----------------------------------------------------------------------------------------------------------------------
Absolute Return
Currency and
Income $ 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Disciplined
International
Equity 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Emerging Markets 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Emerging Markets
Bond 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
70,998,6- 49,462- 16,514- 5,021,-
European Equity 33 0 ,900 ,518 215 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
6,100,-
Global Bond 6,599,145 0 0 374 498,771 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
468,974,- 294,82- 143,63- 30,509-
Global Equity 678 0 9,842 4,885 ,951 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
362,948,- 281,64- 81,299-
Global Technology 879 0 9,652 ,227 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
International
Aggressive Growth 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
International
Equity 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
International 338,762,- 241,26- 59,231- 38,262-
Opportunity 980 0 8,010 ,998 ,972 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
International
Select Value 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
International
Small Cap 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- -----------------------------------------------------------------------------------------------------------------------
Intermediate Tax-
Exempt 393,731 0 0 0 0 0 0 393,731 0 0
- -----------------------------------------------------------------------------------------------------------------------
Mid Cap Growth 0 -- -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
2,385,-
Tax-Exempt Bond 2,385,866 0 0 0 0 0 0 866 0 0
- -----------------------------------------------------------------------------------------------------------------------
Tax-Exempt High 9,460,-
Income 9,460,668 0 0 0 0 0 0 668 0 0
- -----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money
Market 22,784 166 0 18,331 0 0 4,287 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
</Table>
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.
Statement of Additional Information - Nov. 29, 2007 Page 79
FOR EXAMPLE
You purchase 100 shares of an Equity Fund having a public offering price of
$10.00 per share. With a sales load of 5.75%, you pay $57.50 in sales load. With
a NAV of $9.425 per share, the value of your investment is $942.50. Within 91
days of purchasing that fund, you decide to exchange out of that fund, now at a
NAV of $11.00 per share, up from the original NAV of $9.425, and purchase a
second fund, at a NAV of $15.00 per share. The value of your investment is now
$1,100.00 ($11.00 x 100 shares). You cannot use the $57.50 paid as a sales load
when calculating your tax gain or loss in the sale of the first fund shares. So
instead of having a $100.00 gain ($1,100.00 - $1,000.00), you have a $157.50
gain ($1,100.00 - $942.50). You can include the $57.50 sales load in the
calculation of your tax gain or loss when you sell shares in the second fund.
The following paragraphs provide information based on a fund's investment
category. You can find your fund's investment category in Table 1.
FOR STATE TAX-EXEMPT FIXED INCOME AND TAX-EXEMPT FIXED INCOME FUNDS, all
distributions of net investment income during the year will have the same
percentage designated as tax-exempt. This annual percentage is expected to be
substantially the same as the percentage of tax-exempt income actually earned
during any particular distribution period.
FOR BALANCED, EQUITY, FUNDS-OF-FUNDS, TAXABLE MONEY MARKET AND TAXABLE FIXED
INCOME FUNDS, if you have a nonqualified investment in a fund and you wish to
move part or all of those shares to an IRA or qualified retirement account in
the fund, you can do so without paying a sales charge. However, this type of
exchange is considered a redemption of shares and may result in a gain or loss
for tax purposes. In addition, this type of exchange may result in an excess
contribution under IRA or qualified plan regulations if the amount exchanged
exceeds annual contribution limitations. You should consult your tax advisor for
further details about this complex subject.
Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of a fund's dividend that is
attributable to dividends the fund received from domestic (U.S.) securities. If
there is debt-financed portfolio stock, that is, bank financing is used to
purchase long securities, the 70% dividends received deduction would be reduced
by the average amount of portfolio indebtedness divided by the average adjusted
basis in the stock. This does not impact the qualified dividend income available
to individual shareholders. For the most recent fiscal period, net investment
income dividends qualified for the corporate deduction as shown in the following
table.
Only certain qualified dividend income (QDI) will be subject to the 15% and 5%
(and 0%) 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. 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 (more than 60 days for common stock and more than 90 days for certain
preferred's dividends).
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 12. CORPORATE DEDUCTION AND QUALIFIED DIVIDEND INCOME
<Table>
<Caption>
PERCENT OF DIVIDENDS
QUALIFYING QUALIFIED DIVIDEND INCOME
FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 27.35% 36.66%
- --------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 7.60 10.38
- --------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 17.05 23.07
- --------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive 24.15 32.29
- --------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative 12.62 16.99
- --------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 41.49 55.64
- --------------------------------------------------------------------------------------------------
S&P 500 Index 100.00 100.00
- --------------------------------------------------------------------------------------------------
Small Company Index 100.00 100.00
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 80
<Table>
<Caption>
PERCENT OF DIVIDENDS
QUALIFYING QUALIFIED DIVIDEND INCOME
FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Equity Value 100.00% 100.00%
- --------------------------------------------------------------------------------------------------
Precious Metals and Mining 1.78 10.69
- --------------------------------------------------------------------------------------------------
Small Cap Advantage 20.49 20.53
- --------------------------------------------------------------------------------------------------
Small Cap Growth 18.94 19.28
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Retirement Plus 2010 9.72 13.21
- --------------------------------------------------------------------------------------------------
Retirement Plus 2015 12.59 17.30
- --------------------------------------------------------------------------------------------------
Retirement Plus 2020 15.32 21.40
- --------------------------------------------------------------------------------------------------
Retirement Plus 2025 17.48 24.42
- --------------------------------------------------------------------------------------------------
Retirement Plus 2030 17.11 24.03
- --------------------------------------------------------------------------------------------------
Retirement Plus 2035 16.97 23.78
- --------------------------------------------------------------------------------------------------
Retirement Plus 2040 17.24 24.10
- --------------------------------------------------------------------------------------------------
Retirement Plus 2045 16.31 22.81
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Aggressive Growth 20.97 24.18
- --------------------------------------------------------------------------------------------------
Fundamental Growth 35.34 44.28
- --------------------------------------------------------------------------------------------------
Fundamental Value 100.00 100.00
- --------------------------------------------------------------------------------------------------
High Yield Bond 0 0
- --------------------------------------------------------------------------------------------------
Income Builder Basic Income 9.45 10.91
- --------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 9.71 11.64
- --------------------------------------------------------------------------------------------------
Income Builder Moderate Income 11.65 13.13
- --------------------------------------------------------------------------------------------------
Select Value 100.00 100.00
- --------------------------------------------------------------------------------------------------
Short Duration U.S. Government 0 0
- --------------------------------------------------------------------------------------------------
Small Cap Equity 0 0
- --------------------------------------------------------------------------------------------------
Small Cap Value 18.32 19.93
- --------------------------------------------------------------------------------------------------
U.S. Government Mortgage 0 0
- --------------------------------------------------------------------------------------------------
Value 97.77 100.00
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Dividend Opportunity 99.84 100.00
- --------------------------------------------------------------------------------------------------
Real Estate 1.61 3.93
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Cash Management 0 0
- --------------------------------------------------------------------------------------------------
Core Bond 0 0
- --------------------------------------------------------------------------------------------------
Disciplined Equity 25.90 26.15
- --------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity 100.00 100.00
- --------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 18.44 18.71
- --------------------------------------------------------------------------------------------------
Floating Rate 0 0
- --------------------------------------------------------------------------------------------------
Growth 100.00 100.00
- --------------------------------------------------------------------------------------------------
Income Opportunities 0 0
- --------------------------------------------------------------------------------------------------
Inflation Protected Securities 0 0
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 81
<Table>
<Caption>
PERCENT OF DIVIDENDS
QUALIFYING QUALIFIED DIVIDEND INCOME
FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Large Cap Equity 48.37% 51.53%
- --------------------------------------------------------------------------------------------------
Large Cap Value 79.11 85.37
- --------------------------------------------------------------------------------------------------
Limited Duration Bond 0 0
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
California Tax-Exempt 0 0
- --------------------------------------------------------------------------------------------------
Diversified Bond 0 0
- --------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt 0 0
- --------------------------------------------------------------------------------------------------
Michigan Tax-Exempt 0 0
- --------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt 0 0
- --------------------------------------------------------------------------------------------------
New York Tax-Exempt 0 0
- --------------------------------------------------------------------------------------------------
Ohio Tax-Exempt 0 0
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Balanced 58.30 62.48
- --------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 0 0
- --------------------------------------------------------------------------------------------------
Diversified Equity Income 100.00 100.00
- --------------------------------------------------------------------------------------------------
Mid Cap Value 65.46 80.61
- --------------------------------------------------------------------------------------------------
Strategic Allocation 53.06 87.46
- --------------------------------------------------------------------------------------------------
Strategic Income Allocation 4.92 4.92
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Absolute Return Currency and Income 0 0
- --------------------------------------------------------------------------------------------------
Disciplined International Equity 0 0
- --------------------------------------------------------------------------------------------------
Emerging Markets 0 100.00
- --------------------------------------------------------------------------------------------------
Emerging Markets Bond 0 0
- --------------------------------------------------------------------------------------------------
European Equity 0 100.00
- --------------------------------------------------------------------------------------------------
Global Bond 0 0
- --------------------------------------------------------------------------------------------------
Global Equity 99.99 100.00
- --------------------------------------------------------------------------------------------------
Global Technology 0 0
- --------------------------------------------------------------------------------------------------
International Aggressive Growth 0.11 77.83
- --------------------------------------------------------------------------------------------------
International Equity 0 39.74
- --------------------------------------------------------------------------------------------------
International Opportunity 0 100.00
- --------------------------------------------------------------------------------------------------
International Select Value 0 52.44
- --------------------------------------------------------------------------------------------------
International Small Cap 0 31.95
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 0 0
- --------------------------------------------------------------------------------------------------
Mid Cap Growth 0 0
- --------------------------------------------------------------------------------------------------
Tax-Exempt Bond 0 0
- --------------------------------------------------------------------------------------------------
Tax-Exempt High Income 0 0
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 0 0
- --------------------------------------------------------------------------------------------------
</Table>
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 - Nov. 29, 2007 Page 82
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.
The 1995 Minnesota Legislature enacted a statement of intent (codified at Minn.
Stat. sec. 289A.50, subdivision 10) that interest on obligations of Minnesota
governmental units and Indian tribes be included in net income of individuals,
estates and trusts for Minnesota income tax purposes if a court determines that
Minnesota's exemption of such interest unlawfully discriminates against
interstate commerce because interest on obligations of governmental issuers
located in other states is so included. This provision applies to taxable years
that begin during or after the calendar year in which any such court decision
becomes final, irrespective of the date on which the obligations were issued.
Only two states have addressed whether a state's exemption of interest on its
own bonds or those of its political subdivisions, but not of interest on the
bonds of other states or their political subdivisions, unlawfully discriminates
against interstate commerce or otherwise contravenes the United States
Constitution. A court in Ohio decided in 1994 that the Ohio law was not
unconstitutional. However, the Kentucky Court of Appeals held early in 2006 that
the Kentucky law violated the Commerce Clause. The Kentucky Supreme Court
declined to review this decision, however, the U.S. Supreme Court accepted
certiorari in May 2007, and is expected to review the case in the fall of 2007.
The Funds cannot predict the likelihood that interest on the Minnesota bonds
held by the Funds would become taxable for Minnesota income tax purposes under
Section 289A.50, subdivision 10.
Similarly, the other State Tax-Exempt Funds cannot predict the likelihood that
interest on state and municipal bonds held in such funds would become taxable
under such applicable state law.
See Appendix B for more information regarding state tax-exempt funds.
Statement of Additional Information - Nov. 29, 2007 Page 83
SERVICE PROVIDERS
INVESTMENT MANAGEMENT SERVICES
RiverSource Investments is the investment manager for each fund. Under the
Investment Management Services Agreement, the investment manager, subject to the
policies set by the Board, provides investment management services.
For its services, the investment manager is paid a fee based on the following
schedule. Each class of a fund pays its proportionate share of the fee. The fee
is calculated for each calendar day on the basis of net assets as of the close
of the preceding day.
TABLE 13. INVESTMENT MANAGEMENT SERVICES AGREEMENT FEE SCHEDULE
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ---------------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income First $1.0 0.890% 0.890%
Next 1.0 0.865
Next 1.0 0.840
Next 3.0 0.815
Next 1.5 0.790
Next 1.5 0.775
Next 1.0 0.770
Next 5.0 0.760
Next 5.0 0.750
Next 4.0 0.740
Next 26.0 0.720
Over 50.0 0.700
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth First $0.50 0.890 0.886
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 0.529
Next 1.0 0.505
Next 1.0 0.480
Next 3.0 0.455
Next 1.5 0.430
Next 2.5 0.410
Next 5.0 0.390
Next 9.0 0.370
Over 24.0 0.350
- ---------------------------------------------------------------------------------------------------------------------
California Tax-Exempt First $0.25 0.410 California - 0.410
Massachusetts Tax-Exempt Next 0.25 0.385 Massachusetts - 0.410
Michigan Tax-Exempt Next 0.25 0.360 Michigan - 0.410
Minnesota Tax-Exempt Next 0.25 0.345 Minnesota - 0.405
New York Tax-Exempt Next 6.5 0.320 New York - 0.410
Ohio Tax-Exempt Next 2.5 0.310 Ohio - 0.410
Next 5.0 0.300
Next 9.0 0.290
Next 26.0 0.270
Over 50.0 0.250
- ---------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 84
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Cash Management First $1.0 0.330% 0.285%
Next 0.5 0.313
Next 0.5 0.295
Next 0.5 0.278
Next 2.5 0.260
Next 1.0 0.240
Next 1.5 0.220
Next 1.5 0.215
Next 1.0 0.190
Next 5.0 0.180
Next 5.0 0.170
Next 4.0 0.160
Over 24.0 0.150
- ---------------------------------------------------------------------------------------------------------------------
Core Bond First $1.0 0.480 Core Bond - 0.480
Diversified Bond Next 1.0 0.455 Diversified Bond - 0.455
Limited Duration Bond Next 1.0 0.430 Limited Duration Bond - 0.480
Next 3.0 0.405
Next 1.5 0.380
Next 1.5 0.365
Next 1.0 0.360
Next 5.0 0.350
Next 5.0 0.340
Next 4.0 0.330
Next 26.0 0.310
Over 50.0 0.290
- ---------------------------------------------------------------------------------------------------------------------
Disciplined Equity First $1.0 0.600 Disciplined Equity - 0.577
Disciplined Large Cap Growth Next 1.0 0.575 Disciplined Large Cap Growth - 0.600
Diversified Equity Income Next 1.0 0.550 Diversified Equity Income - 0.535
Growth Next 3.0 0.525 Growth - 0.571
Large Cap Equity Next 1.5 0.500 Large Cap Equity - 0.547
Large Cap Value Next 2.5 0.485 Large Cap Value - 0.600
Next 5.0 0.470
Next 5.0 0.450
Next 4.0 0.425
Next 26.0 0.400
Over 50.0 0.375
- ---------------------------------------------------------------------------------------------------------------------
Disciplined International Equity First $0.25 0.800 Disciplined International Equity - 0.800
European Equity Next 0.25 0.775 European Equity - 0.800
Global Equity Next 0.25 0.750 Global Equity - 0.776
International Opportunity Next 0.25 0.725 International Opportunity - 0.779
Next 1.0 0.700
Next 5.5 0.675
Next 2.5 0.660
Next 5.0 0.645
Next 5.0 0.635
Next 4.0 0.610
Next 26.0 0.600
Over 50.0 0.570
- ---------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 85
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity First $1.0 0.700% Disciplined Small and Mid Cap
Mid Cap Growth Next 1.0 0.675 Equity - 0.700%
Next 1.0 0.650 Mid Cap Growth - 0.694
Next 3.0 0.625
Next 1.5 0.600
Next 2.5 0.575
Next 5.0 0.550
Next 9.0 0.525
Next 26.0 0.500
Over 50.0 0.475
- ---------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value First $0.25 0.850 0.850
Next 0.25 0.825
Next 0.25 0.800
Next 0.25 0.775
Next 1.0 0.750
Over 2.0 0.725
- ---------------------------------------------------------------------------------------------------------------------
Dividend Opportunity First $0.50 0.610 0.578
Next 0.50 0.585
Next 1.0 0.560
Next 1.0 0.535
Next 3.0 0.510
Next 4.0 0.480
Next 5.0 0.470
Next 5.0 0.450
Next 4.0 0.425
Next 26.0 0.400
Over 50.0 0.375
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets First $0.25 1.100 1.087
Next 0.25 1.080
Next 0.25 1.060
Next 0.25 1.040
Next 1.0 1.020
Next 5.5 1.000
Next 2.5 0.985
Next 5.0 0.970
Net 5.0 0.960
Next 4.0 0.935
Next 26.0 0.920
Over 50.0 0.900
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond First $0.25 0.720 Emerging Markets Bond - 0.720
Global Bond Next 0.25 0.695 Global Bond - 0.708
Next 0.25 0.670
Next 0.25 0.645
Next 6.5 0.620
Next 2.5 0.605
Next 5.0 0.590
Next 5.0 0.580
Next 4.0 0.560
Next 26.0 0.540
Over 50.0 0.520
- ---------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 86
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Equity Value First $0.50 0.530% 0.510%
Next 0.50 0.505
Next 1.0 0.480
Next 1.0 0.455
Next 3.0 0.430
Over 6.0 0.400
- ---------------------------------------------------------------------------------------------------------------------
Floating Rate First $1.0 0.610 0.610
Income Opportunities Next 1.0 0.585
Next 1.0 0.560
Next 3.0 0.535
Next 1.5 0.510
Next 1.5 0.495
Next 1.0 0.470
Next 5.0 0.455
Next 5.0 0.445
Next 4.0 0.420
Next 26.0 0.405
Over 50.0 0.380
- ---------------------------------------------------------------------------------------------------------------------
Fundamental Growth First $1.0 0.780 0.780
Next 1.0 0.755
Next 1.0 0.730
Next 3.0 0.705
Over 6.0 0.680
- ---------------------------------------------------------------------------------------------------------------------
Fundamental Value First $0.50 0.730 Fundamental Value - 0.711
Value Next 0.50 0.705 Value - 0.730
Next 1.0 0.680
Next 1.0 0.655
Next 3.0 0.630
Over 6.0 0.600
- ---------------------------------------------------------------------------------------------------------------------
Global Technology First $0.25 0.720 0.720
Next 0.25 0.695
Next 0.25 0.670
Next 0.25 0.645
Next 1.0 0.620
Over 2.0 0.595
- ---------------------------------------------------------------------------------------------------------------------
High Yield Bond First $1.0 0.590 0.578
Next 1.0 0.565
Next 1.0 0.540
Next 3.0 0.515
Next 1.5 0.490
Next 1.5 0.475
Next 1.0 0.450
Next 5.0 0.435
Next 5.0 0.425
Next 4.0 0.400
Next 26.0 0.385
Over 50.0 0.360
- ---------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 87
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income N/A N/A N/A
Income Builder Enhanced Income
Income Builder Moderate Income
Portfolio Builder Aggressive
Portfolio Builder Conservative
Portfolio Builder Moderate
Portfolio Builder Moderate Aggressive
Portfolio Builder Moderate Conservative
Portfolio Builder Total Equity
Retirement Plus 2010
Retirement Plus 2015
Retirement Plus 2020
Retirement Plus 2025
Retirement Plus 2030
Retirement Plus 2035
Retirement Plus 2040
Retirement Plus 2045
- ---------------------------------------------------------------------------------------------------------------------
Inflation Protected Securities First $1.0 0.440% 0.440%
Next 1.0 0.415
Next 1.0 0.390
Next 3.0 0.365
Next 1.5 0.340
Next 1.5 0.325
Next 1.0 0.320
Next 5.0 0.310
Next 5.0 0.300
Next 4.0 0.290
Next 26.0 0.270
Over 50.0 0.250
- ---------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt First $1.0 0.390 0.390
Next 1.0 0.365
Next 1.0 0.340
Next 3.0 0.315
Next 1.5 0.290
Next 2.5 0.280
Next 5.0 0.270
Next 35.0 0.260
Over 50.0 0.250
- ---------------------------------------------------------------------------------------------------------------------
International Aggressive Growth First $0.25 1.000 0.988
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
- ---------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 88
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
International Select Value First $0.25 0.900% 0.830%
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 0.679
Next 1.0 0.675
Next 1.0 0.650
Next 3.0 0.625
Next 1.5 0.600
Next 2.5 0.575
Next 5.0 0.550
Next 9.0 0.525
Next 26.0 0.500
Over 50.0 0.475
- ---------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining First $0.25 0.800 0.800
Next 0.25 0.775
Next 0.25 0.750
Next 0.25 0.725
Next 1.0 0.700
Over 2.0 0.675
- ---------------------------------------------------------------------------------------------------------------------
Real Estate First $1.0 0.840 0.840
Next 1.0 0.815
Next 1.0 0.790
Next 3.0 0.765
Next 6.0 0.740
Next 12.0 0.730
Over 24.0 0.720
- ---------------------------------------------------------------------------------------------------------------------
S&P 500 Index First $1.0 0.220 0.220
Next 1.0 0.210
Next 1.0 0.200
Next 4.5 0.190
Next 2.5 0.180
Next 5.0 0.170
Next 9.0 0.160
Next 26.0 0.140
Over 50.0 0.120
- ---------------------------------------------------------------------------------------------------------------------
Select Value First $0.50 0.780 0.775
Next 0.50 0.755
Next 1.0 0.730
Next 1.0 0.705
Next 3.0 0.680
Over 6.0 0.650
- ---------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 89
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government First $1.0 0.480% 0.480%
Next 1.0 0.455
Next 1.0 0.430
Next 3.0 0.405
Next 1.5 0.380
Next 1.5 0.365
Next 1.0 0.340
Next 5.0 0.325
Next 5.0 0.315
Next 4.0 0.290
Next 26.0 0.275
Over 50.0 0.250
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Advantage First $0.25 0.790 0.772
Next 0.25 0.765
Next 0.25 0.740
Next 0.25 0.715
Next 1.0 0.690
Over 2.0 0.665
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Equity First $0.25 0.970 0.964
Next 0.25 0.945
Next 0.25 0.920
Next 0.25 0.895
Over 1.0 0.870
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Growth First $0.25 0.920 0.920
Next 0.25 0.895
Next 0.25 0.870
Next 0.25 0.845
Next 1.0 0.820
Over 2.0 0.795
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Value First $0.25 0.970 0.933
Next 0.25 0.945
Next 0.25 0.920
Next 0.25 0.895
Over 1.0 0.870
- ---------------------------------------------------------------------------------------------------------------------
Small Company Index First $0.25 0.360 0.343
Next 0.25 0.350
Next 0.25 0.340
Next 0.25 0.330
Next 6.5 0.320
Next 7.5 0.300
Next 9.0 0.280
Next 26.0 0.260
Over 50.0 0.240
- ---------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 90
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Strategic Allocation First $1.0 0.570% 0.554
Next 1.0 0.545
Next 1.0 0.520
Next 3.0 0.495
Next 1.5 0.470
Next 2.5 0.450
Next 5.0 0.430
Next 9.0 0.410
Over 24.0 0.390
- ---------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation First $0.25 0.550 0.550
Next 0.25 0.525
Next 0.25 0.500
Over 0.75 0.475
- ---------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond First $1.0 0.410 0.410
Next 1.0 0.385
Next 1.0 0.360
Next 3.0 0.335
Next 1.5 0.310
Next 2.5 0.300
Next 5.0 0.290
Next 9.0 0.280
Next 26.0 0.260
Over 50.0 0.250
- ---------------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income First $1.0 0.470 0.442
Next 1.0 0.445
Next 1.0 0.420
Next 3.0 0.395
Next 1.5 0.370
Next 2.5 0.360
Next 5.0 0.350
Next 9.0 0.340
Next 26.0 0.320
Over 50.0 0.300
- ---------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market First $1.0 0.330 0.330
Next 0.5 0.313
Next 0.5 0.295
Next 0.5 0.278
Next 2.5 0.260
Next 1.0 0.240
Next 1.5 0.220
Next 1.5 0.215
Next 1.0 0.190
Next 5.0 0.180
Next 5.0 0.170
Next 4.0 0.160
Over 24.0 0.150
- ---------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 91
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage First $1.0 0.480% 0.480%
Next 1.0 0.455
Next 1.0 0.430
Next 3.0 0.405
Next 1.5 0.380
Next 1.5 0.365
Next 1.0 0.360
Next 5.0 0.350
Next 5.0 0.340
Next 4.0 0.330
Next 26.0 0.310
Over 50.0 0.290
- ---------------------------------------------------------------------------------------------------------------------
</Table>
The management fee is paid monthly. Under the agreement, a fund also pays taxes,
brokerage commissions and nonadvisory expenses, which include custodian fees and
charges; fidelity bond premiums; certain legal fees; registration fees for
shares; consultants' fees; compensation of Board members, officers and employees
not employed by the investment manager or its affiliates; corporate filing fees;
organizational expenses; expenses incurred in connection with lending
securities; interest and fee expense related to a fund's participation in
inverse floater structures; and expenses properly payable by a fund, approved by
the Board.
For Equity and Balanced Funds, except for S&P 500 Index and Small Company Index,
before the fee based on the asset charge is paid, it is adjusted for the fund's
investment performance relative to a Lipper Index (Index) as shown in the table
below. The adjustment increased or decreased the fee for the last fiscal period
as shown in the following table. The table is organized by fiscal year end. You
can find your fund's fiscal year end in Table 1.
TABLE 14. LIPPER INDEXES
<Table>
<Caption>
FEE INCREASE OR
FUND LIPPER INDEX (DECREASE)
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING MARCH 31
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Equity Value Lipper Large-Cap Value Funds $ 842,685
- ----------------------------------------------------------------------------------------------
Precious Metals and Mining Lipper Gold Funds (20,073)
- ----------------------------------------------------------------------------------------------
Small Cap Advantage Lipper Small-Cap Core Funds (506,105)
- ----------------------------------------------------------------------------------------------
Small Cap Growth Lipper Small-Cap Growth Funds 74,739
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING MAY 31
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Aggressive Growth Lipper Mid-Cap Growth Funds (363,354)
- ----------------------------------------------------------------------------------------------
Fundamental Growth Lipper Large-Cap Growth Funds 3,495
- ----------------------------------------------------------------------------------------------
Fundamental Value Lipper Large-Cap Value Funds (596,440)
- ----------------------------------------------------------------------------------------------
Select Value Lipper Multi-Cap Value Funds 151,566
- ----------------------------------------------------------------------------------------------
Small Cap Equity Lipper Small-Cap Core Funds (259,546)
- ----------------------------------------------------------------------------------------------
Small Cap Value Lipper Small-Cap Value Funds 77,314
- ----------------------------------------------------------------------------------------------
Value Lipper Large-Cap Value Funds (29,980)
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING JUNE 30
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Dividend Opportunity Lipper Equity Income Funds 1,238,194
- ----------------------------------------------------------------------------------------------
Real Estate Lipper Real Estate Funds 155,486
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING JULY 31
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Disciplined Equity Lipper Large-Cap Core Funds 716,428
- ----------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity Lipper Mid-Cap Core Funds (17,062)
- ----------------------------------------------------------------------------------------------
Disciplined Small Cap Value Lipper Small-Cap Value Funds (13,668)
- ----------------------------------------------------------------------------------------------
Growth Lipper Large-Cap Growth Funds 2,987,141
- ----------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 92
<Table>
<Caption>
FEE INCREASE OR
FUND LIPPER INDEX (DECREASE)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Large Cap Equity Lipper Large-Cap Core Funds $ 788,515
- ----------------------------------------------------------------------------------------------
Large Cap Value Lipper Large-Cap Value Funds (3,332)
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING SEPTEMBER 30
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Balanced Lipper Balanced Funds 520,967
- ----------------------------------------------------------------------------------------------
Disciplined Large Cap Growth Lipper Large-Cap Growth Funds 0(a)
- ----------------------------------------------------------------------------------------------
Diversified Equity Income Lipper Equity Income Funds 1,134,237
- ----------------------------------------------------------------------------------------------
Mid Cap Value Lipper Mid-Cap Value Funds 578,014
- ----------------------------------------------------------------------------------------------
Strategic Allocation Lipper Flexible Portfolio Funds 929,457
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING OCTOBER 31
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Lipper International Large-Cap Core
Disciplined International Equity Funds 0(b)
- ----------------------------------------------------------------------------------------------
Emerging Markets Lipper Emerging Markets Funds 105,658
- ----------------------------------------------------------------------------------------------
European Equity Lipper European Funds (71,748)
- ----------------------------------------------------------------------------------------------
Global Equity Lipper Global Funds 527,514
- ----------------------------------------------------------------------------------------------
Global Technology Lipper Science and Technology Funds 113,421
- ----------------------------------------------------------------------------------------------
Lipper International Multi-Cap
International Aggressive Growth Growth Funds (262,382)
- ----------------------------------------------------------------------------------------------
International Equity Lipper International Funds (3,284)
- ----------------------------------------------------------------------------------------------
Lipper International Large-Cap Core
International Opportunity Funds 194,820
- ----------------------------------------------------------------------------------------------
Lipper International Multi-Cap Value
International Select Value Funds 1,234,231
- ----------------------------------------------------------------------------------------------
International Small Cap Lipper International Small-Cap Funds (117,356)
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING NOVEMBER 30
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Mid Cap Growth Lipper Mid-Cap Growth Funds (1,683,464)
- ----------------------------------------------------------------------------------------------
</Table>
(a) For the period from May 17, 2007 (when shares became publicly available)
to Sept. 30, 2007.
(b) For the period from May 18, 2006 (when shares became publicly available)
to Oct. 31, 2006.
The adjustment will be determined monthly 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 - Nov. 29, 2007 Page 93
TABLE 15. PERFORMANCE INCENTIVE ADJUSTMENT CALCULATION
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------
EQUITY FUNDS BALANCED FUNDS
- --------------------------------------------------------------------------------------------------------
PERFORMANCE PERFORMANCE
DIFFERENCE ADJUSTMENT RATE DIFFERENCE ADJUSTMENT RATE
- --------------------------------------------------------------------------------------------------------
0.00% - 0.50% 0 0.00% - 0.50% 0
- --------------------------------------------------------------------------------------------------------
0.50% - 1.00% 6 basis points times the 0.50% - 1.00% 6 basis points times the
performance difference over 0.50%, performance difference over 0.50%,
times 100 (maximum of 3 basis times 100 (maximum of 3 basis
points if a 1% performance points if a 1% performance
difference) difference)
- --------------------------------------------------------------------------------------------------------
1.00% - 2.00% 3 basis points, plus 3 basis points 1.00% - 2.00% 3 basis points, plus 3 basis points
times the performance difference times the performance difference
over 1.00%, times 100 (maximum 6 over 1.00%, times 100 (maximum 6
basis points if a 2% performance basis points if a 2% performance
difference) difference)
- --------------------------------------------------------------------------------------------------------
2.00% - 4.00% 6 basis points, plus 2 basis points 2.00% - 3.00% 6 basis points, plus 2 basis points
times the performance difference times the performance difference
over 2.00%, times 100 (maximum 10 over 2.00%, times 100 (maximum 8
basis points if a 4% performance basis points if a 3% performance
difference) difference)
- --------------------------------------------------------------------------------------------------------
4.00% - 6.00% 10 basis points, plus 1 basis point 3.00% or 8 basis points
times the performance difference more
over 4.00%, times 100 (maximum 12
basis points if a 6% performance
difference)
- --------------------------------------------------------------------------------------------------------
6.00% or more 12 basis points
- --------------------------------------------------------------------------------------------------------
</Table>
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.
CHANGE IN INDEX
If an Index ceases to be published for a period of more than 90 days, changes in
any material respect, otherwise becomes impracticable or, at the discretion of
the Board, is no longer appropriate to use for purposes of a performance
incentive adjustment, for example, if Lipper reclassifies the fund from one peer
group to another, the Board may take action it deems appropriate and in the best
interests of shareholders, including: (1) discontinuance of the performance
incentive adjustment until such time as it approves a substitute index; or (2)
adoption of a methodology to transition to a substitute index it has approved.
In the case of a change in index, a fund's performance will be compared to a 12
month blended index return that reflects the performance of the current index
for the portion of the 12 month performance measurement period beginning the
effective date of the current index and the performance of the prior index for
the remainder of the measurement period. At the conclusion of the transition
period, the performance of the prior index will be eliminated from the
performance incentive adjustment calculation, and the calculation will include
only the performance of the current index.
TRANSITION PERIOD
The performance incentive adjustment will not be calculated for the first 6
months from the inception of the fund. After 6 full calendar months, the
performance fee adjustment will be determined using the average assets and
performance difference over the first 6 full calendar months, and the adjustment
rate will be applied in full. Each successive month an additional calendar month
will be added to the performance adjustment computation. After 12 full calendar
months, the full rolling 12-month period will take affect.
Statement of Additional Information - Nov. 29, 2007 Page 94
The table below shows the total management fees paid by each fund for the last
three fiscal periods as well as nonadvisory expenses, net of earnings credits,
waivers and expenses reimbursed by the investment manager and its affiliates.
The table is organized by fiscal year end. You can find your fund's fiscal year
end in Table 1.
TABLE 16. MANAGEMENT FEES AND NONADVISORY EXPENSES
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------
MANAGEMENT FEES NONADVISORY EXPENSES
- ---------------------------------------------------------------------------------------------------------------------
FUND 2007 2006 2005 2007 2006 2005
- ---------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive N/A* $ 204,941 $ 55,141(a)$ 209,004 $ 154,484 $ 34,746(a)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative N/A* 71,579 23,875(a) 134,788 117,318 43,296(a)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate N/A* 342,180 93,838(a) 246,216 251,538 142,907(a)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate
Aggressive N/A* 418,633 112,009(a) 355,360 269,480 116,480(a)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate
Conservative N/A* 137,483 43,118(a) 140,615 144,243 75,264(a)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity N/A* 165,740 43,835(a) 188,843 122,935 27,696(a)
- ---------------------------------------------------------------------------------------------------------------------
S&P 500 Index $ 566,109 706,270 933,587 (272,996) (357,906) (402,204)
- ---------------------------------------------------------------------------------------------------------------------
Small Company Index 3,889,499 4,419,815 4,547,058 (662,392) 471,768 536,282
- ---------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Equity Value 6,969,436 7,043,854 6,836,800 361,720 400,520 465,953
- ---------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining 876,127 579,779 659,595 144,337 207,159 176,012
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Advantage 4,703,119 5,845,601 6,341,134 (252,816) 510,707 533,489
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Growth 2,066,992 1,878,991 2,276,290 111,014 343,335 421,008
- ---------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 N/A(b) N/A N/A 4,075(b) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 N/A(b) N/A N/A 3,927(b) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 N/A(b) N/A N/A 6,231(b) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 N/A(b) N/A N/A 4,478(b) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 N/A(b) N/A N/A 2,766(b) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 N/A(b) N/A N/A 878(b) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 N/A(b) N/A N/A 2,640(b) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 N/A(b) N/A N/A (2,522)(b) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth 4,627,106 1,950,153 399,501 (1,047,823) (167,264) 82,999
- ---------------------------------------------------------------------------------------------------------------------
Fundamental Growth 1,824,581 987,877 410,475 158,403 191,085 177,899
- ---------------------------------------------------------------------------------------------------------------------
Fundamental Value 7,530,722 7,971,622 5,556,219 (215,041) 501,862 488,580
- ---------------------------------------------------------------------------------------------------------------------
High Yield Bond 11,401,845 12,713,321 14,973,845 481,606 688,374 817,018
- ---------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income N/A N/A N/A 145,971 3,184(c) N/A
- ---------------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income N/A N/A N/A 153,282 6,657(c) N/A
- ---------------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income N/A N/A N/A 202,410 7,419(c) N/A
- ---------------------------------------------------------------------------------------------------------------------
Select Value 4,807,861 5,211,061 5,256,934 (162,440) 330,794 423,030
- ---------------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government 4,419,003 6,683,201 10,141,504 (1,025,939) (1,688,300) (958,143)
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Equity 2,964,236 2,525,974 1,560,155 (464,274) (134,739) 6,490
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Value 9,159,989 9,285,758 9,857,858 (878,605) 735,477 788,885
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 1,348,887 1,327,433 1,532,464 (438,473) (549,885) (188,134)
- ---------------------------------------------------------------------------------------------------------------------
Value 2,884,225 3,018,867 3,311,867 (12,895) 275,068 285,856
- ---------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 95
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------
MANAGEMENT FEES NONADVISORY EXPENSES
- ---------------------------------------------------------------------------------------------------------------------
FUND 2007 2006 2005 2007 2006 2005
- ---------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Dividend Opportunity $10,678,661 $ 7,688,134 $ 6,201,403 $ 540,349 $ 480,473 $ 453,329
- ---------------------------------------------------------------------------------------------------------------------
Real Estate 2,299,121 1,398,778 725,491 207,925 153,244 133,564
- ---------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Cash Management 12,713,351 10,801,723 12,052,160 859,062 (1,747,535) 1,220,672
- ---------------------------------------------------------------------------------------------------------------------
Core Bond 1,096,973 991,804 846,872 (66,961) (58,636) 99,940
- ---------------------------------------------------------------------------------------------------------------------
Disciplined Equity 14,110,274 5,175,451 408,720 (202,920) (83,131) 130,016
- ---------------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap
Equity 273,481 13,335(d) N/A 91,799 4,577(d) N/A
- ---------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 206,071 49,035(e) N/A 37,535 9,684(e) N/A
- ---------------------------------------------------------------------------------------------------------------------
Floating Rate 3,332,472 412,667(e) N/A 151,486 19,402(e) N/A
- ---------------------------------------------------------------------------------------------------------------------
Growth 22,705,786 19,922,079 18,968,320 954,358 1,214,759 1,217,404
- ---------------------------------------------------------------------------------------------------------------------
Income Opportunities 2,116,555 2,229,460 1,954,757 187,627 198,512 214,865
- ---------------------------------------------------------------------------------------------------------------------
Inflation Protected Securities 1,313,892 1,078,635 552,220 (126,032) (45,905) 28,432
- ---------------------------------------------------------------------------------------------------------------------
Large Cap Equity 39,667,264 20,724,477 9,680,873 1,168,504 682,652 161,534
- ---------------------------------------------------------------------------------------------------------------------
Large Cap Value 602,406 715,200 803,736 184,710 186,504 293,194
- ---------------------------------------------------------------------------------------------------------------------
Limited Duration Bond 726,809 990,881 960,788 (73,339) (96,959) 57,170
- ---------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
California Tax-Exempt(f) 717,999 1,008,174 1,010,591 20,854 (8,449) 116,440
- ---------------------------------------------------------------------------------------------------------------------
Diversified Bond 12,770,016 12,388,294 13,003,467 (1,129,485) (1,870,049) (1,032,114)
- ---------------------------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt(f) 220,140 347,506 372,649 5,447 19,719(g) 74,396(g)
- ---------------------------------------------------------------------------------------------------------------------
Michigan Tax-Exempt(f) 186,717 286,107 294,025 3,199 (9,110)(g) 36,732
- ---------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt(f) 1,351,439 1,898,065 1,895,714 676,782 599,362(g) 580,040(g)
- ---------------------------------------------------------------------------------------------------------------------
New York Tax-Exempt(f) 279,438 402,241 434,449 134,099 133,306(g) 146,336(g)
- ---------------------------------------------------------------------------------------------------------------------
Ohio Tax-Exempt(f) 187,674 285,080 307,214 1,386 (12,492)(g) 43,253(g)
- ---------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Balanced 6,315,077 5,690,832 7,169,932 368,447 563,493 651,610
- ---------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 114,048(h) N/A N/A 54,709(h) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Diversified Equity Income 42,530,087 37,321,661 24,183,415 1,561,033 1,761,776 1,530,714
- ---------------------------------------------------------------------------------------------------------------------
Mid Cap Value 15,908,732 11,459,838 5,816,781 826,273 728,841 531,095
- ---------------------------------------------------------------------------------------------------------------------
Strategic Allocation 11,025,000 7,064,937 5,960,581 921,198 665,164 642,432
- ---------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation 168,875(h) N/A N/A 76,656(h) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
2006 2005 2004 2006 2005 2004
- ---------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Absolute Return Currency and
Income 176,149(i) N/A N/A 28,907(i) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Disciplined International Equity 147,388(j) N/A N/A 48,716(j) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets 5,659,680 3,801,760 2,770,886 745,246 636,569 519,598
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond 191,237(k) N/A N/A 77,772(k) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
European Equity 821,750 837,577 872,149 182,061 224,833 236,203
- ---------------------------------------------------------------------------------------------------------------------
Global Bond 3,734,676 4,359,713 4,143,713 (159,716) 408,133 427,277
- ---------------------------------------------------------------------------------------------------------------------
Global Equity 5,791,016 4,471,632 3,302,062 517,920 485,178 506,708
- ---------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 96
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------
Management Fees Nonadvisory expenses
- ---------------------------------------------------------------------------------------------------------------------
FUND 2006 2005 2004 2006 2005 2004
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Global Technology $ 1,327,883 $ 1,574,791 $ 1,812,789 $ 249,939 $ 282,889 $ 304,625
- ---------------------------------------------------------------------------------------------------------------------
International Aggressive Growth 4,039,162 3,119,859 1,878,346 530,707 384,996 250,484
- ---------------------------------------------------------------------------------------------------------------------
International Equity 1,767,556 1,431,433 1,015,577 265,839 323,432 316,320
- ---------------------------------------------------------------------------------------------------------------------
International Opportunity 4,840,788 3,988,205 2,926,933 505,513 566,027 442,832
- ---------------------------------------------------------------------------------------------------------------------
International Select Value 15,936,398 10,340,380 6,467,621 990,734 812,998 473,274
- ---------------------------------------------------------------------------------------------------------------------
International Small Cap 1,050,011 933,818 600,389 246,920 333,478 208,586
- ---------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 435,316 644,499 752,882 (25,206) 67,781 136,017
- ---------------------------------------------------------------------------------------------------------------------
Mid Cap Growth 9,852,112 10,413,718 10,550,526 670,574 901,194 744,839
- ---------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 3,345,629 3,066,023 3,457,986 905,255 661,982(l) 510,620(l)
- ---------------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 15,027,647 17,998,361 20,079,644 8,025,340 7,139,120(l) 5,135,426(l)
- ---------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 390,170 423,253 515,265 118,441 116,613 177,477
- ---------------------------------------------------------------------------------------------------------------------
</Table>
* Effective Feb. 1, 2006, this fee was eliminated.
(a) For the period from March 4, 2004 (when shares became publicly available)
to Jan. 31, 2005.
(b) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(c) For the period from Feb. 16, 2006 (when shares became publicly available)
to May 31, 2006.
(d) For the period from May 18, 2006 (when shares became publicly available)
to July 31, 2006.
(e) For the period from Feb. 16, 2006 (when shares became publicly available)
to July 31, 2006.
(f) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For
2006, the information shown is from July 1, 2005 through Aug. 31, 2006.
For years prior to 2006, the fiscal period ended June 30.
(g) During 2006, the Fund changed the method of accounting for its
participation in inverse floater structures. Previously, nonadvisory
expenses for fiscal year end 2006, 2005 and 2004 were reported as
$(22,871), $43,112 and $52,958 for Massachusetts Tax-Exempt Fund,
$(13,107), $36,732 and $43,425 for Michigan Tax-Exempt Fund, $(68,320),
$161,536 and $182,884 for Minnesota Tax-Exempt Fund, $(21,864), $54,945
and $62,139 for New York Tax-Exempt Fund and $(16,487), $38,356 and
$43,070 for Ohio Tax-Exempt Fund, respectively.
(h) For the period from May 17, 2007 (when shares became publicly available)
to Sept. 30, 2007.
(i) For the period from June 15, 2006 (when the Fund became available) to
Oct. 31, 2006.
(j) For the period from May 18, 2006 (when shares became publicly available)
to Oct. 31, 2006.
(k) For the period from Feb. 16, 2006 (when shares became publicly available)
to Oct. 31, 2006.
(l) During 2006, the Fund changed the method of accounting for its
participation in inverse floater structures. Previously, nonadvisory
expenses for fiscal year end 2005 and 2004 were reported as $136,155 and
$248,267 for Tax-Exempt Bond Fund, and $308,271 and $976,647 for Tax-
Exempt High Income Fund, respectively.
MANAGER OF MANAGERS EXEMPTION
The RiverSource funds have received an order from the SEC that permits
RiverSource Investments, subject to the approval of the Board, to appoint a
subadviser or change the terms of a subadvisory agreement for a fund without
first obtaining shareholder approval. The order permits the fund to add or
change unaffiliated subadvisers or the fees paid to subadvisers from time to
time without the expense and delays associated with obtaining shareholder
approval of the change.
For California Tax-Exempt, Cash Management, Diversified Bond, Global Bond, High
Yield Bond, Intermediate Tax-Exempt, Massachusetts Tax-Exempt, Michigan Tax-
Exempt, Minnesota Tax-Exempt, New York Tax-Exempt, Ohio Tax-Exempt, Short
Duration U.S. Government, Tax-Exempt Bond, Tax-Exempt High Income, Tax-Exempt
Money Market and U.S. Government Mortgage funds: before the fund may rely on the
order, holders of a majority of the fund's outstanding voting securities will
need to approve operating the fund in this manner. There is no assurance
shareholder approval will be received, and no changes will be made without
shareholder approval until that time.
SUBADVISORY AGREEMENTS
The assets of certain funds are managed by subadvisers that have been selected
by the investment manager, subject to the review and approval of the Board. The
investment manager has recommended the subadvisers to the Board based upon its
assessment of the skills of the subadvisers in managing other assets with
objectives and investment strategies substantially similar to those of the
applicable fund. Short-term investment performance is not the only factor in
selecting or terminating a subadviser, and the investment manager does not
expect to make frequent changes of subadvisers. Certain subadvisers, affiliated
with the investment manager, have been directly approved by shareholders. These
subadvisers are noted in Table 18.
Statement of Additional Information - Nov. 29, 2007 Page 97
The investment manager allocates the assets of a fund with multiple subadvisers
among the subadvisers. Each subadviser has discretion, subject to oversight by
the Board and the investment manager, to purchase and sell portfolio assets,
consistent with the fund's investment objectives, policies, and restrictions.
Generally, the services that a subadviser provides to the fund are limited to
asset management and related recordkeeping services.
The investment manager has entered into an advisory agreement with each
subadviser under which the subadviser provides investment advisory assistance
and day-to-day management of some or all of the fund's portfolio, as well as
investment research and statistical information. A subadviser may also serve as
a discretionary or non-discretionary investment adviser to management or
advisory accounts that are unrelated in any manner to the investment manager or
its affiliates.
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 17. SUBADVISERS AND SUBADVISORY AGREEMENT FEE SCHEDULES
<Table>
<Caption>
PARENT
COMPANY,
FUND SUBADVISER NAME IF ANY FEE SCHEDULE
- --------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ---------------------------------------------------------------------------
Small Cap Advantage Kenwood Capital Management LLC A 0.60% on the first $100 million,
reducing to
(Kenwood)(a), (c) 0.45% as assets increase, and
(effective May 4, 1999) subject to a performance incentive
adjustment(b)
- ---------------------------------------------------------------------------
Small Cap Growth Essex Investment Management B 0.70% on the first $20 million,
Company, LLC reducing to
0.60% as assets increase
(effective Sept. 23, 2005)
----------------------------------------------------------------------------------
Federated MDTA, LLC (MDTA) C 0.60% on all assets
(effective Sept. 23, 2005)
----------------------------------------------------------------------------------
Turner Investment Partners, LLC N/A 0.60% on the first $50 million,
reducing to
(Turner) 0.50% as assets increase
(effective Aug. 18, 2003)
----------------------------------------------------------------------------------
UBS Global Asset N/A 0.55% on the first $150 million,
Management (Americas) (UBS) reducing to
0.50% as assets increase
(effective Aug. 18, 2003)
- ---------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ---------------------------------------------------------------------------
Aggressive Growth American Century D 0.50% on the first $100 million,
reducing to
(effective April 24, 2003) 0.38% as assets increase
----------------------------------------------------------------------------------
Turner N/A 0.55% on the first $100 million,
(effective April 24, 2003) reducing to
0.38% as assets increase
- ---------------------------------------------------------------------------
Fundamental Growth Goldman Sachs Asset Management, E 0.50% on the first $50 million,
L.P. (Goldman) reducing to 0.30% as assets
(effective April 24, 2003) increase
----------------------------------------------------------------------------------
Wellington Management Company, LLP N/A 0.50% on the first $50 million,
(Wellington Management) reducing to 0.40% as assets
(effective April 26, 2005) increase
- ---------------------------------------------------------------------------
Fundamental Value Davis Selected Advisers, N/A 0.45% on the first $100 million,
LP (Davis)(a), (c) reducing to
(effective June 18, 2001) 0.25% as assets increase
- ---------------------------------------------------------------------------
Select Value Systematic Financial Management, F 0.50% on the first $50 million,
L.P. (Systematic)(c) reducing to 0.30% as assets
(effective Sept. 29, 2006) increase
----------------------------------------------------------------------------------
WEDGE Capital Management L.L.P. N/A 0.75% on the first $10 million,
(WEDGE)(c) reducing to 0.30% as assets
(effective Sept. 29, 2006) increase
- ---------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 98
<Table>
<Caption>
PARENT
COMPANY,
FUND SUBADVISER NAME IF ANY FEE SCHEDULE
- --------------------------------------------------------------------------------------------------------------
Small Cap Equity American Century D 0.65% on the first $25 million,
(effective Dec. 12, 2003) reducing to 0.55% as assets
increase
----------------------------------------------------------------------------------
Lord, Abbett & Co. LLC N/A 0.65% on the first $100 million,
(Lord Abbett) reducing to
(effective Dec. 12, 2003) 0.55% as assets increase
----------------------------------------------------------------------------------
Wellington Management N/A 0.60%, subject to a performance
(effective March 8, 2002) incentive adjustment(d)
- ---------------------------------------------------------------------------
Small Cap Value Barrow, Hanley, Mewhinney & G 1.00% on the first $10 million,
Strauss (BHMS)(c) reducing to 0.30% as assets
(effective March 12, 2004) increase
----------------------------------------------------------------------------------
Donald Smith & Co., Inc. N/A 0.60% on the first $175 million,
(Donald Smith)(c) reducing to
(effective March 12, 2004) 0.55% as assets increase
----------------------------------------------------------------------------------
Franklin Portfolio Associates H 0.60% on the first $100 million,
LLC(c) (Franklin Portfolio reducing to
Associates) 0.55% as assets increase
(effective March 12, 2004)
----------------------------------------------------------------------------------
Metropolitan West Capital I 0.50% on all assets
Management, LLC (MetWest Capital)
(effective April 24, 2006)
- ---------------------------------------------------------------------------
Value Lord Abbett N/A 0.35% on the first $200 million,
(effective June 18, 2001) reducing to
0.25% as assets increase
- ---------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ---------------------------------------------------------------------------
Emerging Markets Threadneedle International J 0.45% of the first $150 million,
Limited(a) reducing to
(Threadneedle) 0.30% as assets increase, and
(effective July 9, 2004) subject to a performance incentive
adjustment(e)
- ---------------------------------------------------------------------------
European Equity Threadneedle(a) J 0.35% of the first $150 million,
(effective July 9, 2004) reducing to
0.20% as assets increase, and
subject to a performance incentive
adjustment(e)
- ---------------------------------------------------------------------------
Global Equity Threadneedle(a) J 0.35% of the first $150 million,
(effective July 9, 2004) reducing to 0.20% as assets
increase, and subject to a
performance incentive
adjustment(e)
- ---------------------------------------------------------------------------
International Columbia Wanger Asset Management K 0.70% on the first $100 million,
Aggressive Growth L.P. reducing to
(Columbia WAM) 0.50% as assets increase
(effective Sept. 5, 2001)
----------------------------------------------------------------------------------
Principal Global Investors, N/A 0.55% on the first $100 million,
LLC (Principal) reducing to
(effective April 24, 2006) 0.42% as assets increase
- ---------------------------------------------------------------------------
International Equity The Boston Company Asset L 0.50% on the first $150 million,
Management, LLC reducing to
(Boston Company) 0.35% as assets increase
(effective Sept. 25, 2002)
----------------------------------------------------------------------------------
Marsico Capital Management, M 0.55% on the first $100 million,
LLC (Marsico) reducing to 0.45% as assets
(effective Oct. 1, 2004) increase
- ---------------------------------------------------------------------------
International Opportunity Threadneedle(a) J 0.35% of the first $150 million,
(effective July 9, 2004) reducing to 0.20% as assets
increase, and subject to a
performance incentive
adjustment(e)
- ---------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 99
<Table>
<Caption>
PARENT
COMPANY,
FUND SUBADVISER NAME IF ANY FEE SCHEDULE
- --------------------------------------------------------------------------------------------------------------
International Select Value Alliance Capital Management L.P. N/A 0.65% on the first $75 million,
(Alliance Capital) reducing to 0.30% as assets
(effective Sept. 17, 2001) increase
- ---------------------------------------------------------------------------
International Small Cap AIG Global Investment Corp. N 0.75% on the first $100 million,
(AIGGIC) reducing to
(effective April 24, 2006) 0.70% as assets increase
----------------------------------------------------------------------------------
Batterymarch Financial Management, O 0.75% on the first $100 million,
Inc. reducing to
(Batterymarch) 0.70% as assets increase
(effective April 24, 2006)
- ---------------------------------------------------------------------------
</Table>
(a) Davis is a 1940 Act affiliate of the investment manager because it owns
or has owned more than 5% of the public issued securities of the
investment manager's parent company, Ameriprise Financial. Kenwood is an
affiliate of the investment manager as an indirect partially-owned
subsidiary of Ameriprise Financial. Threadneedle is an affiliate of the
investment manager as an indirect wholly-owned subsidiary of Ameriprise
Financial.
(b) The adjustment will increase or decrease based on the performance of the
subadviser's allocated portion of the fund compared to the performance
of the Russell 2000 Index, up to a maximum adjustment of 12 basis points
(0.12%).
(c) The fee is calculated based on the combined net assets subject to the
subadviser's investment management.
(d) The adjustment will increase or decrease based on the performance of the
subadviser's allocated portion of the fund compared to the performance
of the Russell 2000 Index, up to a maximum adjustment of 10 basis points
(0.10%).
(e) 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.
(f) These rates are retroactive. When average daily net assets fall within
this range, the corresponding rate applies to all the assets in the
fund, e.g., if average daily net assets are $200 million, the fee rate
of 0.60% applies to the entire $200 million balance.
A - Kenwood is an indirect partially-owned subsidiary of Ameriprise
Financial.
B - Essex is majority owned by Affiliated Managers Group.
C - Federated MDTA LLC is an indirect subsidiary of Federated Investors,
Inc.
D - American Century Investment Management, Inc. is a direct, wholly-owned
subsidiary of American Century Companies, Inc.
E - Goldman is an affiliate of Goldman Sachs & Co.
F - Systematic is an affiliate of Affiliated Managers Group.
G - BHMS is an independent-operating subsidiary of Old Mutual Asset
Management.
H - Franklin Portfolio Associates is an indirect wholly-owned subsidiary of
Mellon Financial Corporation.
I - MetWest Capital is a majority-owned subsidiary of Evergreen Investments
and Wachovia Corporation.
J - Threadneedle is an indirect wholly-owned subsidiary of Ameriprise
Financial.
K - 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.
L - Boston Company is a subsidiary of Mellon Financial Corporation and an
affiliate of The Dreyfus Corporation.
M - Marsico is an indirect wholly-owned subsidiary of Bank of America
Corporation.
N - AIGGIC is an indirect wholly-owned subsidiary of American International
Group, Inc. (AIG).
O - Batterymarch is a wholly-owned, independent subsidiary of Legg Mason,
Inc.
Statement of Additional Information - Nov. 29, 2007 Page 100
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 18. SUBADVISORY FEES
<Table>
<Caption>
SUBADVISORY FEES PAID
-----------------------------------------
FUND SUBADVISER 2007 2006 2005
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- -----------------------------------------------------------------------------------------------------------------
Small Cap Advantage Kenwood $3,180,483 $2,856,138 $3,089,403
- -----------------------------------------------------------------------------------------------------------------
Small Cap Growth Essex 281,295 120,556(a) N/A
-------------------------------------------------------------------------------------
MDTA 411,034 165,110(a) N/A
-------------------------------------------------------------------------------------
Turner 265,516 321,406 371,758
-------------------------------------------------------------------------------------
UBS 342,871 371,341 342,815
-------------------------------------------------------------------------------------
Former Subadviser: Bjurman, Barry &
Associates
(from Aug. 18, 2003 to Sept. 23, 2005) N/A 175,818(b) 366,178
-------------------------------------------------------------------------------------
Former Subadviser: RS Investment
Management, L.P.
(from Jan. 24, 2001 to Sept. 23, 2005) N/A 257,675(b) 581,602
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- -----------------------------------------------------------------------------------------------------------------
Aggressive Growth American Century 1,321,245 512,880 114,981
-------------------------------------------------------------------------------------
Turner 1,304,994 525,422 119,529
- -----------------------------------------------------------------------------------------------------------------
Fundamental Growth Goldman 524,246 322,470 143,448
-------------------------------------------------------------------------------------
Wellington Management* 511,380 323,866 21,015(c)
-------------------------------------------------------------------------------------
Former subadviser: Eagle Asset
Management, Inc., a subsidiary of Raymond
James Financial, Inc.
(from inception to April 26, 2005) N/A N/A 139,312(d)
- -----------------------------------------------------------------------------------------------------------------
Fundamental Value Davis 3,673,544 3,787,565 2,834,365
- -----------------------------------------------------------------------------------------------------------------
Select Value Systematic 753,292(e) N/A N/A
-------------------------------------------------------------------------------------
WEDGE 776,260(e) N/A N/A
-------------------------------------------------------------------------------------
Former subadviser: GAMCO Asset Management
Inc.
(from inception to September 28, 2006) 786,466(f) 2,763,925 2,709,039
- -----------------------------------------------------------------------------------------------------------------
Small Cap Equity American Century 662,396 457,181 302,079
-------------------------------------------------------------------------------------
Lord Abbett 677,462 433,241 278,497
-------------------------------------------------------------------------------------
Wellington Management* 650,960 614,053 388,922
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 101
<Table>
<Caption>
SUBADVISORY FEES PAID
-----------------------------------------
FUND SUBADVISER 2007 2006 2005
- -----------------------------------------------------------------------------------------------------------------
Small Cap Value BHMS $ 970,241 $1,008,072 $ 823,441
-------------------------------------------------------------------------------------
Donald Smith 1,180,183 1,242,221 992,659
-------------------------------------------------------------------------------------
Franklin Portfolio Associates 1,198,029 1,289,120 957,263
-------------------------------------------------------------------------------------
MetWest Capital 1,769,553 225,545(g) N/A
-------------------------------------------------------------------------------------
Former subadviser: Royce & Associates,
LLC
(from inception to April 24, 2006) N/A 1,395,487(h) 2,287,184
-------------------------------------------------------------------------------------
Former subadviser: Goldman Sachs Asset
Management, L.P.
(from Aug. 2002 to April 24, 2006) 38,601 1,312,424(h) 1,599,715
- -----------------------------------------------------------------------------------------------------------------
Value Lord Abbett 1,236,484 1,369,949 1,389,323
- -----------------------------------------------------------------------------------------------------------------
2006 2005 2004
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- -----------------------------------------------------------------------------------------------------------------
Emerging Markets Threadneedle 2,170,719 1,556,386 361,626(i)
-------------------------------------------------------------------------------------
Former subadviser: American Express Asset
Management International Inc. (AEAMI)
(from inception until July 8, 2004) N/A N/A 942,983(j)
- -----------------------------------------------------------------------------------------------------------------
European Equity Threadneedle 356,308 432,362 131,177
-------------------------------------------------------------------------------------
Former subadviser: AEAMI
(from inception until July 8, 2004) N/A N/A 316,031(j)
- -----------------------------------------------------------------------------------------------------------------
Global Equity Threadneedle 2,358,731 1,621,159 449,149
-------------------------------------------------------------------------------------
Former subadviser: AEAMI
(from inception until July 8, 2004) N/A N/A 484,676(j)
- -----------------------------------------------------------------------------------------------------------------
International Aggressive Columbia WAM 1,264,808 985,095 709,378
-------------------------------------------------------------------------------------
Growth Principal 632,882(k) N/A N/A
-------------------------------------------------------------------------------------
Former subadviser: American Century
Global Investment Management**
(from Jan. 2005 to April 24, 2006) 821,124(l) 959,879 542,561
- -----------------------------------------------------------------------------------------------------------------
International Equity Boston Company 463,380 412,238 288,191
-------------------------------------------------------------------------------------
Marsico 495,063 410,005 30,840(m)
-------------------------------------------------------------------------------------
Former subadviser: Putnam Investment
Management, LLC
(from inception until Sept. 30, 2004) N/A N/A 308,350(n)
- -----------------------------------------------------------------------------------------------------------------
International Opportunity Threadneedle 1,948,352 1,720,351 434,968(i)
-------------------------------------------------------------------------------------
Former subadviser: AEAMI
(from inception until July 8, 2004) N/A N/A 1,000,707(j)
- -----------------------------------------------------------------------------------------------------------------
International Select Value AllianceBernstein 6,022,579 4,126,134 2,869,277
- -----------------------------------------------------------------------------------------------------------------
International Small Cap AIGGIC 201,650(k) N/A N/A
-------------------------------------------------------------------------------------
Batterymarch 205,659(k) N/A N/A
-------------------------------------------------------------------------------------
Former subadviser: Templeton Investment
Counsel, LLC (Franklin Templeton)
(from Oct. 3, 2002 to April 24, 2006) 226,154(l) 317,358 200,710
-------------------------------------------------------------------------------------
Former subadviser: Wellington Management
Company, LLP together with its affiliate
Wellington Management International Ltd
(from Oct. 3, 2002 to April 24, 2006) 243,185(l) 331,593 215,256
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 102
* Beginning on July 1, 2006, under the Subadvisory Agreement, RiverSource
Investments is subject to a minimum annual fee of $350,000, payable to
Wellington Management.
** American Century Global Investment Management managed the portion of the
Fund's portfolio previously managed by American Century since Sept. 2001.
The change of subadviser is the result of corporate restructuring of
American Century and did not result in any modifications to the
investment objective, principal investment strategies, portfolio
managers, or the fees paid by the Fund.
(a) For the fiscal period from Sept. 23, 2005 to March 31, 2006.
(b) For the fiscal period from April 1, 2005 to Sept. 23, 2005.
(c) For the fiscal period from April 26, 2005 to May 31, 2005.
(d) For the fiscal period from June 1, 2004 to April 26, 2005.
(e) For the fiscal period from Sept. 29, 2006 to May 31, 2007.
(f) For the fiscal period from June 1, 2006 to Sept. 28, 2006.
(g) For the fiscal period from April 24, 2006 to May 31, 2006.
(h) For the fiscal period from June 1, 2005 to April 24, 2006.
(i) For the fiscal period from July 9, 2004 to Oct. 31, 2004.
(j) For the fiscal period from Nov. 1, 2003 to July 8, 2004.
(k) For the fiscal period from April 24, 2006 to Oct. 31, 2006.
(l) For the fiscal period from Nov. 1, 2005 to April 24, 2006.
(m) For the fiscal period from Oct. 1, 2004 to Oct. 31, 2004.
(n) For the fiscal period from Nov. 1, 2003 to Sept. 30, 2004.
Statement of Additional Information - Nov. 29, 2007 Page 103
PORTFOLIO MANAGERS. For funds other than money market funds, the following table
provides information about the fund's 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 19. PORTFOLIO MANAGERS
<Table>
<Caption>
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND)
------------------------------------------------------- POTENTIAL
APPROXIMATE OWNERSHIP CONFLICTS
NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF
FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Kent M. Bergene(b) $10,001 -
Builder $50,000
Aggressive
------------------------- ----------
David M. Joy 5 RICs $2.72 billion None None (1) (29)
------------------------- ----------
Michelle M. Keeley(c) None
------------------------- ----------
William F. Truscott(c) None
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Kent M. Bergene $10,001 -
Builder $50,000
Conservative
------------------------- ----------
David M. Joy 5 RICs $3.11 billion None None (1) (29)
------------------------- ----------
Michelle M. Keeley None
------------------------- ----------
William F. Truscott None
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Kent M. Bergene $10,001 -
Builder $50,000
Moderate
------------------------- ----------
David M. Joy 5 RICs $2.41 billion None None (1) (29)
------------------------- ----------
Michelle M. Keeley $100,001 -
$500,000
------------------------- ----------
William F. Truscott None
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Kent M. Bergene $10,001 -
Builder $50,000
Moderate
Aggressive
------------------------- ----------
David M. Joy 5 RICs $2.2 billion None $100,001 - (1) (29)
$500,000
------------------------- ----------
Michelle M. Keeley None
------------------------- ----------
William F. Truscott $100,001 -
$500,000
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Kent M. Bergene $10,001 -
Builder $50,000
Moderate
Conservative
------------------------- ----------
David M. Joy 5 RICs $2.95 billion None None (1) (29)
------------------------- ----------
Michelle M. Keeley None
------------------------- ----------
William F. Truscott None
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Kent M. Bergene $10,001 -
Builder $50,000
Total Equity
------------------------- ----------
David M. Joy 5 RICs $2.76 billion None None (1) (29)
------------------------- ----------
Michelle M. Keeley None
------------------------- ----------
William F. Truscott None
- ----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index David Factor 2 RICs $1.5 billion None None (2) (30)
2 PIVs $2.4 billion
- ----------------------------------------------------------------------------------------------------------------------------------
Small Company David Factor 2 RICs $0.7 billion None None (2) (30)
Index
2 PIVs $2.4 billion
- ----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Equity Value Warren Spitz $10,001 -
$50,000
------------------------- ----------
Steve Schroll 8 RICs $16.03 billion $50,001 -
1 PIV $104.55 million 5 RICs $100,000 (2) (30)
------------------------- ----------
Laton Spahr 3 other accounts(f) $390.11 million ($15.64 B) $100,001 -
$500,000
------------------------- ----------
Paul Stocking $100,001 -
$500,000
- ----------------------------------------------------------------------------------------------------------------------------------
Precious Clay Hoes 1 PIV $62.62 million None $1 - (2), (3) (30)
Metals and $10,000
Mining
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 104
<Table>
<Caption>
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND)
------------------------------------------------------- POTENTIAL
APPROXIMATE OWNERSHIP CONFLICTS
NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF
FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
Small Cap UBS: Paul A. Graham 6 RICs $931.0 million
Growth 2 PIVs $236.0 million
8 other accounts $470.0 million 1 other account None (4) (31)
--------------------------------------------------------------
UBS: David N. Wabnik 6 RICs $931.0 million ($56 M)
2 PIVs $236.0 million
28 other accounts $461.0 million
-------------------------------------------------------------------------------------------------------------------
Turner: William C. McVail 7 RICs $1.1 billion 1 RIC ($35 M);
9 PIVs $166.0 million 3 other
48 other accounts $3.6 billion accounts
($124 M)
---------------------------------------------------------------------------------
Turner: 18 RICs $4.1 billion 3 RICs
Christopher K. McHugh 35 PIVs $687.0 million ($797 M);
77 other accounts $5.5 billion 5 other
accounts
($249 M) None (5) (32)
---------------------------------------------------------------------------------
Turner: 5 RICs $1.0 billion 1 RIC
Frank L. Sustersic 7 PIVs $95.0 million ($46 M);
47 other accounts $2.4 billion 3 other
accounts
($124 M)
---------------------------------------------------------------------------------
Turner: 13 RICs $3.2 billion 1 RIC
Jason D. Schrotberger 27 PIVs $500.0 million ($20 M);
55 other accounts $2.9 billion 5 other
accounts
($249 M)
-------------------------------------------------------------------------------------------------------------------
Essex: Nancy B. Prial 1 RIC $63.1 million None None (6) (33)
1 PIV $85.5 million
26 other accounts $310.1 million
-------------------------------------------------------------------------------------------------------------------
MDTA: David Goldsmith
-------------------------
MDTA:
Frederick L. Konopka
-------------------------
MDTA: Sarah A. Stahl
-------------------------
MDTA:
Stephen R. Griscom
-------------------------
MDTA: Daniel J. Mahr 7 RICs $448.34 million None None (7) (34)
34 other accounts $7.28 billion
-------------------------
MDTA:
Douglas K. Thunen
-------------------------
MDTA:
Brian M. Greenberg
-------------------------
MDTA: David N. Esch
-------------------------
MDTA: Alok Bhushan
-------------------------
MDTA: David A. Troiano
- ----------------------------------------------------------------------------------------------------------------------------------
Small Cap Kenwood: 1 RIC $201.34 million 1 RIC $100,001 -
Advantage Jake Hurwitz 1 PIV $111.48 million ($201.34 M); $500,000
------------------------- ----------
Kenwood: 22 other accounts $702.14 million 1 other $100,001 - (8) (35)
Kent Kelley account $500,000
($106.42 M)
- ----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Retirement Dimitris Bertsimas 15 RICs $5.87 billion 5 RICs
Plus 2010 3 PIVs $229.57 million ($4.67 B)
18 other accounts $742.89 million None (9) (30)
---------------------------------------------------------------------------------
Colin Lundgren 11 RICs $1.87 billion None
-------------------------
Erol Sonderegger
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 105
<Table>
<Caption>
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND)
------------------------------------------------------- POTENTIAL
APPROXIMATE OWNERSHIP CONFLICTS
NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF
FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
Retirement Dimitris Bertsimas 15 RICs $5.86 billion 5 RICs
Plus 2015 3 PIVs $229.57 million ($4.67 B)
18 other accounts $743.89 million None (9) (30)
---------------------------------------------------------------------------------
Colin Lundgren 11 RICs $1.87 billion
-------------------------
Erol Sonderegger
- ----------------------------------------------------------------------------------------------------------------------------------
Retirement Dimitris Bertsimas 15 RICs $5.85 billion 5 RICs
Plus 2020 3 PIVs $229.57 million ($4.67 B)
18 other accounts $743.89 million None (9) (30)
---------------------------------------------------------------------------------
Colin Lundgren 11 RICs $1.85 billion
-------------------------
Erol Sonderegger
- ----------------------------------------------------------------------------------------------------------------------------------
Retirement Dimitris Bertsimas 15 RICs $5.85 billion 5 RICs
Plus 2025 3 PIVs $229.57 million ($4.67 B)
18 other accounts $743.89 million None (9) (30)
---------------------------------------------------------------------------------
Colin Lundgren 11 RICs $1.85 billion
-------------------------
Erol Sonderegger
- ----------------------------------------------------------------------------------------------------------------------------------
Retirement Dimitris Bertsimas 15 RICs $5.85 billion 5 RICs
Plus 2030 3 PIVs $229.57 million ($4.67 B)
18 other accounts $743.89 million None (9) (30)
---------------------------------------------------------------------------------
Colin Lundgren 11 RICs $1.86 billion
-------------------------
Erol Sonderegger
- ----------------------------------------------------------------------------------------------------------------------------------
Retirement Dimitris Bertsimas 15 RICs $5.87 billion 5 RICs
Plus 2035 3 PIVs $229.57 million ($4.67 B)
18 other accounts $742.89 million None (9) (30)
---------------------------------------------------------------------------------
Colin Lundgren 11 RICs $1.87 billion
-------------------------
Erol Sonderegger
- ----------------------------------------------------------------------------------------------------------------------------------
Retirement Dimitris Bertsimas 15 RICs $5.86 billion 5 RICs
Plus 2040 3 PIVs $229.57 million ($4.67 B)
18 other accounts $743.89 million None (9) (30)
---------------------------------------------------------------------------------
Colin Lundgren 11 RICs $1.87 billion
-------------------------
Erol Sonderegger
- ----------------------------------------------------------------------------------------------------------------------------------
Retirement Dimitris Bertsimas 15 RICs $5.88 billion 5 RICs
Plus 2045 3 PIVs $229.57 million ($4.67 B)
18 other accounts $743.89 million None (9) (30)
---------------------------------------------------------------------------------
Colin Lundgren 11 RICs $1.89 billion
-------------------------
Erol Sonderegger
- ----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Aggressive Turner: 18 RICs $4.2 billion 3 RICs
Growth Christopher K. McHugh 43 PIVs $626.0 million ($836 M);
58 other accounts $4.6 billion 2 PIVs ($4 M);
5 other
accounts
($273 M)
---------------------------------------------------------------------------------
Turner: 9 RICs $2.8 billion 1 RIC ($21 M); None (5) (32)
Tara Hedlund 23 PIVs $330.0 million 2 PIVs ($4 M);
16 other accounts $875.0 million 2 other accounts
($139 M)
---------------------------------------------------------------------------------
Turner: 14 RICs $3.3 billion 1 RIC ($21 M);
Jason Schrotberger 38 PIVs $543.0 million 2 PIVs ($4 M);
53 other accounts $3.1 billion 5 other accounts
($273 M)
-------------------------------------------------------------------------------------------------------------------
American Century: 8 RICs $6.7 billion
Glen A. Fogle 2 other accounts $147.92 million
-------------------------
American Century: None None (10) (36)
David M. Holland
--------------------------------------------------------------
American Century: 5 RICs $3.22 billion
Bradley X. Eixmann 2 other accounts $147.92 million
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 106
<Table>
<Caption>
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND)
------------------------------------------------------- POTENTIAL
APPROXIMATE OWNERSHIP CONFLICTS
NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF
FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
Fundamental Goldman:
Growth Steven M. Barry
-------------------------
Goldman: 22 RICs $9.46 billion 14 other accounts
David G. Shell 1 PIV $10.54 million ($2.98 B) None (11) (37)
-------------------------
Goldman: 373 other accounts $18.98 billion
Gregory H. Ekizian
-------------------------------------------------------------------------------------------------------------------
Wellington Management: 5 RICs $2.30 billion 1 PIV ($312 M); None (12) (38)
Andrew J. Shilling 9 PIVs $2.05 billion 2 other accounts
41 other accounts $9.03 billion ($439 M)
- ----------------------------------------------------------------------------------------------------------------------------------
Fundamental Christopher C. Davis 28 RICs $83.75 billion
Value 12 PIVs $1.34 billion
49,000 other $16.61 billion
accounts(f)
--------------------------------------------------------------
Kenneth C. Feinberg 26 RICs $83.71 billion None None((g)) (13) (39)
12 PIVs $1.34 billion
49,000 other $16.61 billion
accounts(f)
- ----------------------------------------------------------------------------------------------------------------------------------
High Yield Scott Schroepfer 1 RIC $1.25 billion None $100,001 -
Bond $500,000
--------------------------------------------------------------------------------------------
Jennifer Ponce de Leon 5 RICs $8.3 billion None None (2) (30)
1 PIV $19.62 million
8 other accounts $2.31 billion
- ----------------------------------------------------------------------------------------------------------------------------------
Income Builder Dimitris Bertsimas 17 RICs $6.27 billion 6 RICs None
Basic Income 3 PIVs $233.07 million ($5.13 B)
19 other accounts $1.09 billion (9) (30)
--------------------------------------------------------------------------------------------
Colin Lundgren
------------------------- None
Erol Sonderegger 12 RICs $1.86 billion None $10,001 -
$50,000
- ----------------------------------------------------------------------------------------------------------------------------------
Income Builder Dimitris Bertsimas 17 RICs $6.19 billion 6 RICs
Enhanced 3 PIVs $233.07 million ($5.13 B)
Income 19 other accounts $1.09 billion
---------------------------------------------------------------------------------
Colin Lundgren None None (9) (30)
-------------------------
Erol Sonderegger 12 RICs $1.79 billion
- ----------------------------------------------------------------------------------------------------------------------------------
Income Builder Dimitris Bertsimas 17 RICs $5.96 billion 6 RICs $500,001 -
Moderate 3 PIVs $233.07 million ($5.13 B) $1,000,000
Income 19 other accounts $1.09 billion
--------------------------------------------------------------------------------------------
Colin Lundgren $100,001 - (9) (30)
$500,000
------------------------- ----------
Erol Sonderegger 12 RICs $1.56 billion None $10,001 -
$50,000
- ----------------------------------------------------------------------------------------------------------------------------------
Select Value Systematic: 5 RICs $1.06 billion None
Ron Mushock 2 PIVs $26.9 million
1,422 other accounts $1.30 billion None (27) (53)
---------------------------------------------------------------------------------
Systematic: 6 RICs $1.19 billion 1 other
Kevin McCreesh 6 PIVs $832.1 million account
257 other accounts $4.64 billion ($365.0 M)
-------------------------------------------------------------------------------------------------------------------
WEDGE:
R. Michael James
-------------------------
WEDGE: 2 RICs $143.2 million None None (28) (54)
Peter F. Bridge 1 PIV $6.7 million
-------------------------
WEDGE: 231 other accounts $3.9 billion
Paul M. VeZolles
- ----------------------------------------------------------------------------------------------------------------------------------
Short Duration Scott Kirby 10 RICs $12.60 billion 3 RICs ($5.16 B); $10,001 -
U.S. 5 PIVs $1.99 billion 1 other account $50,000
Government 44 other accounts(d) $20.83 billion ($19.48 M) (2) (30)
--------------------------------------------------------------------------------------------
Jamie Jackson 12 RICs $16.63 billion 3 RICs ($5.16 B); $10,001 -
6 PIVs $2.71 billion 1 other account $50,000
29 other accounts(d) $7.58 billion ($40.58 M)
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 107
<Table>
<Caption>
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND)
------------------------------------------------------- POTENTIAL
APPROXIMATE OWNERSHIP CONFLICTS
NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF
FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
Small Cap American Century: 10 RICs $7.05 billion
Equity Thomas P. Vaiana 2 PIVs $121.07 million
3 other accounts $285.37 million
--------------------------------------------------------------
American Century: 6 RICs $2.31 billion
Wihelmine von Turk 1 PIV $67.39 million None None (10) (36)
2 other accounts $270.92 million
--------------------------------------------------------------
American Century: 7 RICs $2.34 billion
Brian Ertley 1 PIV $67.39 million
2 other accounts $270.92 million
-------------------------------------------------------------------------------------------------------------------
Lord Abbett: 3 RICs $1.86 billion None None(h) (14) (40)
Michael T. Smith 14 other accounts $966.20 million
-------------------------------------------------------------------------------------------------------------------
Wellington Management: 3 RICs $1.89 billion
Kenneth L. Abrams 5 PIVs $1.19 billion 1 RIC
9 other accounts $2.27 billion ($1.67 B);
--------------------------------------------------------------
Wellington Management: 3 RICs $1.89 billion 1 other account None (12) (38)
Daniel J. Fitzpatrick 3 PIVs $1.18 billion
9 other accounts $2.27 billion ($364 M)
- ----------------------------------------------------------------------------------------------------------------------------------
Small Cap Donald Smith:
Value
Donald G. Smith 2 RICs $1.79 billion
-------------------------
Donald Smith: 1 PIV $197.0 million None None (15) (41)
Richard L. Greenberg 33 other accounts $2.83 billion
-------------------------------------------------------------------------------------------------------------------
Franklin Portfolio
Associates:
John S. Cone
-------------------------
Franklin Portfolio
Associates:
Michael F. Dunn
-------------------------
Franklin Portfolio 19 RICs $16.8 billion 2 RICs None
Associates: 5 PIVs $784.9 million ($10.6 B); 18 (16) (42)
Oliver E. Buckley 98 other accounts $18.3 billion other accounts
($5.5 B)
-------------------------
Franklin Portfolio
Associates:
Kristin J. Crawford
-------------------------
Franklin Portfolio
Associates:
Langton Garvin
-------------------------
Franklin Portfolio
Associates:
Patrick Slattery
-------------------------------------------------------------------------------------------------------------------
BHMS: James S. McClure
3 RICs $6.92 million
-------------------------
BHMS: John P. 1 PIV $5.5 million None None (17) (43)
Harloe 16 other accounts $811.0 million
-------------------------------------------------------------------------------------------------------------------
MetWest Capital:
Gary W. Lisenbee 4 RICs $326.9 million
------------------------- 4 PIVs $64.2 million
MetWest Capital: 9 other accounts $58.1 million None None (18) (44)
Samir Sikka
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Scott Kirby 10 RICs $12.99 billion 3 RICs $10,001 - (2) (30)
Government 5 PIVs $1.99 billion ($5.16 B); $50,000
Mortgage 44 other accounts(d) $20.83 billion 1 other
account
($19.48 M)
- ----------------------------------------------------------------------------------------------------------------------------------
Value Lord, Abbett: 10 RICs $29.34 billion 1 other
Eli M. Salzmann 9 PIVs $847.8 million account
-------------------------
Lord, Abbett: 43,988 other $19.04 million ($316.3 M) None(i) (14) (40)
Sholom Dinsky
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 108
<Table>
<Caption>
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND)
------------------------------------------------------- POTENTIAL
APPROXIMATE OWNERSHIP CONFLICTS
NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF
FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Dividend Warren Spitz $500,001 -
Opportunity
$1,000,000
------------------------- ----------
Steve Schroll 8 RICs $17.07 billion $100,001 -
1 PIV $82.40 billion 5 RICs $500,000
------------------------- ----------
Laton Spahr 5 other accounts(d) $489.88 million ($16.61) $100,001 - (2) (30)
$500,000
------------------------- ----------
Paul Stocking $50,001 -
$100,000
- ----------------------------------------------------------------------------------------------------------------------------------
Real Estate Julene Melquist None N/A N/A $10,001 - (2),(3) (30)
$50,000
- ----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Core Bond Tom Murphy 7 RICs $11.77 billion 3 RICs $10,001 -
3 PIVs $1.02 billion ($4.96 B) $50,000
13 other accounts $13.24 billion
--------------------------------------------------------------------------------------------
Jamie Jackson 12 RICs $17.27 billion 3 RICs $10,001 -
6 PIVs $2.49 billion ($4.96 B); $50,000
29 other accounts(d) $8.82 billion 1 other account (2) (30)
($27.78 M)
--------------------------------------------------------------------------------------------
Scott Kirby 10 RICs $13.39 billion 3 RICs $10,001 -
6 PIVs $1.93 billion ($4.96 B); $50,000
44 other accounts(d) $20.24 billion 1 other account
($94.02 M)
- ----------------------------------------------------------------------------------------------------------------------------------
Disciplined Dimitris Bertsimas 17 RICs $4.11 billion 5 RICs $100,001 -
Equity
3 PIVs $207.45 million ($2.64 B) $500,000
21 other accounts(d) $1.71 billion (2) (30)
--------------------------------------------------------------------------------------------
Gina Mourtzinou 4 RICs $2.27 billion 4 RICs $50,001 -
5 other accounts $158.02 million ($2.27 B) $100,000
- ----------------------------------------------------------------------------------------------------------------------------------
Disciplined Dimitris Bertsimas 17 RICs $6.80 billion 5 RICs $100,001 -
Small and Mid
Cap Equity
3 PIVs $207.45 million ($2.64 B) $500,000
21 other accounts(d) $1.71 billion
--------------------------------------------------------------------------------------------
Gina Mourtzinou 4 RICs $4.96 billion 4 RICs None (2) (30)
5 other accounts $158.02 million ($2.27 B)
--------------------------------------------------------------------------------------------
Steve Kokkotos 2 RICs $2.08 billion 2 RICs $10,001 -
1 other account $10.86 million ($2.08 B) $50,000
- ----------------------------------------------------------------------------------------------------------------------------------
Disciplined Dimitris Bertsimas 17 RICs $6.88 billion 5 RICs $100,001 -
Small Cap
Value
3 PIVs $207.45 million ($2.64 B) $500,000
21 other accounts(d) $1.71 billion
--------------------------------------------------------------------------------------------
Gina Mourtzinou 4 RICs $5.04 billion 4 RICs $10,001 - (2) (30)
5 other accounts $158.02 million ($2.27 B) $50,000
--------------------------------------------------------------------------------------------
Steve Kokkotos 2 RICs $2.15 billion 2 RICs $10,001 -
1 other account $10.86 million ($2.08 B) $50,000
- ----------------------------------------------------------------------------------------------------------------------------------
Floating Rate Lynn Hopton 14 PIVs $6.21 billion None None
-------------------------
Yvonne Stevens 1 other account $66.22 million
--------------------------------------------------------------------------------------------
Erol Sonderegger $10,001 -
12 RICs $1.47 billion None $50,000 (2) (30)
------------------------- ----------
Colin Lundgren None
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Nick Thakore 6 RICs $12.92 billion 5 RICs None (2) (30)
2 PIVs $1.22 million ($12.52 B)
2 other accounts(d) $90.78 million
- ----------------------------------------------------------------------------------------------------------------------------------
Income Brian Lavin 1 RIC $584.56 million $50,001 -
Opportunity
1 PIV $15.02 million $100,000
1 other account $510.78 million
-------------------------------------------------------------- ----------
Jennifer Ponce de Leon 5 RICs $10.07 billion None $10,001 - (2) (30)
1 PIV $15.02 million $50,000
8 other accounts $2.04 billion
- ----------------------------------------------------------------------------------------------------------------------------------
Inflation Jamie Jackson 12 RICs $17.19 billion 3 RICs $10,001 - (2) (30)
Protected
Securities
6 PIVs $2.49 billion ($4.96 B); $50,000
29 other accounts(d) $8.82 billion 1 other account
($27.78 M)
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 109
<Table>
<Caption>
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND)
------------------------------------------------------- POTENTIAL
APPROXIMATE OWNERSHIP CONFLICTS
NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF
FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
Large Cap Nick Thakore 5 RICs $6.59 billion 4 RICs
Equity
2 PIVs $1.22 million ($6.19 B)
2 other accounts(d) $90.78 million
---------------------------------------------------------------------------------
Bob Ewing 7 RICs $6.93 billion 6 RICs None (2) (30)
2 PIVs $1.22 million ($6.54 B)
2 other accounts(d) $90.78 million
- ----------------------------------------------------------------------------------------------------------------------------------
Large Cap Bob Ewing 7 RICs $13.17 billion 6 RICs None (2) (30)
Value
2 PIVs $1.22 million ($12.77 B)
2 other accounts(d) $90.78 million
- ----------------------------------------------------------------------------------------------------------------------------------
Limited Tom Murphy 7 RICs $11.92 billion 3 RICs $50,001 -
Duration Bond
3 PIVs $1.02 billion ($4.96 B) $100,000
13 other accounts $13.24 billion
--------------------------------------------------------------------------------------------
Jamie Jackson 12 RICs $17.43 billion 3 RICs $10,001 -
6 PIVs $2.49 billion ($4.96 B); $50,000 (2) (30)
29 other accounts(d) $8.82 billion 1 other account
($27.78 M)
--------------------------------------------------------------------------------------------
Scott Kirby 10 RICs $13.55 billion 3 RICs $10,001 -
6 PIVs $1.93 billion ($4.96 B); $50,000
44 other accounts(d) $20.24 billion 1 other account
($94.02 M)
- ----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
California 8 RICs $4.07 billion
Tax-Exempt
14 other accounts $8.07 billion
- -------------- ------------------------------------
Massachusetts 8 RICs $4.20 billion
Tax-Exempt
14 other accounts $8.07 billion
- -------------- ------------------------------------
Michigan Tax- 8 RICs $4.21 billion
Exempt
14 other accounts $8.07 billion
- -------------- ------------------------------------
Minnesota Tax- Catherine Stienstra 8 RICs $3.93 billion None None (2) (30)
Exempt
14 other accounts $8.07 billion
- -------------- ------------------------------------
New York Tax- 8 RICs $4.18 billion
Exempt
14 other accounts $8.07 billion
- -------------- ------------------------------------
Ohio Tax- 8 RICs $4.20 billion
Exempt
14 other accounts $8.07 billion
- ----------------------------------------------------------------------------------------------------------------------------------
Diversified Tom Murphy 7 RICs $9.41 billion 3 RICs ($4.99 B) $100,001 -
Bond
3 PIVs $1.02 billion $500,000
13 other accounts $13.18 billion
--------------------------------------------------------------------------------------------
Jamie Jackson 13 RICs $14.50 billion 3 RICs ($5.4 B); $50,001 -
6 PIVs $2.62 billion 1 other account $100,000
29 other accounts(d) $8.43 billion ($43.92 M)
--------------------------------------------------------------------------------------------
Scott Kirby 10 RICs $11.07 billion 3 RICs ($4.99 B); $50,001 -
6 PIVs $1.93 billion 1 other account $100,000 (2) (30)
44 other accounts(d) $20.03 billion ($78.43 M)
--------------------------------------------------------------------------------------------
Jennifer Ponce de 5 RICs $7.68 billion None $50,001 -
Leon 1 PIV $14.63 million $100,000
8 other accounts $2.11 billion
--------------------------------------------------------------------------------------------
Nicolas Pifer 6 RICs $6.45 billion 1 other account $10,001 -
6 PIVs $728.27 million ($538.24 M) $50,000
11 other accounts $3.79 billion
- ----------------------------------------------------------------------------------------------------------------------------------
FOR FUND WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Balanced Tom Murphy 7 RICs $8.55 billion 2 RICs ($1.0 B) $10,001 -
3 PIVs $1.01 billion $50,000
13 other accounts $12.78 billion
--------------------------------------------------------------------------------------------
Jamie Jackson 12 RICs $14.43 billion 2 RICs ($1.0 B); $10,001 -
6 PIVs $2.68 billion 1 other account $50,000
29 other accounts(d) $9.19 billion ($45.13 M)
--------------------------------------------------------------------------------------------
Scott Kirby 10 RICs $10.20 billion 2 RICs ($1.0 B); None (2) (30)
6 PIVs $1.92 billion 1 other account
44 other accounts(d) $19.12 billion ($71.78 M)
--------------------------------------------------------------------------------------------
Bob Ewing 7 RICs $11.72 billion 6 RICs ($11.32 B) $100,001 -
1 PIV $10.55 million $500,000(n)
2 other accounts $89.12 million
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 110
<Table>
<Caption>
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND)
------------------------------------------------------- POTENTIAL
APPROXIMATE OWNERSHIP CONFLICTS
NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF
FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
Disciplined Dimitris Bertsimas 17 RICs $7.30 billion 5 RICs ($5.81 B) None
Large Cap
Growth 3 PIVs $242.83 million
16 other accounts $2.42 billion (2) (30)
--------------------------------------------------------------------------------------------
Gina Mourtzinou 4 RICs $5.22 billion 4 RICs ($5.22 B) None
5 other accounts $188.6 million
- ----------------------------------------------------------------------------------------------------------------------------------
Diversified Warren Spitz $50,001 -
Equity Income $100,000
------------------------- ----------
Laton Spahr 8 RICs $10.85 billion $100,001 -
1 PIV $61.27 million 5 RICs ($10.36 B) $500,000
------------------------- ----------
Steve Schroll 5 other accounts(d) $490.56 million $50,001 - (2) (30)
$100,000
------------------------- ----------
Paul Stocking $100,001 -
$500,000
- ----------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Warren Spitz $50,001 -
$100,000
------------------------- ----------
Laton Spahr 8 RICs $16.49 billion $100,001 -
1 PIV $61.27 million 5 RICs ($16.0 B) $500,000
------------------------- ----------
Steve Schroll 5 other accounts(d) $490.56 million $50,001 - (2) (30)
$100,000
------------------------- ----------
Paul Stocking $100,001 -
$500,000
- ----------------------------------------------------------------------------------------------------------------------------------
Strategic Tom Murphy 7 RICs $8.56 billion 2 RICs ($1.01 B) $100,001 -
Allocation
3 PIVs $1.01 billion $500,000
13 other accounts $12.78 billion
--------------------------------------------------------------------------------------------
Jamie Jackson 12 RICs $14.43 billion 2 RICs ($1.01 B); $10,001 -
6 PIVs $2.68 billion 1 other account $50,000
29 other accounts(d) $9.19 billion ($45.13 M)
--------------------------------------------------------------------------------------------
Scott Kirby 10 RICs $10.21 billion 2 RICs ($1.01 B); $10,001 -
6 PIVs $1.92 billion 1 other account $50,000
44 other accounts(d) $19.12 billion ($71.78 M)
--------------------------------------------------------------------------------------------
Dimitris Bertsimas 17 RICs $5.54 billion 5 RICs ($4.04 B) Over (2) (30)
3 PIVs $242.83 million $1,000,000
16 other accounts $2.42 billion
--------------------------------------------------------------------------------------------
Gina Mourtzinou 4 RICs $3.46 billion 4 RICs ($3.46 B) $100,001 -
5 other accounts $188.6 million $500,000
--------------------------------------------------------------------------------------------
Alex Sauer-Budge 1 RIC $586.36 million 1 RIC ($586.36 M) None
--------------------------------------------------------------------------------------------
Steve E. Kokkotos 2 RICs $138.37 million 2 RICs ($138.37 M) $100,001 -
1 other account $11.12 million $500,000
- ----------------------------------------------------------------------------------------------------------------------------------
Strategic Dimitris Bertsimas 17 RICs $7.37 billion 6 RICs ($5.89 B) None
Income
Allocation 3 PIVs $242.83 million
16 other accounts $2.42 billion (2) (30)
--------------------------------------------------------------------------------------------
Colin Lundgren None
------------------------- ----------
Erol Sonderegger 12 RICs $2.12 billion None $10,001 -
$50,000
- ----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Absolute Nicholas Pifer 6 RICs $6.99 billion None None (2) (30)
Return
Currency and 6 PIVs $738.12 million
Income
13 other accounts $3.77 billion
- ----------------------------------------------------------------------------------------------------------------------------------
Disciplined Dimitris Bertsimas 15 RICs $3.79 billion 4 RICs
International
Equity
1 PIV $118.90 million ($3.24 B)
11 other accounts $229.10 million None (2) (30)
---------------------------------------------------------------------------------
Alex Sauer-Budge 1 RIC $1.22 billion 2 RICs ($1.3 B)
- ----------------------------------------------------------------------------------------------------------------------------------
Emerging Threadneedle: 1 RIC $0.47 billion
Markets
Julian A.S. Thompson 1 PIV $0.03 billion
3 other accounts $0.34 billion
--------------------------------------------------------------
Threadneedle: 1 RIC $0.47 billion None None(k) (19) (45)
Jules Mort 1 PIV $1.56 billion
1 other account $0.84 billion
- ----------------------------------------------------------------------------------------------------------------------------------
Emerging Nicholas Pifer 6 RICs $7.01 billion None $10,0001 - (2) (30)
Markets Bond
6 PICs $738.12 million $50,000
13 other accounts $3.77 billion
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 111
<Table>
<Caption>
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND)
------------------------------------------------------- POTENTIAL
APPROXIMATE OWNERSHIP CONFLICTS
NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF
FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
European Threadneedle: None N/A N/A None(k) (19) (45)
Equity
Rob Jones
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bond Nicholas Pifer 6 RICs $6.55 billion None $50,000 - (2) (30)
6 PIVs $738.12 million $100,000
13 other accounts $3.77 billion
- ----------------------------------------------------------------------------------------------------------------------------------
Global Equity Threadneedle: 2 RICs $1.93 billion
Dominic Rossi 1 other account $0.10 billion None None(k) (19) (45)
-------------------------
Threadneedle: 2 PIVs $0.17 billion
Stephen Thornber
- ----------------------------------------------------------------------------------------------------------------------------------
Global Bob Ewing(l) 7 RICs $13.77 billion 6 RICs
Technology
2 PIVs $33.78 million ($13.36 B);
2 other accounts(d) $95.17 million None (2) (30)
---------------------------------------------------------------------------------
Nick Thakore(l) 5 RICs $14.70 billion 4 RICs
2 PIVs $33.78 million ($14.29 B)
2 other accounts(d) $95.17 million
- ----------------------------------------------------------------------------------------------------------------------------------
International Columbia WAM: 1 RIC $4.0 billion
Aggressive P. Zachary Egan
Growth
--------------------------------------------------------------
Columbia WAM: 2 RICs $5.3 billion None None (20) (46)
Louis J. Mendes
-------------------------------------------------------------------------------------------------------------------
Principal: John Pihlblad 1 RIC $1.27 billion
1 other account $5.31 million
-------------------------
Principal: Steven Larson None None (21) (47)
- ----------------------------------------------------------------------------------------------------------------------------------
International Boston Company:
Equity 11 RICs $4.86 billion 1 other account
D. Kirk Henry 8 PIVs $4.96 billion ($323.0 M) None (22) (48)
-------------------------
55 other accounts $16.76 billion
Boston Company:
Clifford A. Smith
-------------------------------------------------------------------------------------------------------------------
Marsico: 14 RICs $8.17 billion None None (23) (49)
James G. Gendelman 8 other accounts $535.08 million
- ----------------------------------------------------------------------------------------------------------------------------------
International Threadneedle: 1 RIC $1.27 billion
Opportunity Alex Lyle 25 PIVs $1.74 billion None None(k) (19) (45)
--------------------------------------------------------------
Threadneedle: 2 RICs $2.01 billion
Dominic Rossi 1 other account $0.10 billion
- ----------------------------------------------------------------------------------------------------------------------------------
International AllianceBernstein:
Select Value
Kevin F. Simms
-------------------------
AllianceBernstein: 2 RICs
Henry S. D'Auria ($3.77 B);
-------------------------
78 RICs $32.93 billion 1 PIV
AllianceBernstein: 134 PIVs $24.49 billion ($813.0 M); None (24) (50)
Sharon E. Fay 751 other accounts $125.03 billion 106 other accounts
-------------------------
AllianceBernstein: ($20.71 B)
Marilyn G. Fedak
-------------------------
AllianceBernstein:
John P. Mahedy
- ----------------------------------------------------------------------------------------------------------------------------------
International AIGGIC: 4 RICs $60.6 million 1 other account
Small Cap
Hans K. Danielsson 5 PIVs $906.08 million ($100.01 M)
6 other accounts $1.68 billion
---------------------------------------------------------------------------------
AIGGIC: 3 PIVs $432.26 million
Chantal Brennan
--------------------------------------------------------------
AIGGIC: 3 PIVs $66.75 million None None (25) (51)
Ming Hsu 5 other accounts $270.73 million
---------------------------------------------------------------------------------
AIGGIC: 2 PIVs $309.58 million 1 other account
Noriko Umino 1 other account $270.36 million ($270.36 M)
-------------------------------------------------------------------------------------------------------------------
Batterymarch: 12 RICs $2.43 billion 2 other accounts
Charles F. Lovejoy 10 PIVs $971.76 million ($53.8 B) None (26) (52)
-------------------------
Batterymarch: 20 other accounts $3.38 billion
Christopher W. Floyd
- ----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Intermediate Catherine 8 RICs $4.17 billion None None (2) (30)
Tax-Exempt Stienstra(j) 14 other accounts $8.07 billion
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 112
<Table>
<Caption>
OTHER ACCOUNTS MANAGED (EXCLUDING THE FUND)
------------------------------------------------------- POTENTIAL
APPROXIMATE OWNERSHIP CONFLICTS
NUMBER AND TYPE TOTAL NET PERFORMANCE BASED OF FUND OF STRUCTURE OF
FUND PORTFOLIO MANAGER OF ACCOUNT* ASSETS ACCOUNTS(A) SHARES INTEREST COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
Mid Cap John K. Schonberg 1 RIC $683.4 million 1 RIC None (2) (30)
Growth 2 PIVs $102.8 million ($683.4 M)
7 other accounts $38.8 million
-------------------------------------------------------------------------------------------------------------------
Sam Murphy(m) 1 RIC $653.03 million 1 RIC None (2), (3) (30)
-------------------------
Mike Marzolf(m) ($653.03 M)
- ----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Catherine Stienstra(j) 8 RICs $3.51 billion None None (2) (30)
Bond 14 other accounts $8.07 billion
- ----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Catherine Stienstra(j) 8 RICs $1.49 billion None None (2) (30)
High Income 14 other accounts $8.07 billion
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
* RIC refers to a Registered Investment Company; PIV refers to a Pooled
Investment Vehicle.
(a) Number of accounts for which the advisory fee paid is based in part or
wholly on performance and the aggregate net assets in those accounts. (b)
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.
(c) Ms. Keeley, who serves as Executive Vice President -- Equity and 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.
(d) Reflects each wrap program strategy as a single client, rather than
counting each participant in the program as a separate client.
(e) Ms. Hedlund and Mr. Schrotberger began managing the fund as of Oct. 1,
2006; therefore reporting information is as of Oct. 31, 2006.
(f) Primarily managed money/wrap accounts generally requiring a minimum
deposit of $100,000.
(g) Neither Christopher Davis nor Kenneth Feinberg own any shares of
RiverSource Fundamental Value Fund. However, both portfolio managers have
over $1 million invested in the Davis Funds, which are managed in a
similar style.
(h) Michael T. Smith does not own any shares of RiverSource Small Cap Equity
Fund. However, he invests in the Lord Abbett Small Cap Blend Fund, which
is managed in a similar style.
(i) Eli M. Salzmann and Sholom Dinsky do not own any shares of RiverSource
Value Fund. However, they invest in the Lord Abbett Affiliated Fund,
which is managed in a similar style.
(j) Ms. Stienstra began managing the fund as of Aug. 31, 2007; therefore
reporting information is as of Aug. 31, 2007.
(k) The fund is available for sale only in the U.S. The portfolio managers do
not reside in the U.S. and therefore do not hold any shares of the fund.
(l) The portfolio manager began managing the fund after its last fiscal year
end; therefor reporting information is as of June 30, 2007.
(m) The portfolio manager began managing the fund as of June 20, 2007,
therefore reporting information is as of June 30, 2007.
(n) The portfolio manager participates in a mandatory deferred compensation
plan where deferred compensation is treated as if it was invested in
shares of one or more RiverSource funds and the amount paid to the
portfolio manager will be determined based on the performance of such
investments.
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
- 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.
- 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
Statement of Additional Information - Nov. 29, 2007 Page 113
play a significant role in the asset class determinations made by the
Asset Allocation Committee and, as a result, in the underlying fund
determinations made by the Fund Selection Committee.
In addition to the accounts above, portfolio managers may manage
accounts in a personal capacity that may include holdings that are
similar to, or the same as, those of the fund. The investment manager
has in place a Code of Ethics that is designed to address conflicts and
that, among other things, imposes restrictions on the ability of the
portfolio managers and other "investment access persons" to invest in
securities that may be recommended or traded in the fund and other
client accounts.
(2) RiverSource Investments portfolio managers may manage one or more mutual
funds as well as other types of accounts, including hedge funds,
proprietary accounts, separate accounts for institutions and
individuals, and other pooled investment vehicles. Portfolio managers
make investment decisions for an account or portfolio based on its
investment objectives and policies, and other relevant investment
considerations. A portfolio manager may manage another account whose
fees may be materially greater than the management fees paid by the Fund
and may include a performance-based fee. Management of multiple funds
and accounts may create potential conflicts of interest relating to the
allocation of investment opportunities, and the aggregation and
allocation of trades. In addition, RiverSource Investments monitors a
variety of areas (e.g., allocation of investment opportunities) and
compliance with the firm's Code of Ethics, and places additional
investment restrictions on portfolio managers who manage hedge funds and
certain other accounts.
RiverSource Investments has a fiduciary responsibility to all of the
clients for which it manages accounts. RiverSource Investments seeks to
provide best execution of all securities transactions and to aggregate
securities transactions and then allocate securities to client accounts
in a fair and equitable basis over time. 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.
In addition to the accounts above, portfolio managers may manage
accounts in a personal capacity that may include holdings that are
similar to, or the same as, those of the fund. The investment manager's
Code of Ethics is designed to address conflicts and, among other things,
imposes restrictions on the ability of the portfolio managers and other
"investment access persons" to invest in securities that may be
recommended or traded in the fund and other client accounts.
(3) The portfolio manager's responsibilities also include working as a
securities analyst. This dual role may give rise to conflicts with
respect to making investment decisions for accounts that the portfolio
manager manages versus communicating his or her analyses to other
portfolio managers concerning securities that he or she follows as an
analyst.
(4) The management of a portfolio and other accounts by a portfolio manager
could result in potential conflicts of interest if the portfolio and
other accounts have different objectives, benchmarks and fees because
the portfolio manager and his team must allocate time and investment
expertise across multiple accounts, including the portfolio. The
portfolio manager and his team manage the portfolio and other accounts
utilizing a model portfolio approach that groups similar accounts within
a model portfolio. UBS Global Asset Management (Americas) Inc. manages
accounts according to the appropriate model portfolio, including where
possible, those accounts that have specific investment restrictions.
Accordingly, portfolio holdings, position sizes, and industry and sector
exposures tend to be similar across accounts, which may minimize the
potential for conflicts of interest.
If a portfolio manager identifies a limited investment opportunity that
may be suitable for more than one account or model portfolio, the
portfolio may not be able to take full advantage of that opportunity due
to an allocation or filled purchase or sale orders across all eligible
model portfolios and accounts. To deal with these situations, UBS Global
Asset Management (Americas) Inc. has adopted procedures for allocating
portfolio trades among multiple accounts to provide fair treatment to
all accounts.
The management of personal accounts by a portfolio manager may also give
rise to potential conflicts of interest. UBS Global Asset Management
(Americas) Inc. has adopted Codes of Ethics that govern such personal
trading, but there is no assurance that the Codes will adequately
address all such conflicts.
(5) As is typical for many money managers, potential conflicts of interest
may arise related to Turner's management of accounts including the Fund
where not all accounts are able to participate in a desired IPO, or
other limited opportunity, relating to use of soft dollars and other
brokerage practices, related to the voting of proxies, employee personal
securities trading, and relating to a variety of other circumstances. In
all cases, however, Turner believes it has written policies and
procedures in place reasonably designed to prevent violations of the
federal securities laws and to prevent material conflicts of interest
from arising. Please also see Turner's Form ADV, Part II for a
description of some of its policies and procedures in this regard.
(6) To ensure that Essex addresses compliance and control issues, an open
dialogue exists between the portfolio managers, the trading desk, and
our account services groups. This allows Essex to monitor compliance
among these parties to
Statement of Additional Information - Nov. 29, 2007 Page 114
accommodate both our clients' and the firm's investment guidelines. In
order to prevent and detect violations, we have the following checks and
balances built into our compliance process:
- The client service group and the Compliance Officer - Christopher P.
McConnell, Chief Executive Officer - interpret each compliance
restriction.
- Portfolio Managers review each trade for appropriateness.
- Our trading systems are state of the art and have been developed to
prevent an inappropriate security or position from being purchased in
a portfolio once the system is coded.
- Our administrative group reviews each trade on a daily basis for
reconciliation purposes.
- Each member of our firm has signed our Code of Ethics policy which
outlines authorized trading activity and procedures.
(7) As a general matter, certain conflicts of interest may arise in
connection with a portfolio manager's management of a fund's
investments, on the one hand, and the investments of other accounts for
which the portfolio manager is responsible, on the other. For example,
it is possible that the various accounts managed could have different
investment strategies that, at times, might conflict with one another to
the possible detriment of the Fund. Alternatively, to the extent that
the same investment opportunities might be desirable for more than one
account, possible conflicts could arise in determining how to allocate
them. Other potential conflicts might include conflicts created by
specific portfolio manager compensation arrangements, and conflicts
relating to selection of brokers or dealers to execute fund portfolio
trades and/or specific uses of commissions from Fund portfolio trades
(for example, research, or "soft dollars"). The Adviser has structured
the portfolio managers' compensation in a manner, and the Fund has
adopted policies and procedures, reasonably designed to safeguard the
Fund from being negatively affected as a result of any such potential
conflicts.
(8) Kenwood, an indirect partially-owned subsidiary of Ameriprise Financial,
is an affiliate of RiverSource Investments. Kenwood portfolio managers
may manage one or more mutual funds as well as other types of accounts,
including proprietary accounts, separate accounts for institutions and
individuals, and other pooled investment vehicles. Portfolio managers
make investment decisions for an account or portfolio based on its
investment objectives and policies, and other relevant investment
considerations. A portfolio manager may manage a separate account or
other pooled investment vehicle whose fees may be materially greater
than the management fees paid by the Fund and may include a performance-
based fee. Management of multiple funds and accounts may create
potential conflicts of interest relating to the allocation of investment
opportunities, and the aggregation and allocation of trades.
Kenwood has a fiduciary responsibility to all of the clients for which
it manages accounts. Kenwood seeks to provide best execution of all
securities transactions. Where possible, security transactions are
aggregated and allocated to client accounts in a fair and timely manner.
Kenwood has developed policies and procedures, including brokerage and
trade allocation policies and procedures, designed to mitigate and
manage the potential conflicts of interest that may arise from the
management of multiple types of accounts for multiple clients. In
addition to monitoring these policies and procedures, Kenwood monitors
compliance with the firm's Code of Ethics and places additional
investment restrictions on portfolio managers who manage certain other
accounts.
(9) Management of the Income Builder and Retirement Plus Funds-of-Funds
differs from that of the other RiverSource funds. The portfolio
management process is set forth generally below and in more detail in
the funds' prospectus.
Management of the portfolios is based on proprietary, quantitative
techniques and qualitative review of the quantitative output. Using
these methodologies, a group of RiverSource investment professionals
allocates each fund's assets within and across different asset classes
in an effort to achieve the fund's objective of providing a high level
of current income and growth of capital. After the initial allocation,
the fund will be rebalanced monthly in an effort to maximize the level
of income and capital growth, incorporating various measures of relative
value subject to constraints that set minimum or maximum exposure within
asset classes, as set forth in the prospectus. Within the equity and
fixed income asset classes, the quantitative model establishes
allocations for the funds, seeking to achieve each fund's objective by
investing in defined investment categories. The target allocation range
constraints are intended, in part, to promote diversification within the
asset classes.
Because of the structure of the funds-of-funds, the potential conflicts
of interest for the portfolio managers may be different than the
potential conflicts of interest for portfolio managers who manage other
funds. These potential conflicts of interest include:
- In certain cases, the portfolio managers of the underlying funds are
the same as the portfolio managers of the Income Builder and
Retirement Plus Funds-of-Funds, and could influence the allocation of
funds-of-funds assets to or away from the underlying funds that they
manage.
- RiverSource Investments, LLC and its affiliates may receive higher
compensation as a result of allocations to underlying funds with
higher fees.
Statement of Additional Information - Nov. 29, 2007 Page 115
- RiverSource Investments, LLC monitors the performance of the
underlying funds and may, from time to time, recommend to the board of
directors of the funds a change in portfolio management or fund
strategy or the closure or merger of an underlying fund. In addition,
RiverSource Investments, LLC may believe that certain RiverSource
funds may benefit from additional assets or could be harmed by
redemptions. All of these factors may also influence decisions in
connection with the allocation of funds-of-funds assets to or away
from certain underlying funds.
In addition to the accounts above, portfolio managers may manage
accounts in a personal capacity that may include holdings that are
similar to, or the same as, those of the fund. The investment manager
has in place a Code of Ethics that is designed to address conflicts and
that, among other things, imposes restrictions on the ability of the
portfolio managers and other "investment access persons" to invest in
securities that may be recommended or traded in the fund and other
client accounts.
(10) Certain conflicts of interest may arise in connection with the
management of multiple portfolios. Potential conflicts include, for
example, conflicts among investment strategies and conflicts in the
allocation of investment opportunities. American Century has adopted
policies and procedures that are designed to minimize the effects of
these conflicts.
Responsibility for managing American Century client portfolios is
organized according to investment discipline. Investment disciplines
include, for example, quantitative equity, small- and mid-cap growth,
large-cap growth, value, international, fixed income, asset allocation,
and sector funds. Within each discipline are one or more portfolio teams
responsible for managing specific client portfolios. Generally, client
portfolios with similar strategies are managed by the same team using
the same objective, approach, and philosophy. Accordingly, portfolio
holdings, position sizes, and industry and sector exposures tend to be
similar across similar portfolios, which minimizes the potential for
conflicts of interest.
For each investment strategy, one portfolio is generally designated as
the "policy portfolio." Other portfolios with similar investment
objectives, guidelines and restrictions are referred to as "tracking
portfolios." When managing policy and tracking portfolios, a portfolio
team typically purchases and sells securities across all portfolios that
the team manages. American Century's trading systems include various
order entry programs that assist in the management of multiple
portfolios, such as the ability to purchase or sell the same relative
amount of one security across several funds. In some cases a tracking
portfolio may have additional restrictions or limitations that cause it
to be managed separately from the policy portfolio. Portfolio managers
make purchase and sale decisions for such portfolios alongside the
policy portfolio to the extent the overlap is appropriate, and
separately, if the overlap is not.
American Century may aggregate orders to purchase or sell the same
security for multiple portfolios when it believes such aggregation is
consistent with its duty to seek best execution on behalf of its
clients. Orders of certain client portfolios may, by investment
restriction or otherwise, be determined not available for aggregation.
American Century has adopted policies and procedures to minimize the
risk that a client portfolio could be systematically advantaged or
disadvantaged in connection with the aggregation of orders. To the
extent equity trades are aggregated, shares purchased or sold are
generally allocated to the participating portfolios pro rata based on
order size. Because initial public offerings (IPOs) are usually
available in limited supply and in amounts too small to permit across-
the-board pro rata allocations, American Century has adopted special
procedures designed to promote a fair and equitable allocation of IPO
securities among clients over time. Fixed income securities transactions
are not executed through a centralized trading desk. Instead, portfolio
teams are responsible for executing trades with broker/dealers in a
predominantly dealer marketplace. Trade allocation decisions are made by
the portfolio manager at the time of trade execution and orders entered
on the fixed income order management system.
Finally, investment of American Century's corporate assets in
proprietary accounts may raise additional conflicts of interest. To
mitigate these potential conflicts of interest, American Century has
adopted policies and procedures intended to provide that trading in
proprietary accounts is performed in a manner that does not give
improper advantage to American Century to the detriment of client
portfolios.
(11) Goldman Sachs Asset Management, L.P. ("GSAM") portfolio managers are
often responsible for managing one or more Funds as well as other
accounts, including proprietary accounts, separate accounts and other
pooled investment vehicles, such as unregistered hedge funds. A
portfolio manager may manage a separate account or other pooled
investment vehicle which may have materially higher fee arrangements
than the Fund and may also have a performance-based fee. The side-by-
side management of these funds may raise potential conflicts of interest
relating to cross trading, the allocation of investment opportunities
and the aggregation and allocation of trades.
GSAM has a fiduciary responsibility to manage all client accounts in a
fair and equitable manner. It seeks to provide best execution of all
securities transactions and aggregate and then allocate securities to
client accounts in a fair and timely manner. To this end, GSAM has
developed policies and procedures designed to mitigate and manage the
potential conflicts of interest that may arise from side-by-side
management. In addition, GSAM has adopted policies limiting the
circumstances under which cross-trades may be affected between a Fund
and another client account. GSAM conducts periodic reviews of trades for
consistency with these policies.
Statement of Additional Information - Nov. 29, 2007 Page 116
(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, or
separately managed account programs sponsored by financial
intermediaries), bank common trust accounts, and hedge funds. The
investment professionals primarily responsible for the day-to-day
management of the funds ("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 funds.
The Investment Professionals make investment decisions for the funds
based on the investment objectives, policies, practices, benchmarks,
cash flows, tax and other relevant investment considerations applicable
to that portfolio. Consequently, the Investment Professionals may
purchase or sell securities, including IPOs, for one portfolio and not
another portfolio, and the performance of securities purchased for the
fund may vary from the performance of securities purchased for other
portfolios. Alternatively, these portfolios may be managed in a similar
fashion to the relevant fund and thus the portfolio may have similar,
and in some cases nearly identical, objectives, strategies and/or
holdings to that of the relevant fund.
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 fund, or make investment decisions that are similar to
those made for the funds, both of which have the potential to adversely
impact the funds depending on market conditions. For example, the
Investment Professionals may purchase a security in one portfolio while
appropriately selling that same security in another portfolio.
Similarly, an Investment Professional may purchase the same security for
the relevant fund and one or more other portfolios at or about the same
time, and in those instances the other portfolios will have access to
their respective holdings prior to the public disclosure of the relevant
fund's holdings. In addition, some of these portfolios have fee
structures, including performance fees, that are or have the potential
to be higher, in some cases significantly higher, than the fees paid by
the funds to Wellington Management. Because incentive payments are tied
to revenues earned by Wellington Management, and where noted, to the
performance achieved by the manager in each account, the incentives
associated with any given account may be significantly higher or lower
than those associated with other accounts managed by the Investment
Professional. Finally, the Investment Professionals may hold shares or
investments in the other pooled investment vehicles and/or other
accounts identified above.
Wellington Management's goal is to meet its fiduciary obligation to
treat all clients fairly and provide high quality investment services to
all of its clients. Wellington Management has adopted and implemented
policies and procedures, including brokerage and trade allocation
policies and procedures that it believes address the conflicts
associated with managing multiple accounts for multiple clients. In
addition, Wellington Management monitors a variety of areas, including
compliance with primary fund guidelines, the allocation of IPOs, and
compliance with the firm's Code of Ethics, and places additional
investment restrictions on Investment Professionals 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 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:
- 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.
- 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.
- 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
Statement of Additional Information - Nov. 29, 2007 Page 117
the market price of the security or the execution of the transaction,
or both, to the detriment of the portfolio or the other account.
- Finally, substantial investment of Davis Advisor or Davis Family
assets in certain mutual funds may lead to conflicts of interest. To
mitigate these potential conflicts of interest, Davis Advisors has
adopted policies and procedures intended to ensure that all clients
are treated fairly over time. Davis Advisors does not receive an
incentive based fee on any account.
(14) Conflicts of interest may arise in connection with the investment
manager's management of the investments of the relevant fund and the
investments of the other accounts. Such conflicts may arise with respect
to the allocation of investment opportunities among the relevant fund
and other accounts Conflicts of interest may arise in connection with
the portfolio managers' management of the investments of the relevant
fund and the investments of the other accounts included in the table
above. Such conflicts may arise with respect to the allocation of
investment opportunities among the relevant fund and other accounts with
similar investment objectives and policies. A portfolio manager
potentially could use information concerning the relevant fund's
transactions to the advantage of other accounts and to the detriment of
the relevant fund. To address these potential conflicts of interest,
Lord Abbett has adopted and implemented a number of policies and
procedures. Lord Abbett has adopted Policies and Procedures for
Evaluating Best Execution of Equity Transactions, as well as Trading
Practices/Best Execution Procedures. The objective of these policies and
procedures is to ensure the fair and equitable treatment of transactions
and allocation of investment opportunities on behalf of all accounts
managed by Lord Abbett. In addition, Lord Abbett's Code of Ethics sets
forth general principles for the conduct of employee personal securities
transactions in a manner that avoids any actual or potential conflicts
of interest with the interests of Lord Abbett's clients including the
relevant fund. Moreover, Lord Abbett's Statement of Policy and
Procedures on Receipt and Use of Inside Information sets forth
procedures for personnel to follow when they have inside information.
Lord Abbett is not affiliated with a full service broker-dealer and
therefore does not execute any portfolio transactions through such an
entity, a structure that could give rise to additional conflicts. Lord
Abbett does not conduct any investment bank functions and does not
manage any hedge funds. Lord Abbett does not believe that any material
conflicts of interest exist in connection with the portfolio managers'
management of the investments of the relevant fund and the investments
of the other accounts referenced in the table above.
(15) 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.
(16) 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.
(17) Actual or potential conflicts of interest may arise when a portfolio
manager has management responsibilities to more than one account
(including the Fund). BHMS manages potential conflicts between funds or
with other types of accounts through allocation policies and procedures,
internal review processes and oversight by directors and independent
third parties to ensure that no client, regardless of type or fee
structure, is intentionally favored at the expense of another.
Allocation policies are designed to address potential conflicts in
situations where two or more funds or accounts participate in investment
decisions involving the same securities.
Statement of Additional Information - Nov. 29, 2007 Page 118
(18) Certain conflicts of interest may arise in connection with the
management of multiple portfolios and investment strategies. Potential
conflicts include the allocation of investment opportunities across
client accounts and the allocation of similar investments across
different strategies. MetWest Capital has adopted policies and
procedures designed to minimize the effects of these conflicts.
Responsibility for managing MetWest Capital client portfolios is
organized according to investment strategy. All accounts in each
strategy are managed to a model portfolio, as specified by the
investment team. The investment team implements the model consistently
across client portfolios. Consequently, position sizes and industry and
sector allocations are similar across our clients' portfolios.
Typically, no positions differ from portfolio to portfolio, except in
the case of client-imposed restrictions. For such a portfolio, the
investment team determines the position(s) that comply with client
requirements. This process minimizes the potential for conflicts of
interest.
MetWest Capital's allocation policy allocates all investment
opportunities among clients in the fairest possible way, taking into
account clients' best interests. We have adopted policies and procedures
designed to ensure that allocations do not involve a practice of
favoring or disfavoring any strategy, client or group of clients.
Account and strategy performance is never a factor in trade allocations.
When necessary, we address known conflicts of interests in our trading
practices by disclosure to clients and/or in our Form ADV or other
appropriate action.
The decision to buy or sell a position in the model portfolio is based
on the direction of the investment team. Once the decision is made,
traders prepare the trade "blocks." All participating strategies and
client portfolios (those without pending cash flows or prohibited
transactions) are block-traded together, typically grouped either by
custodian or trade broker according to best-execution practices. Orders
are placed to ensure random fills so that no one strategy, client or
group of clients is favored or disfavored on a systematic basis.
Each portfolio/relationship manager is responsible for reviewing the
blocks and implementing all buy and sell orders for his/her accounts,
taking into consideration client-specific factors. Both the lead
strategist and the portfolio/relationship manager review trade reports
for all accounts on a daily basis.
(19) Threadneedle Investments portfolio managers may manage one or more
mutual funds as well as other types of accounts, including proprietary
accounts, separate accounts for institutions, and other pooled
investment vehicles. Portfolio managers make investment decisions for an
account or portfolio based on its investment objectives and policies,
and other relevant investment considerations. A portfolio manager may
manage a separate account or other pooled investment vehicle whose fees
may be materially greater than the management fees paid by the Fund and
may include a performance-based fee. Management of multiple funds and
accounts may create potential conflicts of interest relating to the
allocation of investment opportunities, and the aggregation and
allocation of trades. In addition, the portfolio manager's
responsibilities at Threadneedle Investments include working as a
securities analyst. This dual role may give rise to conflicts with
respect to making investment decisions for accounts that he/she manages
versus communicating his/her analyses to other portfolio managers
concerning securities that he/she follows as an analyst.
Threadneedle Investments has a fiduciary responsibility to all of the
clients for which it manages accounts. Threadneedle Investments seeks to
provide best execution of all securities transactions and to aggregate
securities transactions and then allocate securities to client accounts
in a fair and timely manner. Threadneedle Investments has developed
policies and procedures, including brokerage and trade allocation
policies and procedures, designed to mitigate and manage the potential
conflicts of interest that may arise from the management of multiple
types of accounts for multiple clients.
(20) Like other investment professionals with multiple clients, a portfolio
manager for a Fund may face certain potential conflicts of interest in
connection with managing both the Fund and other accounts at the same
time. The paragraphs below describe some of these potential conflicts
that Columbia WAM believes are faced by investment professionals at most
major financial firms. Columbia WAM and the Trustees of the Funds have
adopted compliance policies and procedures that attempt to address
certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee
structures may raise potential conflicts of interest by creating an
incentive to favor higher-fee accounts. These potential conflicts may
include, among others:
- The most attractive investments could be allocated to higher-fee
accounts.
- The trading of higher-fee accounts could be favored as to timing
and/or execution price. For example, higher-fee accounts could be
permitted to sell securities earlier than other accounts when a prompt
sale is desirable or to buy securities at an earlier and more
opportune time.
- The trading of other accounts could be used to benefit higher-fee
accounts (front-running).
- The investment management team could focus their time and efforts
primarily on higher-fee accounts due to a personal stake in
compensation.
Statement of Additional Information - Nov. 29, 2007 Page 119
Potential conflicts of interest may also arise when the portfolio
managers have personal investments in other accounts that may create an
incentive to favor those accounts. As a general matter and subject to
limited exceptions, Columbia WAM's investment professionals do not have
the opportunity to invest in client accounts, other than the Funds.
A potential conflict of interest may arise when a Fund and other
accounts purchase or sell the same securities. On occasions when a
portfolio manager considers the purchase or sale of a security to be in
the best interests of a Fund as well as other accounts, Columbia WAM's
trading desk may, to the extent permitted by applicable laws and
regulations, aggregate the securities to be sold or purchased in order
to obtain the best execution and lower brokerage commissions, if any.
Aggregation of trades may create the potential for unfairness to the
Fund or another account if one account is favored over another in
allocating the securities purchased or sold - for example, by allocating
a disproportionate amount of a security that is likely to increase in
value to a favored account.
"Cross trades," in which one Columbia account sells a particular
security to another account (potentially saving transaction costs for
both accounts), may also pose a potential conflict of interest. Cross
trades may be seen to involve a potential conflict of interest if, for
example, one account is permitted to sell a security to another account
at a higher price than an independent third party would pay. Columbia
WAM and the Funds' Trustees have adopted compliance procedures that
provide that any transactions between the Funds and another Columbia-
advised account are to be made at an independent current market price,
as required by law.
Another potential conflict of interest may arise based on the different
investment objectives and strategies of the Funds and other accounts.
For example, another account may have a shorter-term investment horizon
or different investment objectives, policies or restrictions than a
Fund. Depending on another account's objectives or other factors, a
portfolio manager may give advice and make decisions that may differ
from advice given, or the timing or nature of decisions made, with
respect to a Fund. In addition, investment decisions are the product of
many factors in addition to basic suitability for the particular account
involved. Thus, a particular security may be bought or sold for certain
accounts even though it could have been bought or sold for other
accounts at the same time. More rarely, a particular security may be
bought for one or more accounts managed by a portfolio manager when one
or more other accounts are selling the security (including short sales).
There may be circumstances when purchases or sales of portfolio
securities for one or more accounts may have an adverse effect on other
accounts.
A Fund's portfolio manager who is responsible for managing multiple
funds and/or accounts may devote unequal time and attention to the
management of those funds and/or accounts. As a result, the portfolio
manager may not be able to formulate as complete a strategy or identify
equally attractive investment opportunities for each of those accounts
as might be the case if he or she were to devote substantially more
attention to the management of a single fund. The effects of this
potential conflict may be more pronounced where funds and/or accounts
overseen by a particular portfolio manager have different investment
strategies.
The Funds' portfolio managers may be able to select or influence the
selection of the brokers and dealers that are used to execute securities
transactions for the Funds. In addition to executing trades, some
brokers and dealers provide portfolio managers with brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934), which may result in the payment of
higher brokerage fees than might have otherwise be available. These
services may be more beneficial to certain funds or accounts than to
others. Although the payment of brokerage commissions is subject to the
requirement that the portfolio manager determine in good faith that the
commissions are reasonable in relation to the value of the brokerage and
research services provided to a Fund, a portfolio manager's decision as
to the selection of brokers and dealers could yield disproportionate
costs and benefits among the Funds and/or accounts that he or she
manages.
Columbia WAM or an affiliate may provide more services (such as
distribution or recordkeeping) for some types of funds or accounts than
for others. In such cases, a portfolio manager may benefit, either
directly or indirectly, by devoting disproportionate attention to the
management of a Fund and/or accounts that provide greater overall
returns to the investment manager and its affiliates.
The Funds' portfolio managers may also face other potential conflicts of
interest in managing the Funds, and the description above is not a
complete description of every conflict that could be deemed to exist in
managing both a Fund and other accounts. In addition, the Funds'
portfolio managers may also manage other accounts (including their
personal assets or the assets of family members) in their personal
capacity. The management of these accounts may also involve certain of
the potential conflicts described above. Investment personnel at
Columbia WAM, including the Funds' portfolio managers, are subject to
restrictions on engaging in personal securities transactions pursuant to
Codes of Ethics adopted by Columbia WAM and the Funds, which contain
provisions and requirements designed to identify and address certain
conflicts of interest between personal investment activities and the
interests of the Funds.
(21) Principal Global Investors provides investment advisory services to
numerous clients other than the Fund. The investment objectives and
policies of these accounts may differ from those of the Fund. Based on
these differing circumstances, potential conflicts of interest may arise
because the subadviser may be required to pursue different
Statement of Additional Information - Nov. 29, 2007 Page 120
investment strategies on behalf of the Fund and other client accounts.
For example, a subadviser may be required to consider an individual
client's existing positions, personal tax situation, suitability,
personal biases and investment time horizon, which considerations would
not affect his investment decisions on behalf of the Fund. This means
that research on securities to determine the merits of including them in
the Fund's portfolio are similar, but not identical, to those employed
in building private client portfolios. As a result, there may be
instances in which a subadviser purchases or sells an investment for one
or more private accounts and not for the Fund, or vice versa. To the
extent the Fund and other clients seek to acquire the same security at
about the same time, the Fund may not be able to acquire as large a
position in such security as it desires or it may have to pay a higher
price for the security. Similarly, the Fund may not be able to obtain as
large an execution of an order to sell or as high a price for any
particular security if the subadviser desires to sell the same portfolio
security at the same time on behalf of other clients. On the other hand,
if the same securities are bought or sold at the same time by more than
one client, the resulting participation in volume transactions could
produce better executions for the Fund.
(22) INTRODUCTION
A conflict of interest is generally defined as a single person or entity
having two or more interests that are inconsistent. The Boston Company
Asset Management, LLC ("The Boston Company") has implemented various
policies and procedures that are intended to address the conflicts of
interest that may exist or be perceived to exist at The Boston Company.
These conflicts may include, but are not limited to when a portfolio
manager is responsible for the management of more than one account; the
potential arises for the portfolio manager to favor one account over
another. Generally, the risk of such conflicts of interest could
increase if a portfolio manager has a financial incentive to favor one
account over another.
This disclosure statement is not intended to cover all of the conflicts
that exist within The Boston Company, but rather to highlight the
general categories of conflicts and the associated mitigating controls.
Other conflicts are addressed within the policies of The Boston Company.
Further, the Chief Compliance Officer of The Boston Company shall
maintain a Conflicts Matrix that further defines the conflicts specific
to The Boston Company.
NEW INVESTMENT OPPORTUNITIES
Potential Conflict: A portfolio manager could favor one account over
another in allocating new investment opportunities that have limited
supply, such as initial public offerings and private placements. If, for
example, an initial public offering that was expected to appreciate in
value significantly shortly after the offering was allocated to a single
account, that account may be expected to have better investment
performance than other accounts that did not receive an allocation.
- The Boston Company has policies that require a portfolio manager to
allocate such investment opportunities in an equitable manner and
generally to allocate such investments proportionately among all
accounts with similar investment objectives.
COMPENSATION
Potential Conflict: A portfolio manager may favor an account if the
portfolio manager's compensation is tied to the performance of that
account rather than all accounts managed by the portfolio manager. If,
for example, the portfolio manager receives a bonus based upon the
performance of certain accounts relative to a benchmark while other
accounts are disregarded for this purpose, the portfolio manager will
have a financial incentive to seek to have the accounts that determine
the bonus achieve the best possible performance to the possible
detriment of other accounts. Similarly, if The Boston Company receives a
performance-based advisory fee, the portfolio manager may favor that
account, regardless of whether the performance of that account directly
determines the portfolio manager's compensation.
- The investment performance on specific accounts is not a factor in
determining the portfolio manager's compensation.
INVESTMENT OBJECTIVES
Potential Conflict: Where different accounts managed by the same
portfolio manager have materially and potentially conflicting investment
objectives or strategies, a conflict of interest may arise. For example,
if a portfolio manager purchases a security for one account and sells
the same security short for another account, such a trading pattern
could potentially disadvantage either account.
- To mitigate the conflict in this scenario The Boston Company has in
places a restriction in the order management system and requires a
written explanation from the portfolio manager before determining
whether to lift the restriction. However, where a portfolio manager is
responsible for accounts with differing investment objectives and
policies, it is possible that the portfolio manager will conclude that
it is in the best interest of one account to sell a portfolio security
while another account continues to hold or increase the holding in
such security.
Statement of Additional Information - Nov. 29, 2007 Page 121
TRADING
Potential Conflict: A portfolio manager could favor one account over
another in the order in which trades for the accounts are placed. If a
portfolio manager determines to purchase a security for more than one
account in an aggregate amount that may influence the market price of
the security, accounts that purchased or sold the security first may
receive a more favorable price than accounts that make subsequent
transactions. The less liquid the market for the security or the greater
the percentage that the proposed aggregate purchases or sales represent
of average daily trading volume, the greater the potential for accounts
that make subsequent purchases or sales to receive a less favorable
price.
- When a portfolio manager intends to trade the same security for more
than one account, the policies of The Boston Company generally require
that such trades be "bunched," which means that the trades for the
individual accounts are aggregated and each account receives the same
price. Some accounts may not be eligible for bunching for contractual
reasons (such as directed brokerage arrangements). Circumstances may
also arise where the trader believes that bunching the orders may not
result in the best possible price. Where those accounts or
circumstances are involved, The Boston Company will place the order in
a manner intended to result in as favorable a price as possible for
such client.
PERSONAL INTEREST
Potential Conflict: A portfolio manager may favor an account if the
portfolio manager has a beneficial interest in the account, in order to
benefit a large client or to compensate a client that had poor returns.
For example, if the portfolio manager held an interest in a mutual fund
that was one of the accounts managed by the portfolio manager, the
portfolio manager would have an economic incentive to favor the account
in which the portfolio manager held an interest.
- All accounts with the same or similar investment objectives are part
of a trading group. All accounts in a particular trading group are
managed and traded identically taking into account client imposed
restrictions or cash flows. As a result of this management and trading
style an account in a trading group cannot be treated any differently
than any other account in that trading group.
OUTSIDE DIRECTORSHIP
Potential Conflict: Employees may serve as directors, officers or
general partners of certain outside entities after obtaining the
appropriate approvals in compliance with the Code of Conduct and Mellon
Corporate Policy on Outside Directorships and Offices (CPP-805-I).
However, in view of the potential conflicts of interest and the possible
liability for The Boston Company, its affiliates and its employees,
employees are urged to be cautious when considering serving as
directors, officers, or general partners of outside entities.
- In addition to completing the reporting requirements set forth in the
Mellon corporate policies, employees should ensure that their service
as an outside director, officer or general partner does not interfere
with the discharge of their job responsibilities and must recognize
that their primary obligation is to complete their assigned
responsibilities at The Boston Company in a timely manner.
PROXY VOTING
Potential Conflict: Whenever The Boston Company owns the securities of
client or prospective client in fiduciary accounts there is a potential
conflict between the interests of the firm and the interests of the
beneficiaries of our client accounts.
- Material conflicts of interest are addressed through the establishment
of our parent company's Proxy Committee structure. It applies
detailed, pre-determined proxy voting guidelines in an objective and
consistent manner across client accounts, based on internal and
external research and recommendations provided by a third party
vendor, and without consideration of any client relationship factors.
Further, we engage a third party as an independent fiduciary to vote
all proxies for Mellon securities and Fund securities.
PERSONAL TRADING
Potential Conflict: There is an inherent conflict where a portfolio
manager manages personal accounts alongside client accounts. Further,
there is a conflict where other employees in the firm know of portfolio
decisions in advance of trade execution and could potentially use this
information to their advantage and to the disadvantage of The Boston
Company's clients.
- Subject to the personal Securities Trading Policy, employees of The
Boston Company may buy and sell securities which are recommended to
its clients; however, no employee is permitted to do so (a) where such
purchase or sale would affect the market price of such securities, or
(b) in anticipation of the effect of such recommendation on the market
price.
- Consistent with the Securities Trading Policy relating to Investment
Employees (which includes all Access Persons), approval will be denied
for sales/purchases of securities for which investment transactions
are pending and, at minimum, for two business days after transactions
for the security were completed for client accounts. Portfolio
Statement of Additional Information - Nov. 29, 2007 Page 122
managers are prohibited from trading in a security for seven days
before and after transactions in that security are completed for
client accounts managed by that Portfolio Manager.
SOFT DOLLARS
Potential Conflict: Use of client commissions to pay for services that
benefit The Boston Company and not client accounts.
- It is the policy of The Boston Company to enter into soft-dollar
arrangements in a manner which will ensure the availability of the
safe harbor provided by Section 28(e) of the Securities Exchange Act
of 1934 and which will ensure that the firm meets its fiduciary
obligations for seeking to obtain best execution for its clients. All
soft dollar services are justified in writing by the user specifically
noting how the service will assist in the investment decision making
process and approved in advance by the Soft Dollar Committee.
CONSULTANT BUSINESS
Potential Conflict: Many of our clients retain consulting firms to
assist them in selecting investment managers. Some of these consulting
firms provide services to both those who hire investment managers (i.e.,
clients) and to investment management firms. The Boston Company may pay
to attend conferences sponsored by consulting firms and/or purchase
services from consulting firms where it believes those services will be
useful to it in operating its investment management business.
- The Boston Company does not pay referral fees to consultants.
GIFTS
Potential Conflict: Where investment personnel are offered gifts or
entertainment by business associates that assist them in making or
executing portfolio decisions or recommendations for client accounts a
potential conflict exists.
The Code of Conduct sets forth broad requirements for accepting gifts
and entertainment. The Boston Company's Gift Policy supplements the Code
of Conduct and provides further clarification for The Boston Company
employees.
- The Boston Company has established a Gift Policy that supplements the
Mellon Code of Conduct. Gifts received with a face value under $100
may be accepted so long as they are not intended to influence. It is
imperative that common sense and good judgment be used when accepting
gifts in the course of business. For gifts accepted in accordance with
the Gift Policy and the Mellon Code of Conduct with a face value over
$100, The Boston Company has determined that it is in the best
interest of the firm and its employees that any amount over $100 shall
be donated to a 501(c)(3) charitable organization of the employee's
choice.
(23) Portfolio managers at Marsico Capital Management, LLC (MCM) typically
manage multiple accounts. These accounts may include, among others,
mutual funds, separate accounts (assets managed on behalf of
institutions such as pension funds, colleges and universities,
foundations, and accounts managed on behalf of individuals), and
commingled trust accounts. Portfolio managers make investment decisions
for each portfolio based on the investment objectives, policies,
practices and other relevant investment considerations that the managers
believe are applicable to that portfolio. Consequently, portfolio
managers may purchase (or sell) securities for one portfolio and not
another portfolio, or may take similar actions for different portfolios
at different times. As a result, the mix of securities purchased in one
portfolio may perform better than the mix of securities purchased for
another portfolio. Similarly, the sale of securities from one portfolio
may cause that portfolio to perform better than others if the value of
those securities decline.
Potential conflicts of interest may also arise when allocating and/or
aggregating trades. MCM often aggregates into a single trade order
several individual contemporaneous client trade orders in a single
security. Under MCM's trade management policy and procedures, when
trades are aggregated on behalf of more than one account, such
transactions will be allocated to all participating client accounts in a
fair and equitable manner. With respect to IPOs and other syndicated or
limited offerings, it is MCM's policy to seek to ensure that over the
long term, accounts with the same or similar investment objectives will
receive an equitable opportunity to participate meaningfully and will
not be unfairly disadvantaged. To deal with these situations, MCM has
adopted policies and procedures for allocating transactions across
multiple accounts. MCM's policies also seek to ensure that portfolio
managers do not systematically allocate other types of trades in a
manner that would be more beneficial to one account than another. MCM's
compliance department monitors transactions made on behalf of multiple
clients to seek to ensure adherence to its policies.
As discussed above, MCM has adopted and implemented policies and
procedures that seek to minimize potential conflicts of interest that
may arise as a result of a portfolio manager advising multiple accounts.
In addition, MCM monitors a variety of areas, including compliance with
primary Fund guidelines, the allocation of securities, and compliance
with its Code of Ethics.
(24) As an investment adviser and fiduciary, AllianceBernstein owes its
clients and shareholders an undivided duty of loyalty. We recognize that
conflicts of interest are inherent in our business and accordingly have
developed policies and procedures (including oversight monitoring)
reasonably designed to detect, manage and mitigate the effects of actual
or
Statement of Additional Information - Nov. 29, 2007 Page 123
potential conflicts of interest in the area of employee personal
trading, managing multiple accounts for multiple clients, including
AllianceBernstein Mutual Funds, and allocating investment opportunities.
Investment professionals, including portfolio managers and research
analysts, are subject to the above-mentioned policies and oversight
monitoring to ensure that all clients are treated equitably. We place
the interests of our clients first and expect all of our employees to
meet their fiduciary duties.
Employee Personal Trading
AllianceBernstein has adopted a Code of Business Conduct and Ethics that
is designed to detect and prevent conflicts of interest when investment
professionals and other personnel of AllianceBernstein own, buy or sell
securities which may be owned by, or bought or sold for, clients.
Personal securities transactions by an employee may raise a potential
conflict of interest when an employee owns or trades in a security that
is owned or considered for purchase or sale by a client, or recommended
for purchase or sale by an employee to a client. Subject to the
reporting requirements and other limitations of its Code of Business
Conduct and Ethics, AllianceBernstein permits its employees to engage in
personal securities transactions, and also allows them to acquire
investments in the AllianceBernstein Mutual Funds through direct
purchase, 401K/profit sharing plan investment and/or notionally in
connection with deferred incentive compensation awards.
AllianceBernstein's Code of Ethics and Business Conduct requires
disclosure of all personal accounts and maintenance of brokerage
accounts with designated broker-dealers approved by AllianceBernstein.
The Code also requires preclearance of all securities transactions and
imposes a one-year holding period for securities purchased by employees
to discourage short-term trading.
Managing Multiple Accounts for Multiple Clients
AllianceBernstein has compliance policies and oversight monitoring in
place to address conflicts of interest relating to the management of
multiple accounts for multiple clients. Conflicts of interest may arise
when an investment professional has responsibilities for the investments
of more than one account because the investment professional may be
unable to devote equal time and attention to each account. The
investment professional or investment professional teams for each client
may have responsibilities for managing all or a portion of the
investments of multiple accounts with a common investment strategy,
including other registered investment companies, unregistered investment
vehicles, such as hedge funds, pension plans, separate accounts,
collective trusts and charitable foundations. Among other things,
AllianceBernstein's policies and procedures provide for the prompt
dissemination to investment professionals of initial or changed
investment recommendations by analysts so that investment professionals
are better able to develop investment strategies for all accounts they
manage. In addition, investment decisions by investment professionals
are reviewed for the purpose of maintaining uniformity among similar
accounts and ensuring that accounts are treated equitably. No investment
professional that manages client accounts carrying performance fees is
compensated directly or specifically for the performance of those
accounts. Investment professional compensation reflects a broad
contribution in multiple dimensions to long-term investment success for
our clients and is not tied specifically to the performance of any
particular client's account, nor is it directly tied to the level or
change in the level of assets under management.
Allocating Investment Opportunities
AllianceBernstein has policies and procedures intended to address
conflicts of interest relating to the allocation of investment
opportunities. These policies and procedures are designed to ensure that
information relevant to investment decisions is disseminated promptly
within its portfolio management teams and investment opportunities are
allocated equitably among different clients. The investment
professionals at AllianceBernstein routinely are required to select and
allocate investment opportunities among accounts. Portfolio holdings,
position sizes, and industry and sector exposures tend to be similar
across similar accounts, which minimizes the potential for conflicts of
interest relating to the allocation of investment opportunities.
Nevertheless, investment opportunities may be allocated differently
among accounts due to the particular characteristics of an account, such
as size of the account, cash position, tax status, risk tolerance and
investment restrictions or for other reasons.
AllianceBernstein's procedures are also designed to prevent potential
conflicts of interest that may arise when AllianceBernstein has a
particular financial incentive, such as a performance-based management
fee, relating to an account. An investment professional may perceive
that he or she has an incentive to devote more time to developing and
analyzing investment strategies and opportunities or allocating
securities preferentially to accounts for which AllianceBernstein could
share in investment gains.
To address these conflicts of interest, AllianceBernstein's policies and
procedures require, among other things, the prompt dissemination to
investment professionals of any initial or changed investment
recommendations by analysts; the aggregation of orders to facilitate
best execution for all accounts; price averaging for all aggregated
orders; objective allocation for limited investment opportunities (e.g.,
on a rotational basis) to ensure fair and equitable allocation among
accounts; and limitations on short sales of securities. These procedures
also require documentation and review of
Statement of Additional Information - Nov. 29, 2007 Page 124
justifications for any decisions to make investments only for select
accounts or in a manner disproportionate to the size of the account.
(25) AIG Global Investment Corp. ("AIGGIC") aims to conduct its activities in
such a manner that permits it to deal fairly with each of its clients on
an overall basis in accordance with applicable securities laws and
fiduciary obligations. In that regard, AIGGIC has adopted and
implemented policies and procedures, including brokerage and trade
allocation policies and procedures, which AIGGIC believes address the
conflicts associated with managing multiple accounts for multiple
clients (including affiliated clients). AIGGIC also monitors a variety
of areas, including compliance with guidelines of the Fund and other
accounts it manages and compliance with AIGGIC's Code of Ethics.
Furthermore, AIGGIC's management periodically reviews the performance of
a portfolio manager. Although AIGGIC does not track the time a portfolio
manager spends on a single portfolio, AIGGIC does periodically assess
whether a portfolio manager has adequate time and resources to
effectively manage all of such portfolio manager's accounts.
(26) Actual or potential conflicts may arise in managing multiple client
accounts. A brief description of some of the potential conflicts of
interest and compliance factors that may arise as a result is included
below. We do not believe any of these potential conflicts of interest
and compliance factors pose significant risk to any client account.
Allocation of Limited Investment Opportunities
If an investment team identifies a limited investment opportunity
(including initial public offerings) that may be suitable for multiple
client accounts, each account may not be able to take full advantage of
that opportunity due to liquidity constraints or other factors.
Batterymarch has adopted policies and procedures designed to ensure that
allocations of limited investment opportunities are conducted in a fair
and equitable manner between client accounts.
Although Batterymarch strives to ensure that client accounts managed
under similar investment mandates have similar portfolio
characteristics, Batterymarch does not "clone" client accounts (i.e.,
assemble multiple client accounts with identical portfolios of
securities). As a result, the portfolio of securities held in any single
client account may perform better or worse than the portfolio of
securities held in another similarly managed client account.
Allocation of Partially-Filled Transactions in Securities
Batterymarch often aggregates for execution as a single transaction
orders for the purchase or sale of a particular security for multiple
client accounts. If Batterymarch is unable to fill an aggregated order
completely, but receives a partial fill, Batterymarch will typically
allocate the transactions relating to the partially filled order to
clients on a pro-rata basis with a minimum fill size. Batterymarch may
make exceptions from this general policy from time to time based on
factors such as the availability of cash, country/regional/sector
allocation decisions, investment guidelines and restrictions, and the
costs for minimal allocation actions.
Opposite (i.e., Contradictory) Transactions in Securities
Batterymarch provides investment advisory services for various clients
and under various investment mandates and may give advice, and take
action, with respect to any of those clients that may differ from the
advice given, or the timing or nature of action taken, with respect to
any other individual client account.
In the course of providing advisory services, Batterymarch may
simultaneously recommend the sale of a particular security for one
client account while recommending the purchase of the same or a similar
security for another account. This may occur for a variety of reasons.
For example, in order to raise cash to handle a redemption/withdrawal
from a client account, Batterymarch may be forced to sell a security
that is ranked a "buy" by its stock selection model.
Certain Batterymarch portfolio managers that manage long-only portfolios
also manage portfolios that sell securities short. As such, Batterymarch
may purchase or sell a security in one or more of its long-only
portfolios under management during the same day it executes an opposite
transaction in the same or a similar security for one or more of its
portfolios under management that hold securities short, and certain
Batterymarch client account portfolios may contain securities sold short
that are simultaneously held as long positions in certain of the long-
only portfolios managed by Batterymarch. The stock selection model(s),
risk controls and portfolio construction rules used by Batterymarch to
manage its clients' long-only portfolios differ from the model and rules
that are used to manage client account portfolios that hold securities
short. Because different stock selection models, risk controls and
portfolio construction rules are used, it is possible that the same or
similar securities may be ranked differently for different mandates and
that the timing of trading in such securities may differ.
Batterymarch has created certain compliance policies and procedures
designed to minimize harm from such contradictory activities/events.
Selection of Brokers/Dealers
In selecting a broker or dealer, Batterymarch may choose a broker whose
commission rate is in excess of that which another broker might have
charged for the same transaction, based upon Batterymarch's judgment of
that broker's superior execution capabilities and/or as a result of
Batterymarch's perceived value of the broker's research services.
Statement of Additional Information - Nov. 29, 2007 Page 125
Although Batterymarch does not participate in any traditional soft
dollar arrangements whereby a broker purchases research from a third
party on Batterymarch's behalf, Batterymarch does receive proprietary
research services from brokers. Batterymarch generally seeks to achieve
trade executions with brokers of the highest quality and at the lowest
possible cost, although there can be no assurance that this objective
will always be achieved. Batterymarch does not enter into any
arrangements with brokers, formal or otherwise, regarding order flow as
a result of research received. Clients should consider that there is a
potential conflict of interest between their interests in obtaining best
execution and an investment adviser's receipt of research from brokers
selected by the investment adviser for trade executions. The proprietary
research services which Batterymarch obtains from brokers may be used to
service all of Batterymarch's clients and not just those clients paying
commissions to brokers providing those research services, and not all
proprietary research may be used by Batterymarch for the benefit of the
one or more client accounts which paid commissions to a broker providing
such research.
Personal Securities Transactions
Batterymarch allows its employees to trade in securities that it
recommends to advisory clients. Batterymarch's supervised persons, to
the extent not prohibited by Batterymarch's Code of Ethics, may buy,
hold or sell securities or investment products (including interests in
partnerships and investment companies) at or about the same time that
Batterymarch is purchasing, holding or selling the same or similar
securities or investment products for client account portfolios and the
actions taken by such persons on a personal basis may be, or may be
deemed to be, inconsistent with the actions taken by Batterymarch for
its client accounts. Clients should understand that these activities may
create a conflict of interest between Batterymarch, its supervised
persons and its clients.
Batterymarch employees may also invest in mutual funds that are managed
by Batterymarch. This may result in a potential conflict of interest
since Batterymarch employees have knowledge of such funds' investment
holdings, which is non-public information.
To address this, Batterymarch has adopted a written Code of Ethics
designed to prevent and detect personal trading activities that may
interfere or conflict with client interests (including shareholders'
interests in funds managed by Batterymarch).
Batterymarch and certain Batterymarch employees may also have ownership
interests in certain other client accounts, including pooled investment
vehicles, that invest in long and short positions. Firm and employee
ownership of such accounts may create additional potential conflicts of
interest for Batterymarch.
Although Batterymarch believes that its policies and procedures are
appropriate to prevent, eliminate or minimize the harm of many potential
conflicts of interest between Batterymarch, its related persons and
clients, clients should be aware that no set of policies and procedures
can possibly anticipate or relieve all potential conflicts of interest.
Moreover, it is possible that additional potential conflicts of interest
may exist that Batterymarch has not identified in the summary above.
(27) Systematic Financial Management, L.P. is an affiliated firm of
Affiliated Managers Group, Inc. (AMG). The AMG Affiliates do not
formulate advice for Systematic's clients and do not, in Systematic's
view, present any potential conflict of interest with Systematic's
clients. Portfolio managers oversee the investment of various types of
accounts in the same strategy such as mutual funds, pooled investment
vehicle and separate accounts for individuals and institutions.
Investment decisions generally are applied to all accounts utilizing
that particular strategy taking into consideration client restrictions,
instructions and individual needs. A portfolio manager may manage an
account whose fees may be higher or lower than the basic fee schedule to
provide for varying client circumstances. Management of multiple funds
and accounts may create potential conflicts of interest relating to the
allocation of investment opportunities, and the aggregation and
allocation of client trades.
Conflicts of interest, including employee personal securities trading,
security selection, proxy voting and security allocation, those more
material in nature, may arise as a result of providing advisory services
to a diverse group of clients invested in various strategies. To avoid
such potential conflicts and harm to Systematic's clients, Systematic
has adopted policies and procedures, including but not limited to, its
Code of Ethics, which addresses personal securities trading, Proxy
Voting and Trade Error Policies, which are accompanied by periodic
testing and reviews, and are reasonably designed to detect such
conflicts and protect the interests of its clients.
(28) During the normal course of managing assets for multiple clients of
varying types and asset levels, WEDGE will inevitably encounter
conflicts of interest that could, if not properly addressed, be harmful
to one or more of its clients. Those of a material nature that are
encountered most frequently surround security selection, brokerage
selection, employee personal securities trading, proxy voting and the
allocation of securities. WEDGE is therefore forced to consider the
possible personal conflicts that occur for an analyst and portfolio
manager as well as those for the firm when a security is recommended for
purchase or sale. When trading securities, WEDGE must address the issues
surrounding the selection of brokers to execute trades considering the
personal conflicts of the trader and the firm's conflict to obtain best
execution of client transactions versus offsetting the cost of research
or selfishly enhancing its
Statement of Additional Information - Nov. 29, 2007 Page 126
relationship with a broker/consultant for potential future gain. And
finally, WEDGE must consider the implications that a limited supply or
demand for a particular security poses on the allocation of that
security across accounts. To mitigate these conflicts and ensure its
clients are not negatively impacted by the adverse actions of WEDGE or
its employees, WEDGE has implemented a series of policies including its
Personal Security Trading Policy, Proxy Voting Policy, Equity Trading
Policy, Trading Error Policy, and others designed to prevent and detect
conflicts when they occur. WEDGE reasonably believes that these and
other policies combined with the periodic review and testing performed
by its compliance professionals adequately protects the interests of its
clients.
STRUCTURE OF COMPENSATION
(29) The compensation of RiverSource Investments employees consists of (i) a
base salary, (ii) an annual cash bonus, and (iii) equity incentive
awards in the form of stock options and/or restricted stock. The annual
cash bonus is based on management's assessment of the employee's
performance relative to individual and business unit goals and
objectives which, for portfolio managers Joy, Keeley and Truscott, may
be based, in part, on achieving certain investment performance goals and
retaining and attracting assets under management, and for portfolio
manager Bergene, on developing competitive products, managing existing
products, and selecting and monitoring subadvisers for RiverSource
funds. In addition, subject to certain vesting requirements, the
compensation of portfolio managers Joy, Keeley and Truscott, includes an
annual award based on the performance of Ameriprise Financial over
rolling three-year periods. RiverSource Investments' portfolio managers
are provided with a benefit package including life insurance, health
insurance and participation in the company's 401(k) plan comparable to
that received by other RiverSource Investments employees. Depending upon
their job level, RiverSource Investments' portfolio managers may also be
eligible for other benefits or perquisites that are available to all
RiverSource Investments employees at the same job level.
(30) Portfolio manager compensation is typically comprised of (i) a base
salary, (ii) an annual cash bonus, a portion of which may be subject to
a mandatory deferral program, and may include (iii) an equity incentive
award in the form of stock options and/or restricted stock. The annual
bonus is paid from a team bonus pool that is based on the performance of
the accounts managed by the portfolio management team, which might
include mutual funds, institutional portfolios and hedge funds. Funding
for the bonus pool for equity portfolio managers is determined by a
percentage of the aggregate assets under management in the accounts
managed by the portfolio managers, including the fund, plus, where
applicable, a percentage of the assets of the funds they support as
research analysts*, and by the short term (typically one-year) and long-
term (typically three year) performance of those accounts in relation to
the relevant peer group universe. Funding for the bonus pool for fixed
income portfolio managers is determined by the aggregate market
competitive bonus targets for the teams of which the portfolio manager
is a member and by the short-term (typically one year) and long-term
(typically three year) performance of those accounts in relation to
applicable benchmarks or the relevant peer group universe. Bonus pool
funding for Lynn Hopton and Yvonne Stevens, is based upon a percentage
of profits generated by the institutional portfolios they manage. Lynn
Hopton and Yvonne Stevens may also be paid from a bonus pool based upon
the performance of the mutual fund(s) they manage. Funding for this
bonus pool is determined by a percentage of the aggregate assets under
management in the mutual fund(s) they manage, and by the short term
(typically one-year) and long-term (typically three year) performance of
the mutual fund(s) in relation to the relevant peer group universe. With
respect to hedge funds and separately managed accounts that follow a
hedge fund mandate, funding for the bonus pool is a percentage of
performance fees earned on the hedge funds or accounts managed by the
portfolio managers, plus, where applicable, a percentage of performance
fees earned on the hedge funds or accounts they support as research
analysts*.
Senior management of RiverSource Investments has the discretion to
increase or decrease the size of the part of the bonus pool and to
determine the exact amount of each portfolio manager's bonus paid from
this portion of the bonus pool based on his/her performance as an
employee. In addition, where portfolio managers invest in a hedge fund
managed by the investment manager, they receive a cash reimbursement for
the fees charged on their hedge fund investments. Senior management of
RiverSource Investments does not have discretion over the size of the
bonus pool related to institutional portfolios managed by Lynn Hopton
and Yvonne Stevens. RiverSource Investments portfolio managers are
provided with a benefits package, including life insurance, health
insurance, and participation in a 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.
(31) As an employer, UBS Global Asset Management operates within a highly
competitive compensation environment. To review industry comparatives,
we measure our compensation structures against benchmark data of
competitors provided
- ----------
* The portfolio managers that currently support funds as research analysts are:
Clay Hoes, Julene Melquist, Sam Murphy and Mike Marzolf.
Statement of Additional Information - Nov. 29, 2007 Page 127
by McLagan Partners, the industry standard provider for compensation
measurement and assessment, on an annual basis. We also perform
compensation analysis on an as-needed basis, e.g., when bringing new
employees into the organization, or when the market shifts and we need
to consider adjustments for retention purposes. Our Global Head of
Compensation works closely with our parent company and various data
sources to validate our procedures and assumptions.
Our compensation and benefits programs are designed to provide our
investment professionals with incentives to excel, and to promote an
entrepreneurial, performance-oriented culture. They also align the
interests of our investment professionals with the interests of our
clients. Overall compensation can be grouped into four categories:
1. Competitive salary, benchmarked annually to maintain very competitive
compensation opportunities.
2. Annual bonus, tied to individual contributions and investment
performance.
3. Analyst incentives, tied to performance of model portfolios.
4. UBS equity awards, promoting company-wide success and employee
retention.
Base salary is used to recognize the experience, skills and knowledge
that our 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. We
strongly believe that tying bonuses to both long-term (3-year) and
shorter-term (1-year) portfolio performance closely aligns our
investment professionals' interests with those of our clients.
Analyst Incentives. Because we value our proprietary research, we have
designed a compensation system that has made investment analysis a
highly regarded career within our firm. Grouped into 12 global sector
teams, our analysts manage model portfolios in global and local sectors.
Our portfolio managers use the model sector portfolios to build actual
client portfolios. Analyst incentives are tied to the performance of the
model portfolios, which we evaluate over rolling three-year periods.
One-third of each analyst's rating is based upon the performance of the
model global sector portfolio; one-third on the model local sector
portfolio; and one-third is a qualitative assessment of their
contribution. We believe that this system closely aligns our analysts'
incentives with our clients.
UBS AG equity. Many of our senior investment professionals are required
to defer a portion of their annual performance-based incentive in the
form of deferred or restricted UBS AG shares or employee stock options.
Not only does this reinforce the critical importance of creating long-
term business value, it also serves as an effective retention tool as
the equity shares typically vest over a number of years.
Broader equity share ownership is encouraged for all employees through
"Equity Plus". This long-term incentive program gives employees the
opportunity to purchase UBS stock with after-tax funds from their bonus
or salary. Two UBS stock options are given for each share acquired and
held for two years. We feel this engages our employees as partners in
the firm's success, and helps to maximize our integrated business
strategy.
(32) Turner's investment professionals receive a base salary commensurate
with their level of experience. Turner's goal is to maintain competitive
base salaries through review of industry standards, market conditions,
and salary surveys. Bonus compensation, which is a multiple of base
salary, is based on the performance of each individual's sector and
portfolio assignments relative to appropriate market benchmarks. In
addition, each employee is eligible for equity ownership and equity
owners share the firm's profits. Most of the members of the Investment
Team and all Portfolio Managers for The Funds, are equity owners of
Turner. This compensation and ownership structure provides incentive to
attract and retain highly qualified people, as each member of the firm
has the opportunity to share directly in the accomplishments of the
business.
The objective performance criteria noted above accounts for 90% of the
bonus calculation. The remaining 10% is based upon subjective, "good
will" factors including teamwork, interpersonal relations, the
individual's contribution to overall success of the firm, media and
client relations, presentation skills, and professional development.
Portfolio managers/analysts are reviewed on an annual basis. The Chief
Investment Officer is responsible for setting base salaries, bonus
targets, and making all subjective judgments related to an investment
professionals' compensation. The CIO is also responsible for identifying
investment professionals that should be considered for equity ownership
on an annual basis.
(33) The professionals at Essex are compensated by a three-tiered approach.
First, all of the investment professionals have industry-competitive
base salaries and receive a percentage of the firm's profits through a
profit-sharing/pension plan. Second, Essex's professionals receive a
year-end bonus based on the portfolio's performance on an absolute basis
as well as relative to our peers and benchmarks. Third, Essex offers a
competitive benefit package including comprehensive family health
coverage.
Statement of Additional Information - Nov. 29, 2007 Page 128
Portfolio managers, specifically those that are Principals of the firm,
are evaluated on the basis of two components: (1) overall performance of
the firm and (2) performance of his or her managed portfolios. Overall
performance of the firm is the overriding measure by which Principals
are evaluated. A lesser weighting, but certainly one of importance, is
the portfolio's performance, which is measured in terms of absolute,
benchmark-relative and competitor-relative performance.
An analyst's evaluation consists of three components: the performance of
the portfolio, production/work ethic/communications, and teamwork. The
performance of the portfolio is measured in terms of both absolute
performance, as well as relative performance to that of the comparative
benchmark and peer group. Productivity, work ethic, and communication is
very much a qualitative measure and is first and foremost a
comprehensive assessment of how individual analysts generate stock
ideas. It is an assessment of the number of names that are looked at,
knowledge of those names, the frequency with which the analyst's
recommendations are incorporated into the portfolio and the analyst's
overall preparedness for coverage meetings. Teamwork is another rather
qualitative element of the evaluation. It is a measurement of an
individual analyst's functioning within the team largely in terms of
cooperation, collaboration, and the sharing of ideas. An analyst's
evaluation plays a part, in addition to the performance of the overall
firm, in determining the size of his or her bonus, which typically
ranges from 25% - 150% of base salary.
Each trader at Essex is evaluated annually by the firm's Chief Executive
Officers. The two Chief Executive Officers examine several factors such
as: number of errors, obtaining best execution, opinions of our
portfolio managers, etc. A trader's performance evaluation contributes
to 25% - 30% of his or her total pay.
As an added retention mechanism, Essex offers ownership to both existing
and prospective employees. The current ownership structure allows Essex
to capitalize a portion of its free cash flow each year and transform it
into stock ownership. Essex envisions granting ownership as an
additional incentive to the employees who contribute the greatest to the
firm's future success. We feel that our compensation structure is
extremely competitive when compared with other firms in the industry.
Finally, Essex offers a deferred compensation plan for certain employees
by way of granting them a Special Recognition Award.
Essex maintains a fundamental team approach that encourages continuity
among its investment professionals and makes a conscious effort to
reward its team members accordingly. Our investment professionals are
continuously motivated by our compensation structure, competitive
personnel benefit packages, and entrepreneurial-like culture.
(34) Dr. David Goldsmith is paid a fixed base salary and a variable annual
incentive. Base salary is determined within a market competitive
position-specific salary range, based on the portfolio manager's
experience and performance. For purposes of calculating the annual
incentive amount, each mutual fund and institutional account managed by
the Adviser is categorized as reflecting one of several designated
"Strategies." The annual incentive amount is based on current calendar
year asset-weighted composite investment performance of each Strategy,
which is measured on a total return basis gross of fees and expenses vs.
the Strategy's designated benchmark (i.e., with respect to the Fund's
Strategy, Russell 2000 Growth Index). Dr. Goldsmith is also the
portfolio manager for other accounts in addition to the Fund. Such other
accounts may be categorized as reflecting different Strategies, which
may have different benchmarks. Although the performance of each Strategy
composite is considered in calculating the annual incentive amount,
their relative weightings differ. The performance of one of the other
Strategies (which does not include the Fund in its composite
performance) represents a significant portion of the calculation. The
remaining Strategies are divided into two groups, with each Strategy
within a group receiving equal weighting. The Strategy to which the Fund
is assigned and the other Strategies in the same group receive higher
weighting than Strategies in the other group. As a separate matter,
pursuant to the terms of a business acquisition agreement, investment
professionals hired before the acquisition may receive additional
consideration based on the achievement of specified revenue targets.
(35) 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.
(36) 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.
Statement of Additional Information - Nov. 29, 2007 Page 129
Bonus
A significant portion of portfolio manager compensation takes the form
of an annual incentive bonus tied to performance. Bonus payments are
determined by a combination of factors. One factor is fund investment
performance. For policy portfolios, investment performance is measured
by a combination of one- and three-year pre-tax performance relative to
a pre-established, internally-customized peer group and/or market
benchmark. Custom peer groups are constructed using all the funds in
appropriate Lipper or Morningstar categories as a starting point. Funds
are then eliminated from the peer group based on a standardized
methodology designed to result in a final peer group that more closely
represents the fund's true peers based on internal investment mandates
and that is more stable (i.e., has less peer turnover) over the long-
term. In cases where a portfolio manager has responsibility for more
than one policy portfolio, the performance of each is assigned a
percentage weight commensurate with the portfolio manager's level of
responsibility.
With regard to tracking portfolios, investment performance may be
measured in a number of ways. The performance of the tracking portfolio
may be measured against a customized peer group and/or market benchmark
as described above for policy portfolios. Alternatively, the tracking
portfolio may be evaluated relative to the performance of its policy
portfolio, with the goal of matching the policy portfolio's performance
as closely as possible. This is the case for the Small Cap Equity Fund.
In some cases, the performance of a tracking portfolio is not separately
considered. Rather, the performance of the policy portfolio is the key
metric. This is the case for the Aggressive Growth Fund.
A second factor in the bonus calculation relates to the performance of
all American Century funds managed according to a particular investment
style, such as U.S. growth or value. Performance is measured for each
product individually as described above and then combined to create an
overall composite for the product group. These composites may measure
one-year performance (equal weighted) or a combination of one- and
three-year performance (asset weighted) depending on the portfolio
manager's responsibilities and products managed. This feature is
designed to encourage effective teamwork among portfolio management
teams in achieving long-term investment success for similarly styled
portfolios.
A portion of some portfolio managers' bonuses may be tied to individual
performance goals, such as research projects and the development of new
products.
Finally, portfolio manager bonuses may occasionally be affected by
extraordinarily positive or negative financial performance by American
Century Companies, Inc. (ACC), the advisor's privately-held parent
company. This feature has been designed to maintain investment
performance as the primary component of portfolio manager bonuses while
also providing a link to the advisor's ability to pay.
Restricted Stock Plans
Portfolio managers are eligible for grants of restricted stock of ACC.
These grants are discretionary, and eligibility and availability can
vary from year to year. The size of an individual's grant is determined
by individual and product performance as well as other product-specific
considerations. Grants can appreciate/depreciate in value based on the
performance of the ACC stock during the restriction period (generally
three years).
Deferred Compensation Plans
Portfolio managers are eligible for grants of deferred compensation.
These grants are used in very limited situations, primarily for
retention purposes. Grants are fixed and can appreciate/depreciate in
value based on the performance of the American Century mutual funds in
which the portfolio manager chooses to invest them.
(37) GSAM's Growth Team's (the "Growth Team") compensation packages for its
portfolio managers are comprised of a base salary and performance bonus.
The performance bonus is first and foremost tied to the Growth Team's
pre-tax performance for its clients and the Growth Team's total revenues
for the past year which in part is derived from advisory fees and for
certain accounts, performance based fees. The Growth Team measures its
performance on a market cycle basis which is typically measured over a
three to seven year period, rather than being focused on short term
gains in its strategies or short term contributions from a portfolio
manager in any given year.
The performance bonus for portfolio managers is significantly influenced
by the following criteria: (1) whether the team performed consistently
with objectives and client commitments; (2) whether the team's
performance exceeded performance benchmarks over a market cycle; (3)
consistency of performance across accounts with similar profiles; and
(4) communication with other portfolio managers within the research
process. Benchmarks for measuring performance can either be broad based
or narrow based indices which will vary based on client expectations.
The Growth Team also considers each portfolio manager's individual
performance, his or her contribution to the overall performance of the
strategy long-term and his/her ability to work as a member of the Team.
The Growth Team's
Statement of Additional Information - Nov. 29, 2007 Page 130
decision may also be influenced by the following: the performance of
GSAM, the profitability of Goldman, Sachs & Co. ("Goldman Sachs") and
anticipated compensation levels among competitor firms.
Other Compensation. In addition to base salary and performance bonus,
GSAM has a number of additional benefits/deferred compensation programs
for all portfolio managers in place including: (i) a 401k program that
enables employees to direct a percentage of their pretax salary and
bonus income into a tax-qualified retirement plan; (ii) a profit sharing
program to which Goldman Sachs makes a pretax contribution; and (iii)
investment opportunity programs in which certain professionals are
eligible to participate subject to certain net worth requirements.
Portfolio managers may also receive grants of restricted stock units
and/or stock options as part of their compensation.
Certain GSAM portfolio managers may also participate in the firm's
Partner Compensation Plan, which covers many of the firm's senior
executives. In general, under the Partner Compensation Plan,
participants receive a base salary and a bonus (which may be paid in
cash or in the form of an equity-based award) that is linked to Goldman
Sachs' overall financial performance.
(38) The funds pay Wellington Management a fee based on the assets under
management of the fund as set forth in the Subadvisory Agreement between
Wellington Management and Ameriprise Financial, Inc. with respect to
each fund. Wellington Management pays its investment professionals out
of its total revenues and other resources, including the advisory fees
earned with respect to each fund. The following information relates to
the fiscal year ended May 31, 2007.
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 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 their experience and performance in their role as an
Investment Professional. Base salaries for employees 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 employees of the firm.
Each Investment Professional is eligible to receive an incentive payment
based on the revenues earned by Wellington Management from the fund
managed by the Investment Professional and generally each other
portfolio managed by such Investment Professional. Each Investment
Professional's incentive payment relating to the Funds is linked to the
gross pre-tax performance of the Funds compared to the benchmark or peer
group identified below over one and three year periods, with an emphasis
on three year results. Wellington Management applies similar incentive
structures (although the benchmarks or peer groups, time periods and
rates may differ) to other portfolios managed by the Investment
Professional, 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 a
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 tax qualified retirement
plan, the contributions to which are made pursuant to an actuarial
formula, as a partner of the firm. Mr. Abrams, Boselli and Shilling are
partners of the firm.
<Table>
<Caption>
- ------------------------------------------------------------------
BENCHMARK INDEX AND/OR PEER
GROUP FOR
FUND INCENTIVE PERIOD
- ------------------------------------------------------------------
Small Cap Equity Fund Russell 2000 Index
- ------------------------------------------------------------------
Fundamental Growth Fund Russell 1000 Growth Index
- ------------------------------------------------------------------
</Table>
(39) 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.
Statement of Additional Information - Nov. 29, 2007 Page 131
Christopher Davis's annual compensation as an employee 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.
(40) Lord Abbett compensates its portfolio managers on the basis of salary,
bonus and profit sharing plan contributions. The level of compensation
takes into account the portfolio manager's experience, reputation and
competitive market rates.
Fiscal year-end bonuses, which can be a substantial percentage of base
level compensation, are determined after an evaluation of various
factors. These factors include the portfolio manager's investment
results and style consistency, the dispersion among funds with similar
objectives, the risk taken to achieve the fund returns, and similar
factors. Investment results are evaluated based on an assessment of the
portfolio manager's three- and five-year investment returns on a pre-tax
basis vs. both the appropriate style benchmarks and the appropriate peer
group rankings. Finally, there is a component of the bonus that reflects
leadership and management of the investment team. The evaluation does
not follow a formulaic approach, but rather is reached following a
review of these factors. No part of the bonus payment is based on the
portfolio manager's assets under management, the revenues generated by
those assets, or the profitability of the portfolio manager's unit. Lord
Abbett does not manage hedge funds. Lord Abbett may designate a bonus
payment of a manager for participation in the firm's senior incentive
compensation plan, which provides for a deferred payout over a five-year
period. The plan's earnings are based on the overall asset growth of the
firm as a whole. Lord Abbett believes this incentive focuses portfolio
managers on the impact their fund's performance has on the overall
reputation of the firm as a whole and encourages exchanges of investment
ideas among investment professionals managing different mandates.
Lord Abbett provides a 401(k) profit-sharing plan for all eligible
employees. Contributions to a portfolio manager's profit-sharing account
are based on a percentage of the portfolio manager's total base and
bonus paid during the fiscal year, subject to a specified maximum
amount. The assets of this profit-sharing plan are entirely invested in
Lord Abbett-sponsored funds.
(41) All employees at Donald Smith & Co., Inc. are compensated on incentive
plans. The compensation for portfolio managers, analysts and traders at
Donald Smith consists of a base salary, a partnership interest in the
firm's profits, and possibly an additional, discretionary bonus. This
discretionary bonus can exceed 100% of the base salary if performance
for clients exceeds established benchmarks. The current benchmark
utilized is the Russell 2000 Value Index. Additional distribution of
firm ownership is a strong motivation for continued employment at Donald
Smith & Co., Inc. Administrative personnel are also given a bonus as a
function of their contribution and the profitability of the firm.
(42) 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.
(43) In addition to base salary, all portfolio managers and analysts share in
a bonus pool that is distributed semi-annually. Analysts and portfolio
managers are rated on their value added to the team-oriented investment
process. Overall compensation applies with respect to all accounts
managed and compensation does not differ with respect to distinct
accounts managed by a portfolio manager. 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.
The compensation of portfolio managers is not directly tied to fund
performance or growth in assets for any fund or other account managed by
a portfolio manager and portfolio managers are not compensated for
bringing in new business. Of course, growth in assets from the
appreciation of existing assets and/or growth in new assets will
increase revenues and profit. The consistent, long-term growth in assets
at any investment firm is to a great extent, dependent upon the success
of the portfolio management team. The compensation of the portfolio
management team at the Adviser will increase over time, if and when
assets continue to grow through competitive performance.
(44) MetWest Capital's compensation system is designed not only to attract
and retain experienced, highly qualified investment personnel, but also
to closely align employees' interests with clients' interests.
Compensation for investment professionals consists of a base salary,
bonus, and generous benefits. Benefits include a comprehensive insurance
benefits program (medical, vision and dental), 401(k) plan with an
employer-matched contribution. A material portion of each such
professional's annual compensation is in the form of a bonus tied to
results relative to clients' benchmarks and overall client satisfaction.
Bonuses may range from 20% to over 100% of salary.
MetWest Capital's compensation system is not determined on an account-
specific basis. Rather, bonuses are tied to overall firm profitability
and composite performance relative to the benchmark. The primary
benchmark for the Small
Statement of Additional Information - Nov. 29, 2007 Page 132
Cap Intrinsic Value strategy is the Russell 2000 Value Index. To
reinforce long-term focus, performance is measured over MetWest
Capital's investment horizon (typically two to three years). Analysts
are encouraged to maintain a long-term focus and are not compensated for
the number of their recommendations that are purchased in the portfolio.
Rather, their bonuses are tied to overall strategy performance.
Mr. Lisenbee is an owner of MetWest Capital. As such, his compensation
consists of a fixed salary and participation in the firm's profits.
(45) The portfolio manager's compensation as a Threadneedle Investments
employee consists of (i) a base salary, (ii) an annual cash bonus, and
(iii) an equity incentive award in the form of stock options and/or
restricted stock. The annual bonus is paid from a team bonus pool that
is based on both mutual fund and institutional portfolio performance.
Funding for the bonus pool is determined by the aggregate market
competitive bonus targets for the teams of which the portfolio manager
is a member and by the short-term (typically one year) and long-term
(typically three year) performance of the accounts compared to
applicable benchmarks. Senior management of Threadneedle Investments has
the discretion to increase or decrease the size of the bonus pool and to
determine the exact amount of each portfolio manager's bonus based on
his/her performance as an employee. Threadneedle Investments portfolio
managers are provided with a benefits package, including life insurance,
health insurance, and participation in a company pension plan,
comparable to that received by other Threadneedle Investments employees.
Depending upon their job level, Threadneedle Investments portfolio
managers may also be eligible for other benefits or perquisites that are
available to all Threadneedle Investments employees at the same job
level.
(46) As of October 31, 2006, the portfolio managers receive all of their
compensation from Columbia WAM and its parent company. P. Zachary Egan,
and Louis J. Mendes each received compensation in the form of salary and
bonus. In addition, Mr. Egan received a distribution in connection with
his association with Columbia WAM prior to its acquisition in September
2000 and Columbia WAM's recent performance. Mr. Mendes participated in a
supplemental pool for Columbia WAM employees that was established in
connection with the acquisition of Columbia WAM and was based on
Columbia WAM's recent performance.
All analysts and portfolio managers have performance benchmarks. Analyst
performance is compared to assigned industry or region stock performance
within benchmark indices while portfolio manager performance is compared
to entire benchmark indices. Performance compared to benchmark indices
is the dominant performance evaluation factor for all analysts and
managers. Industry (or country) weighting recommendations are the second
most important factor for analysts. Other factors are assets managed,
new analyst mentoring, teamwork, and managerial, marketing, compliance
and other qualitative contributions.
Analysts and managers are positioned in a number of compensation tiers
based on cumulative performance. Excellent performance results in
advancement to a higher tier each two or three years, until the highest
tier is reached. Higher tiers have higher base compensation levels and
wider bonus ranges. While cumulative performance places analysts and
managers in tiers, current year performance drives changes in cash bonus
levels. Cash incentive bonuses vary by tier, and can range between a
fraction of base pay to several times base pay; the objective being to
provide very competitive total compensation for high performers.
Typically, a very high proportion of an analyst's or manager's bonus is
paid in cash with a smaller proportion going into an investment program
where the employee can select Columbia mutual funds as their investment
vehicle. Bank of America restricted stock or options may also be part of
an individual's compensation. These mutual fund investments and Bank of
America restricted stock or options vest over three years.
(47) Principal Global Investors offers all employees a competitive salary and
incentive compensation plan that is evaluated annually. Percentages of
base salary versus performance bonus vary by position but are based on
nationally competitive market data and are consistent with industry
standards. Total cash compensation is targeted at the median of the
market and benefits are targeted slightly above median. The investment
staff is compensated under a base salary plus variable annual bonus
(incentive compensation). The incentive compensation plan for equity
portfolio managers is 90% weighted to investment performance and 10%
weighted to Principal Global Investors annual performance score. The
target incentive for equity portfolio managers ranges from 150% to 350%
of actual base earnings, depending on job level.
- Investment performance is based on gross performance versus a
benchmark, peer group or both, depending on the client mandate.
- Performance versus peers is measured for a period up to three years
(shorter if the portfolio manager has managed the respective portfolio
for a period less than three years).
- Versus the peer group, incentive payout starts at 49th percentile and
reaches 100% at the 25th percentile for the 1, 2, and 3-year periods.
15% of incentive payout is achieved at 49th percentile. No payout is
realized if performance is below 50th percentile.
Statement of Additional Information - Nov. 29, 2007 Page 133
As a wholly owned subsidiary of Principal Financial Group, all Principal
Global employees are eligible to participate in our Employee Stock
Purchase Plan that allows them to purchase company stock at a 15%
discount each quarter. In addition, through our 401(k) plan, employees
are able to contribute to an Employee Stock Ownership Plan (ESOP)
through which they can buy additional company stock.
(48) The portfolio managers' cash compensation is comprised primarily of a
market-based salary and incentive compensation plans (annual and long
term incentive). Funding for the TBCAM Annual Incentive Plan and Long
Term Incentive Plan is through a pre-determined fixed percentage of
overall TBCAM profitability. Therefore, all bonus awards are based
initially on TBCAM's financial performance. The portfolio managers are
eligible to receive annual cash bonus awards from the Annual Incentive
Plan. Annual incentive opportunities are pre-established for each
individual, expressed as a percentage of base salary ("target awards").
Annual awards are determined by applying multiples to this target award
(0-2 times target award represents a portfolio manager's range of
opportunity) and are capped at a maximum range of incentive opportunity
for the job category. Awards are 100% discretionary and regardless of
performance will be subject to pool funding availability. Awards are
paid in cash on an annual basis. A significant portion of the target
opportunity awarded is based upon the one-year and three-year (weighted
more heavily) pre-tax performance of the portfolio manager's accounts
relative to the performance of the appropriate Lipper and Callan peer
groups. Other factors considered in determining the award are individual
qualitative performance and the asset size and revenue growth of the
products managed.
For research analysts and other investment professionals, awards are
distributed to the respective product teams (in the aggregate) based
upon product performance relative to TBCAM-wide performance measured on
the same basis as described above. Further allocations are made to
specific team members by the product portfolio manager based upon sector
contribution and other qualitative factors.
All portfolio managers and analysts are also eligible to participate in
the TBCAM Long Term Incentive Plan. This plan provides for an annual
award, payable in cash after a three-year cliff vesting period. The
value of the award increases during the vesting period based upon the
growth in TBCAM's net income (capped at 20% and with a minimum payout of
the Mellon 3 year CD rate).
(49) MCM's portfolio managers are generally subject to the compensation
structure applicable to all MCM employees. As such, Mr. Gendelman's
compensation consists of a base salary (reevaluated at least annually),
and periodic cash bonuses. Bonuses are typically based on two primary
factors: (1) MCM's overall profitability for the period, and (2)
individual achievement and contribution.
Portfolio manager compensation takes into account, among other factors,
the overall performance of all accounts for which the manager provides
investment advisory services. Portfolio managers do not receive special
consideration based on the performance of particular accounts.
Exceptional individual efforts are rewarded through greater
participation in the bonus pool. Portfolio manager compensation comes
solely from MCM.
Although MCM may compare account performance with relevant benchmark
indices, portfolio manager compensation is not directly tied to
achieving any pre-determined or specified level of performance. In order
to encourage a long-term time horizon for managing portfolios, MCM seeks
to evaluate the portfolio manager's individual performance over periods
longer than the immediate compensation period. In addition, portfolio
managers are compensated based on other criteria, including
effectiveness of leadership within MCM's Investment Team, contributions
to MCM's overall investment performance, discrete securities analysis,
and other factors.
In addition to his salary and bonus, Mr. Gendelman may participate in
other MCM benefits to the same extent and on the same basis as other MCM
employees.
(50) AllianceBernstein's compensation program for investment professionals is
designed to be competitive and effective in order to attract and retain
the highest caliber employees. The compensation program for investment
professionals is designed to reflect their ability to generate long-term
investment success for our clients, including shareholders of the
AllianceBernstein Mutual Funds. Investment professionals do not receive
any direct compensation based upon the investment returns of any
individual client account, nor is compensation tied directly to the
level or change in the level of assets under management. Investment
professionals' annual compensation is comprised of the following:
(i) Fixed base salary: This is generally the smallest portion of
compensation. The base salary is a relatively low, fixed salary within a
similar range for all investment professionals. The base salary
(determined at the outset of employment based on level of experience),
does not change significantly from year-to-year, and hence, is not
particularly sensitive to performance.
(ii) Discretionary incentive compensation in the form of an annual cash
bonus: AllianceBernstein's overall profitability determines the total
amount of incentive compensation available to investment professionals.
This portion of compensation is determined subjectively based on
qualitative and quantitative factors. In evaluating this component of an
investment professional's compensation, AllianceBernstein considers the
contribution to his/her team or
Statement of Additional Information - Nov. 29, 2007 Page 134
discipline as it relates to that team's overall contribution to the
long-term investment success, business results and strategy of
AllianceBernstein. Quantitative factors considered include, among other
things, relative investment performance (e.g., by comparison to
competitor or peer group funds or similar styles of investments, and
appropriate, broad-based or specific market indices), and consistency of
performance. There are no specific formulas used to determine this part
of an investment professional's compensation and the compensation is not
tied to any pre-determined or specified level of performance.
AllianceBernstein also considers qualitative factors such as the
complexity and risk of investment strategies involved in the style or
type of assets managed by the investment professional; success of
marketing/business development efforts and client servicing;
seniority/length of service with the firm; management and supervisory
responsibilities; and fulfillment of AllianceBernstein's leadership
criteria.
(iii) Discretionary incentive compensation in the form of awards under
AllianceBernstein's Partners Compensation Plan ("deferred awards"):
AllianceBernstein's overall profitability determines the total amount of
deferred awards available to investment professionals. The deferred
awards are allocated among investment professionals based on criteria
similar to those used to determine the annual cash bonus. There is no
fixed formula for determining these amounts. Deferred awards, for which
there are various investment options, vest over a four-year period and
are generally forfeited if the employee resigns or AllianceBernstein
terminates his/her employment. Investment options under the deferred
awards plan include many of the same AllianceBernstein Mutual Funds
offered to mutual fund investors, thereby creating a close alignment
between the financial interests of the investment professionals and
those of AllianceBernstein's clients and mutual fund shareholders with
respect to the performance of those mutual funds. AllianceBernstein also
permits deferred award recipients to allocate up to 50% of their award
to investments in AllianceBernstein's publicly traded equity securities
(prior to 2002, investment professional compensation also included
discretionary long-term incentive in the form of restricted grants of
AllianceBernstein's Master Limited Partnership Units).
(iv) Contributions under AllianceBernstein's Profit Sharing/401(k) Plan: The
contributions are based on AllianceBernstein's overall profitability.
The amount and allocation of the contributions are determined at the
sole discretion of AllianceBernstein.
(51) Compensation for AIGGIC portfolio managers has both a salary and a bonus
component. The salary component is a fixed base salary, which is
generally based upon several factors, including experience and market
levels of salary for such position. The bonus component is based both on
a portfolio manager's individual performance and the organizational
performance of AIGGIC. The bonus component is generally calculated as
follows: (1) 60% is linked to the management of a portfolio manager's
funds; (2) 20% is based on AIGGIC's profitability; and (3) 20% is
determined on a discretionary basis (including individual qualitative
goals). For the 60% component, the measures for a portfolio manager may
vary according to the day-to-day responsibilities of a particular
portfolio manager. The measures comprise any combination of (a) total
return measures, (b) benchmark measures and (c) peer group measures. Any
long-term compensation may include stock options and restricted stock
units, both having vesting schedules.
(52) Portfolio manager compensation includes a combination of base salary,
annual bonus and long-term incentive compensation, as well as a generous
benefits package made available to all Batterymarch employees on a non-
discretionary basis.
The bonus and long term incentive compensation is discretionary
compensation; the amount of such awards is determined on an annual basis
following the completion of the firm's fiscal year. The overall "pool"
of discretionary compensation is based on the profitability of the firm
for each fiscal year. Individual allocation to portfolio managers is
based on several factors, including:
- Short term and longer term investment performance of the product that
the portfolio manager works on. Longer term performance is generally
three to five year performance. Performance is evaluated on an
aggregate product basis that the portfolio manager is responsible for
and is not analyzed by any individual client portfolio, such as the
Fund. The analysis of this performance is based on comparison to an
appropriate published index for a particular product as well as a
comparison to a group of peer managers. There is no fixed formula used
in this analysis;
- Portfolio manager assistance in servicing clients; and
- Portfolio manager contribution to new business development.
Portfolio manager compensation is not tied to, nor increased or
decreased as the result of, any performance fees that may be earned by
Batterymarch. As noted above, compensation is not impacted by the
investment performance of any one client account; all performance
analysis is reviewed on an aggregate product basis. Portfolio managers
do not receive a percentage of the revenue earned on any of
Batterymarch's client portfolios.
(53) Ron Mushock and Kevin McCreesh are partners of the firm and co-Portfolio
managers for the strategy. Employee-owners receive income distributions
scaled to the company's profit margins. Other investment professionals
are compensated with both a competitive salary and an annual performance
bonus determined by their contribution to our
Statement of Additional Information - Nov. 29, 2007 Page 135
investment process and its results. Other factors influencing the
performance bonus include overall growth and profitability of the firm
and client service responsibilities. Systematic's ability to offer
equity ownership to senior professionals also provides a significant
incentive for our investment team. Moreover, Messrs. Mushock and
McCreesh are provided with a benefits package, including health
insurance, and participation in a company 401(k) plan, comparable to
that received by other Systematic employees.
(54) WEDGE's incentive compensation has been structured to reward all
professionals for their contribution to the growth and profitability of
the firm. General Partners are compensated via a percentage of the
firm's net profitability following a peer review, which focuses on
performance in their specific area of responsibility, as well as their
contribution to the general management of the firm, and their importance
to the firm in the future. Other investment professionals' compensation
is based on similar criteria including relative short and long-term
portfolio performance as compared to both the index and a universe of
peer managers.
Statement of Additional Information - Nov. 29, 2007 Page 136
ADMINISTRATIVE SERVICES
Each fund listed in the table below 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 20. ADMINISTRATIVE SERVICES AGREEMENT FEE SCHEDULE
<Table>
<Caption>
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES
------------------------------------------------------------------------------------------
$500,000,001 - $1,000,000,001 - $3,000,000,001 -
FUND $0 - 500,000,000 1,000,000,000 3,000,000,000 $12,000,000,000 12,000,000,001 +
- ------------------------------------------------------------------------------------------------------------------------------
Absolute Return Currency and
Income 0.080% 0.075% 0.070% 0.060% 0.050%
Disciplined International Equity
Disciplined Small Cap Value
Emerging Markets
Emerging Markets Bond
European Equity
Global Bond
Global Equity
International Aggressive Growth
International Equity
International Opportunity
International Select Value
International Small Cap
Small Cap Advantage
Small Cap Equity
Small Cap Growth
Small Cap Value
Small Company Index
Strategic Allocation
- ------------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040%
Core Bond
Diversified Bond
Floating Rate
High-Yield Bond
Income Opportunities
Inflation Protected
Intermediate Tax-Exempt
Limited Duration Bond
Massachusetts Tax-Exempt
Michigan Tax-Exempt
Minnesota Tax-Exempt
New York Tax-Exempt
Ohio Tax-Exempt
Short Duration U.S. Government
Strategic Income Allocation
Tax-Exempt Bond
Tax-Exempt High Income
U.S. Government Mortgage
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 137
<Table>
<Caption>
ASSET LEVELS AND BREAKPOINTS IN APPLICABLE FEES
------------------------------------------------------------------------------------------
$500,000,001 - $1,000,000,001 - $3,000,000,001 -
FUND $0 - 500,000,000 1,000,000,000 3,000,000,000 $12,000,000,000 12,000,000,001 +
- ------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth 0.060% 0.055% 0.050% 0.040% 0.030%
Balanced
Cash Management
Disciplined Equity
Disciplined Large Cap Growth
Disciplined Small and Mid Cap
Equity
Diversified Equity Income
Dividend Opportunity
Equity Value
Fundamental Growth
Fundamental Value
Global Technology
Growth
Large Cap Equity
Large Cap Value
Mid Cap Growth
Mid Cap Value
Precious Metals and Mining
Real Estate
S&P 500 Index
Select Value
Tax-Exempt Money Market
Value
- ------------------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income 0.020% 0.020% 0.020% 0.020% 0.020%
Income Builder Enhanced Income
Income Builder Moderate Income
Portfolio Builder Aggressive
Portfolio Builder Conservative
Portfolio Builder Moderate
Portfolio Builder Moderate
Aggressive
Portfolio Builder Moderate
Conservative
Portfolio Builder Total Equity
Retirement Plus 2010
Retirement Plus 2015
Retirement Plus 2020
Retirement Plus 2025
Retirement Plus 2030
Retirement Plus 2035
Retirement Plus 2040
Retirement Plus 2045
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 138
The fee is calculated for each calendar day on the basis of net assets as of the
close of the preceding day. Fees paid in each of the last three fiscal periods
are shown in the table below. The table also shows the daily rate applied to
each fund's net assets as of the last day of the most recent fiscal period. The
table is organized by fiscal year end. You can find your fund's fiscal year end
in Table 1.
TABLE 21. ADMINISTRATIVE FEES
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------
Administrative services fees paid in:
Daily rate
--------------------------------------- applied to
FUND 2007 2006 2005 fund assets
- -------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive $ 86,301 $ 51,235 $ 13,785(a) 0.020%
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 24,051 17,895 5,969(a) 0.020
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 138,034 85,545 23,460(a) 0.020
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive 172,602 104,658 28,002(a) 0.020
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative 50,763 34,371 10,779(a) 0.020
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 76,312 41,435 10,959(a) 0.020
- ------------------------------------------------------------------------------------------------------------
S&P 500 Index 153,231 222,321 319,791 0.060
- ------------------------------------------------------------------------------------------------------------
Small Company Index 867,030 861,455 784,439 0.077
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ------------------------------------------------------------------------------------------------------------
Equity Value 674,042 558,514 454,202 0.056
- ------------------------------------------------------------------------------------------------------------
Precious Metals and Mining 67,215 50,123 51,848 0.060
- ------------------------------------------------------------------------------------------------------------
Small Cap Advantage 534,163 568,712 491,869 0.079
- ------------------------------------------------------------------------------------------------------------
Small Cap Growth 173,239 180,537 224,042 0.080
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 1,779(b) N/A N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 1,861(b) N/A N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 2,961(b) N/A N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 2,293(b) N/A N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 2,579(b) N/A N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 1,548(b) N/A N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 2,928(b) N/A N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 586(b) N/A N/A 0.020
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ------------------------------------------------------------------------------------------------------------
Aggressive Growth 334,364 130,418 24,630 0.059
- ------------------------------------------------------------------------------------------------------------
Fundamental Growth 140,084 83,643 31,978 0.060
- ------------------------------------------------------------------------------------------------------------
Fundamental Value 645,012 658,982 458,121 0.056
- ------------------------------------------------------------------------------------------------------------
High Yield Bond 1,259,292 1,328,295 1,219,476 0.064
- ------------------------------------------------------------------------------------------------------------
Income Builder Basic Income 25,671 581(c) N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 37,153 1,226(c) N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income 58,560 1,394(c) N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Select Value 355,085 443,873 427,460 0.059
- ------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government 623,283 821,082 960,018 0.068
- ------------------------------------------------------------------------------------------------------------
Small Cap Equity 267,622 205,335 129,820 0.080
- ------------------------------------------------------------------------------------------------------------
Small Cap Value 754,675 858,118 824,914 0.078
- ------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 196,713 172,175 152,145 0.070
- ------------------------------------------------------------------------------------------------------------
Value 239,524 285,079 285,752 0.060
- ------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 139
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------
Administrative services fees paid in:
Daily rate
--------------------------------------- applied to
FUND 2007 2006 2005 fund assets
- -------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ------------------------------------------------------------------------------------------------------------
Dividend Opportunity 884,333 658,242 406,110 0.054
- ------------------------------------------------------------------------------------------------------------
Real Estate 153,117 91,341 41,449 0.060
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ------------------------------------------------------------------------------------------------------------
Cash Management 2,141,669 1,741,492 1,016,703 0.048
- ------------------------------------------------------------------------------------------------------------
Core Bond 159,975 133,655 78,241 0.070
- ------------------------------------------------------------------------------------------------------------
Disciplined Equity 1,224,572 496,810 29,441 0.053
- ------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity 24,904 1,143(d) N/A 0.060
- ------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 20,681 4,615(e) N/A 0.080
- ------------------------------------------------------------------------------------------------------------
Floating Rate 378,190 46,916(e) N/A 0.069
- ------------------------------------------------------------------------------------------------------------
Growth 1,763,087 1,791,547 1,370,094 0.052
- ------------------------------------------------------------------------------------------------------------
Income Opportunities 242,883 253,936 164,038 0.070
- ------------------------------------------------------------------------------------------------------------
Inflation Protected Securities 209,028 169,778 61,197 0.070
- ------------------------------------------------------------------------------------------------------------
Large Cap Equity 3,245,953 2,119,930 860,387 0.046
- ------------------------------------------------------------------------------------------------------------
Large Cap Value 60,574 78,248 67,667 0.060
- ------------------------------------------------------------------------------------------------------------
Limited Duration Bond 105,993 133,102 88,881 0.070
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ------------------------------------------------------------------------------------------------------------
California Tax-Exempt(f) 122,586 149,235 87,771 0.070
- ------------------------------------------------------------------------------------------------------------
Diversified Bond 1,752,212 1,698,244 1,259,427 0.063
- ------------------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt(f) 37,586 49,506 30,362 0.070
- ------------------------------------------------------------------------------------------------------------
Michigan Tax-Exempt(f) 31,880 40,475 23,283 0.070
- ------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt(f) 234,353 286,050 163,503 0.070
- ------------------------------------------------------------------------------------------------------------
New York Tax-Exempt(f) 47,710 57,973 36,031 0.070
- ------------------------------------------------------------------------------------------------------------
Ohio Tax-Exempt(f) 32,042 40,235 24,486 0.070
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ------------------------------------------------------------------------------------------------------------
Balanced 623,784 697,753 524,986 0.057
- ------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 11,405(g) N/A N/A 0.060
- ------------------------------------------------------------------------------------------------------------
Diversified Equity Income 3,449,519 2,960,505 1,216,876 0.045
- ------------------------------------------------------------------------------------------------------------
Mid Cap Value 1,196,773 854,082 385,071 0.053
- ------------------------------------------------------------------------------------------------------------
Strategic Allocation 1,340,234 948,662 383,942 0.073
- ------------------------------------------------------------------------------------------------------------
Strategic Income Allocation 21,493(g) N/A N/A 0.070
- ------------------------------------------------------------------------------------------------------------
2006 2005 2004
- -------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income 15,823(h) N/A N/A 0.080
- ------------------------------------------------------------------------------------------------------------
Disciplined International Equity 14,739(i) N/A N/A 0.080
- ------------------------------------------------------------------------------------------------------------
Emerging Markets 406,991 351,359 271,857 0.080
- ------------------------------------------------------------------------------------------------------------
Emerging Markets Bond 21,248(j) N/A N/A 0.080
- ------------------------------------------------------------------------------------------------------------
European Equity 89,350 75,504 78,835 0.080
- ------------------------------------------------------------------------------------------------------------
Global Bond 412,783 342,324 314,640 0.080
- ------------------------------------------------------------------------------------------------------------
Global Equity 532,772 305,907 284,795 0.078
- ------------------------------------------------------------------------------------------------------------
Global Technology 101,197 112,326 131,702 0.060
- ------------------------------------------------------------------------------------------------------------
International Aggressive Growth 347,819 240,889 149,750 0.080
- ------------------------------------------------------------------------------------------------------------
International Equity 146,048 127,687 88,536 0.080
- ------------------------------------------------------------------------------------------------------------
International Opportunity 470,847 331,818 255,871 0.079
- ------------------------------------------------------------------------------------------------------------
International Select Value 1,306,775 861,655 549,050 0.074
- ------------------------------------------------------------------------------------------------------------
International Small Cap 83,383 74,264 46,103 0.080
- ------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 140
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------
Administrative services fees paid in:
Daily rate
--------------------------------------- applied to
FUND 2006 2005 2004 fund assets
- -------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 74,912 64,053 69,058 0.070
- ------------------------------------------------------------------------------------------------------------
Mid Cap Growth 946,943 1,023,124 1,056,445 0.056
- ------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 544,894 321,037 323,368 0.068
- ------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 2,064,819 1,505,060 1,447,459 0.062
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- ------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 69,922 42,768 45,528 0.060
- ------------------------------------------------------------------------------------------------------------
</Table>
(a) For the period from March 4, 2004 (when shares became publicly available)
to Jan. 31, 2005.
(b) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(c) For the period from Feb. 16, 2006 (when shares became publicly available)
to May 31, 2006.
(d) For the period from May 18, 2006 (when shares became publicly available)
to July 31, 2006.
(e) For the period from Feb. 16, 2006 (when shares became publicly available)
to July 31, 2006.
(f) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31. For
2006, the information shown is for the period from July 1, 2005 through
Aug. 31, 2006. For years prior to 2006, the fiscal period ended on June
30.
(g) For the period from May 17, 2007 (when shares became publicly available)
to Sept. 30, 2007.
(h) For the period from June 15, 2006 (when the Fund became available) to
Oct. 31, 2006.
(i) For the period from May 18, 2006 (when shares became publicly available)
to Oct. 31, 2006.
(j) For the period from Feb. 16, 2006 (when shares became publicly available)
to Oct. 31, 2006.
Third parties with which Ameriprise Financial contracts to provide services for
the fund or its shareholders may pay a fee to Ameriprise Financial to help
defray the cost of providing administrative and accounting services. The amount
of any such fee is negotiated separately with each service provider and does not
constitute compensation for investment advisory, distribution, or other
services. Payment of any such fee neither increases nor reduces fees or expenses
paid by shareholders of the fund.
TRANSFER AGENCY SERVICES
Each fund has a Transfer Agency Agreement with RiverSource Service Corporation
(the "transfer agent") located at 734 Ameriprise Financial Center, Minneapolis,
MN 55474. This agreement governs RiverSource Service Corporation's
responsibility for administering and/or performing transfer agent functions, for
acting as service agent in connection with dividend and distribution functions
and for performing shareholder account administration agent functions in
connection with the issuance, exchange and redemption or repurchase of the
fund's shares.
CLASS A, CLASS B, CLASS C AND CLASS D. For Class A, Class B, Class C and Class
D, 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 fund will pay on the basis of the relative percentage of net assets of
each class of shares, first allocating the base fee (equal to Class A shares)
across share classes, and then allocating the incremental per share class fee,
based on the number of shareholder accounts. The fee varies depending on the
investment category of the fund. You can find your fund's investment category in
Table 1.
BALANCED, EQUITY, FUNDS-OF-FUNDS - EQUITY FUNDS
The annual per account fee accrued daily and payable monthly, for the applicable
classes is as follows:
<Table>
<Caption>
Class A Class B Class C Class D
- ------- ------- ------- -------
$19.50 $20.50 $20.00 $19.50
</Table>
FUNDS-OF-FUNDS - FIXED INCOME, STATE TAX-EXEMPT FIXED INCOME,
TAXABLE FIXED INCOME, TAX-EXEMPT FIXED INCOME FUNDS
The annual per account fee accrued daily and payable monthly, for the applicable
classes is as follows:
<Table>
<Caption>
Class A Class B Class C
- ------- ------- -------
$20.50 $21.50 $21.00
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 141
MONEY MARKET FUNDS
For Cash Management Fund and Tax-Exempt Money Market Fund, the annual per
account fee accrued daily and payable monthly, for the applicable classes is as
follows. The fee for Tax-Exempt Money Market Fund, which does not have separate
classes of shares, is the same as that applicable to Class A:
<Table>
<Caption>
Class A Class B Class C
- ------- ------- -------
$22.00 $23.00 $22.50
</Table>
CLASS E, CLASS R2, CLASS R3, CLASS R4, CLASS R5, CLASS W AND CLASS Y. For Class
E, Class R2, Class R3, Class R4, Class R5, Class W and Class Y, RiverSource
Service Corporation will earn a fee from the fund, accrued daily and payable
monthly, determined by multiplying the average daily net assets of the
applicable class by the annual rate shown below:
<Table>
<Caption>
Class E Class R2 Class R3 Class R4 Class R5 Class W Class Y
- ------- -------- -------- -------- -------- ------- -------
0.05% 0.05% 0.05% 0.05% 0.05% 0.20% 0.05%
</Table>
In addition, an annual closed-account fee of $5.00 per inactive account is
charged on a pro rata basis for 12 months from the date the account becomes
inactive. The fees paid to RiverSource Service Corporation may be changed by the
Board without shareholder approval.
PLAN ADMINISTRATION SERVICES
The funds* have a Plan Administration Services Agreement with the transfer
agent. Under the agreement the fund pays for plan administration services,
including services such as implementation and conversion services, account set-
up and maintenance, reconciliation and account recordkeeping, education services
and administration to various plan types, including 529 plans, retirement plans
and Health Savings Accounts (HSAs).
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:
<Table>
<Caption>
Class E Class R2 Class R3 Class R4 Class Y
- ------- -------- -------- -------- -------
0.15% 0.25% 0.25% 0.25% 0.15%
</Table>
The fees paid to the transfer agent may be changed by the Board without
shareholder approval.
DISTRIBUTION SERVICES
RiverSource Distributors, Inc. and Ameriprise Financial Services, Inc.
(collectively, the distributor), 70100 Ameriprise Financial Center, Minneapolis,
MN 55474, both wholly owned subsidiaries of Ameriprise Financial, Inc., serve as
the fund's principal underwriter. As of Oct. 1, 2007, RiverSource Distributors
serves as the sole principal underwriter and distributor to the funds. The
fund's shares are offered on a continuous basis. Under a Distribution Agreement,
sales charges deducted for distributing fund shares are paid to the distributor
daily. The following table shows the sales charges paid to the distributor and
the amount retained by the distributor after paying commissions and other
expenses for each of the last three fiscal periods. The table is organized by
fiscal year end. You can find your fund's fiscal year end in Table 1.
TABLE 22. SALES CHARGES PAID TO DISTRIBUTOR
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------
AMOUNT RETAINED AFTER PAYING
SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES
- ----------------------------------------------------------------------------------------------------------------------------
FUND 2007 2006 2005 2007 2006 2005
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive $3,260,693 $3,095,956 $2,689,735(a) $1,029,231 $1,116,369 $1,129,812(a)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 455,765 577,821 722,689(a) 94,296 105,590 178,650(a)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 4,127,743 4,118,788 3,810,185(a) 1,084,978 1,075,302 1,309,727(a)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 6,845,238 7,078,581 6,114,118(a) 2,326,266 2,691,706 2,610,071(a)
Aggressive
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 1,084,727 1,286,540 1,603,913(a) 252,979 274,017 530,042(a)
Conservative
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 2,414,356 1,845,156 1,393,255(a) 594,766 518,093 509,719(a)
- ----------------------------------------------------------------------------------------------------------------------------
S&P 500 Index N/A - No N/A N/A N/A N/A N/A
sales charge
- ----------------------------------------------------------------------------------------------------------------------------
Small Company Index 973,579 1,228,665 1,511,932 220,620 337,031 554,278
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
- ----------
* Currently, tax-exempt and state tax-exempt funds do not have classes of shares
that are subject to this fee.
Statement of Additional Information - Nov. 29, 2007 Page 142
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------
AMOUNT RETAINED AFTER PAYING
SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES
- ----------------------------------------------------------------------------------------------------------------------------
FUND 2007 2006 2005 2007 2006 2005
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Equity Value 928,630 645,442 740,741 86,064 116,536 258,954
- ----------------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining 178,460 104,779 141,256 33,944 21,277 58,658
- ----------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage 569,430 986,996 1,972,996 100,405 276,857 774,287
- ----------------------------------------------------------------------------------------------------------------------------
Small Cap Growth 265,315 401,382 636,221 52,127 127,479 251,743
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 2,283(b) N/A N/A (6,048)(b) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 35,493(b) N/A N/A 27,942(b) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 35,121(b) N/A N/A 23,828(b) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 38,880(b) N/A N/A 25,335(b) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 29,205(b) N/A N/A 15,221(b) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 21,303(b) N/A N/A 13,718(b) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 14,822(b) N/A N/A 7,670(b) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 10,606(b) N/A N/A 5,832(b) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Aggressive Growth 359,329 217,559 166,200 63,452 44,653 72,464
- ----------------------------------------------------------------------------------------------------------------------------
Fundamental Growth 53,206 69,062 109,110 11,221 15,922 43,395
- ----------------------------------------------------------------------------------------------------------------------------
Fundamental Value 1,266,023 1,915,417 2,827,644 158,689 406,545 1,038,987
- ----------------------------------------------------------------------------------------------------------------------------
High Yield Bond 1,787,813 2,479,319 3,295,433 139,630 682,596 1,011,136
- ----------------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income 1,155,448 128,246(c) N/A 6,089 25,697(c) N/A
- ----------------------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 1,678,918 326,707(c) N/A 287,006 73,038(c) N/A
- ----------------------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income 2,955,938 437,903(c) N/A 435,561 109,389(c) N/A
- ----------------------------------------------------------------------------------------------------------------------------
Select Value 518,110 945,839 1,633,975 61,797 213,839 582,671
- ----------------------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government 962,025 1,908,960 3,842,195 (85,482) 482,228 1,629,476
- ----------------------------------------------------------------------------------------------------------------------------
Small Cap Equity 309,112 604,021 523,687 95,646 190,699 187,706
- ----------------------------------------------------------------------------------------------------------------------------
Small Cap Value 1,147,620 1,616,642 2,787,117 249,915 478,093 1,053,640
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 252,402 442,638 631,090 (67,241) 61,137 197,759
- ----------------------------------------------------------------------------------------------------------------------------
Value 267,672 474,692 836,914 (2,163) 83,140 248,868
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Dividend Opportunity 2,653,148 1,665,096 1,604,180 266,495 207,486 523,080
- ----------------------------------------------------------------------------------------------------------------------------
Real Estate 813,437 598,431 556,465 218,298 180,632 223,572
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Cash Management 437,392 718,247 994,923 423,832 714,638 993,250
- ----------------------------------------------------------------------------------------------------------------------------
Core Bond 117,004 180,034 207,266 31,663 62,588 90,811
- ----------------------------------------------------------------------------------------------------------------------------
Disciplined Equity 661,751 322,731 126,376 140,529 67,609 47,059
- ----------------------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap 55,865 1,760(d) N/A 9,445 852(d) N/A
Equity
- ----------------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 15,644 6,304(e) N/A 1,960 1,708(e) N/A
- ----------------------------------------------------------------------------------------------------------------------------
Floating Rate 1,282,342 364,914(e) N/A (554,729) (118,354)(e) N/A
- ----------------------------------------------------------------------------------------------------------------------------
Growth 3,028,179 4,553,722 3,540,317 548,978 955,528 1,430,279
- ----------------------------------------------------------------------------------------------------------------------------
Income Opportunities 320,351 486,593 891,368 (6,952) 108,764 201,999
- ----------------------------------------------------------------------------------------------------------------------------
Inflation Protected Securities 105,703 326,780 429,879 18,732 47,098 84,033
- ----------------------------------------------------------------------------------------------------------------------------
Large Cap Equity 4,596,427 3,400,059 1,812,939 641,330 629,348 723,158
- ----------------------------------------------------------------------------------------------------------------------------
Large Cap Value 102,472 123,212 196,360 26,452 37,908 71,406
- ----------------------------------------------------------------------------------------------------------------------------
Limited Duration Bond 136,687 220,446 393,925 28,890 28,711 115,701
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 143
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------
AMOUNT RETAINED AFTER PAYING
SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES
- ----------------------------------------------------------------------------------------------------------------------------
FUND 2007 2006 2005 2007 2006 2005
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt(f) 150,760 212,157 218,698 46,117 77,373 111,053
- ----------------------------------------------------------------------------------------------------------------------------
Diversified Bond 2,340,251 2,757,988 3,072,387 419,415 788,192 1,203,503
- ----------------------------------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt(f) 53,880 107,050 98,324 18,208 45,035 44,188
- ----------------------------------------------------------------------------------------------------------------------------
Michigan Tax-Exempt(f) 21,458 54,648 68,367 (9,718) (3,556) 20,700
- ----------------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt(f) 338,160 480,402 463,661 12,594 102,088 141,616
- ----------------------------------------------------------------------------------------------------------------------------
New York Tax-Exempt(f) 43,518 89,560 134,248 6,984 19,641 63,799
- ----------------------------------------------------------------------------------------------------------------------------
Ohio Tax-Exempt(f) 39,647 68,092 55,404 3,003 19,353 9,152
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Balanced 474,702 400,884 501,366 32,524 59,347 168,698
- ----------------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 20,834(g) N/A N/A 5,197(g) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Diversified Equity Income 9,553,810 12,904,884 9,791,165 1,407,616 2,114,315 2,664,788
- ----------------------------------------------------------------------------------------------------------------------------
Mid Cap Value 3,538,910 4,477,119 3,098,747 862,120 1,010,224 986,793
- ----------------------------------------------------------------------------------------------------------------------------
Strategic Allocation 8,570,846 3,667,041 1,083,154 1,738,063 739,852 244,136
- ----------------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation 267,319(g) N/A N/A 26,129(g) N/A N/A
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------
2006 2005 2004 2006 2005 2004
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Absolute Return Currency and 0(h) N/A N/A 0(h) N/A N/A
Income
- ----------------------------------------------------------------------------------------------------------------------------
Disciplined International Equity 4,700(i) N/A N/A 434(i) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Emerging Markets 1,075,586 798,990 556,829 (9,848,080) (6,658,875) (6,660,972)
- ----------------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond 11,348(j) N/A N/A 2,036(j) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
European Equity 107,816 N/A N/A 29,463 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Global Bond 447,007 765,438 956,580 320,724 390,806 536,364
- ----------------------------------------------------------------------------------------------------------------------------
Global Equity 1,272,084 778,062 467,198 218,974 211,977 203,564
- ----------------------------------------------------------------------------------------------------------------------------
Global Technology 242,177 328,770 591,744 29,861 67,485 208,704
- ----------------------------------------------------------------------------------------------------------------------------
International Aggressive Growth 810,514 816,345 796,060 234,619 282,465 360,944
- ----------------------------------------------------------------------------------------------------------------------------
International Equity 243,753 299,410 456,321 64,053 96,946 175,987
- ----------------------------------------------------------------------------------------------------------------------------
International Opportunity 563,174 873,855 997,517 107,305 244,843 371,845
- ----------------------------------------------------------------------------------------------------------------------------
International Select Value 3,895,267 3,425,153 3,105,887 815,331 1,020,350 1,220,539
- ----------------------------------------------------------------------------------------------------------------------------
International Small Cap 173,659 203,543 324,756 37,954 60,817 115,235
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 115,280 176,349 306,545 29,590 40,451 86,091
- ----------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth 1,388,577 1,821,533 3,566,760 346,497 635,918 1,373,111
- ----------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 346,932 371,626 495,541 79,024 107,815 197,028
- ----------------------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 1,485,792 2,115,452 3,131,234 389,650 2,736,405 1,256,629
- ----------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For the period from March 4, 2004 (when shares became publicly
available) to Jan. 31, 2005.
(b) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(c) For the period from Feb. 16, 2006 (when shares became publicly
available) to May 31, 2006.
(d) For the period from May 18, 2006 (when shares became publicly available)
to July 31, 2006.
(e) For the period from Feb. 16, 2006 (when shares became publicly
available) to July 31, 2006.
(f) The fund changed its fiscal year end in 2006 from June 30 to Aug. 31.
For 2006, the information shown is for the period from July 1, 2005
through Aug. 31, 2006. For years prior to 2006, the fiscal period
ended on June 30.
(g) For the period from May 17, 2007 (when shares became publicly available)
to Sept. 30, 2007.
(h) For the period from June 15, 2006 (when the Fund became available) to
Oct. 31, 2006.
Statement of Additional Information - Nov. 29, 2007 Page 144
(i) For the period from May 18, 2006 (when shares became publicly available)
to Oct. 31, 2006.
(j) For the period from Feb. 16, 2006 (when shares became publicly
available) to Oct. 31, 2006.
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.
PLAN AND AGREEMENT OF DISTRIBUTION
To help defray the cost of distribution and servicing not covered by the sales
charges received under the Distribution Agreement, each fund listed in Table 24.
12b-1 Fees, approved a Plan of Distribution (Plan) and entered into an agreement
under the Plan pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, of the
type known as a reimbursement plan, the fund pays the distributor a fee up to
actual expenses incurred at an annual rate as follows:
FOR FUNDS OTHER THAN MONEY MARKET FUNDS:
The fee is equal on an annual basis to the following percentage of the
average daily net assets of the fund attributable to the applicable class:
<Table>
<Caption>
Class A Class B Class C Class D Class R2 Class R3 Class W
- ------- ------- ------- ------- -------- -------- -------
0.25% 1.00% 1.00% 0.25% 0.50% 0.25% 0.25%
</Table>
For Class B and Class C, up to 0.75% of the fee is reimbursed for
distribution expenses. Up to an additional 0.25% is paid to the distributor
to reimburse certain expenses incurred in connection with providing services
to fund shareholders.
For Class R2, up to 0.50% and for Class R3, up to 0.25% shall be reimbursed
for distribution expenses. Of that amount, for Class R2, up to 0.25% may be
reimbursed for shareholder servicing expenses.
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:
<Table>
<Caption>
Class A Class B Class C Class W
- ------- ------- ------- -------
0.10% 0.85% 0.75% 0.10%
</Table>
For Class B, up to 0.75% of the fee is reimbursed for distribution expenses.
Up to an additional 0.10% is paid to the distributor to reimburse certain
expenses incurred in connection with providing services to fund
shareholders. The distributor has currently agreed not to be reimbursed by
the Fund for distribution (12b-1) fees equal to 0.10% of the stated amount
for Class B.
FOR ALL FUNDS:
Distribution and shareholder servicing expenses include payment of distribution
and shareholder servicing fees to financial institutions that sell shares of the
fund. Financial institutions may compensate their financial advisors with the
distribution and shareholder servicing fees paid to them by the distributor.
Payments under the Plan are intended to result in an increase in fund assets and
thus potentially result in economies of scale and lower costs for all
shareholders.
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.
Distribution expenses covered under this Plan include commissions to financial
intermediaries, printing prospectuses and reports used for sales purposes, the
preparation, printing and distribution of advertising and sales literature,
personnel, travel, office expense and equipment, and other distribution-related
expenses. Shareholder service expenses include costs of establishing and
maintaining shareholder accounts and records, assisting with purchase,
redemption and exchange requests, arranging for bank wires, monitoring dividend
payments from the funds on behalf of shareholders, forwarding certain
shareholder communications from funds to shareholders, receiving and responding
to inquiries and answering questions regarding the funds, aiding in maintaining
the investment of shareholders in the funds and other service-related expenses.
A substantial portion of the expenses are not specifically identified to any one
of the RiverSource funds. The fee is not allocated to any one service (such as
advertising, compensation to financial intermediaries, or other uses). However,
a significant portion of the fee is generally used for sales and promotional
expenses.
Statement of Additional Information - Nov. 29, 2007 Page 145
The Plan must be approved annually by the Board, including a majority of the
disinterested Board members, if it is to continue for more than a year. At least
quarterly, the Board reviews written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of Board members who are not interested persons of the fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the relevant class of shares or by the distributor.
Any agreement related to the Plan will terminate in the event of its assignment,
as that term is defined in the 1940 Act. The Plan may not be amended to increase
the amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the Board
members, including a majority of the Board members who are not interested
persons of the fund and who do not have a financial interest in the operation of
the Plan or any agreement related to it. The selection and nomination of
disinterested Board members is the responsibility of the other disinterested
Board members. No Board member who is not an interested person has any direct or
indirect financial interest in the operation of the Plan or any related
agreement.
For its most recent fiscal period, each fund paid 12b-1 fees as shown in the
following table. The table is organized by fiscal year end. You can find your
fund's fiscal year end in Table 1.
TABLE 23. 12B-1 FEES
<Table>
<Caption>
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W
- -------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ------------------------------------------------------------------------------------------------------
Portfolio Builder $837,585 $871,878 $92,112 N/A N/A N/A N/A
Aggressive
- ------------------------------------------------------------------------------------------------------
Portfolio Builder 195,700 362,205 57,303 N/A N/A N/A N/A
Conservative
- ------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 1,248,370 1,685,146 222,324 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 1,668,911 1,749,200 202,249 N/A N/A N/A N/A
Aggressive
- ------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 434,923 681,066 117,115 N/A N/A N/A N/A
Conservative
- ------------------------------------------------------------------------------------------------------
Portfolio Builder Total 733,984 793,853 83,860 N/A N/A N/A N/A
Equity
- ------------------------------------------------------------------------------------------------------
S&P 500 Index N/A N/A N/A $143,473 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Small Company Index 2,109,546 2,771,834 N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ------------------------------------------------------------------------------------------------------
Equity Value 2,462,327 1,951,663 50,362 N/A 7 3 4
- ------------------------------------------------------------------------------------------------------
Precious Metals and Mining 229,568 182,836 18,005 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Small Cap Advantage 1,274,129 1,546,551 103,108 N/A 6 3 N/A
- ------------------------------------------------------------------------------------------------------
Small Cap Growth 312,614 496,176 50,257 N/A 7 3 N/A
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2010(a) 749 N/A N/A N/A 10 4 N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2015(a) 1,762 N/A N/A N/A 10 4 N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2020(a) 1,718 N/A N/A N/A 10 5 N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2025(a) 1,481 N/A N/A N/A 10 4 N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2030(a) 1,216 N/A N/A N/A 10 4 N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2035(a) 876 N/A N/A N/A 10 5 N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2040(a) 321 N/A N/A N/A 10 5 N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2045(a) 464 N/A N/A N/A 10 5 N/A
- ------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 146
<Table>
<Caption>
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W
- -------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ------------------------------------------------------------------------------------------------------
Aggressive Growth 968,992 964,778 17,993 N/A 12 6 N/A
- ------------------------------------------------------------------------------------------------------
Fundamental Growth 49,742 62,405 6,619 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Fundamental Value 1,949,704 2,565,192 186,220 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
High Yield Bond 3,770,904 3,490,903 260,374 N/A 12 6 7,834
- ------------------------------------------------------------------------------------------------------
Income Builder Basic Income 266,605 179,793 36,091 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Income Builder Enhanced 388,750 241,288 61,000 N/A N/A N/A N/A
Income
- ------------------------------------------------------------------------------------------------------
Income Builder Moderate 620,930 371,546 72,544 N/A N/A N/A N/A
Income
- ------------------------------------------------------------------------------------------------------
Select Value 1,116,653 1,282,538 88,805 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Short Duration U.S. 1,466,190 2,610,675 119,778 N/A N/A N/A 6
Government
- ------------------------------------------------------------------------------------------------------
Small Cap Equity 695,371 474,779 35,431 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Small Cap Value 1,670,091 2,630,734 181,325 N/A 10 5 N/A
- ------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 299,282 529,573 56,655 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Value 543,221 939,804 68,182 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ------------------------------------------------------------------------------------------------------
Dividend Opportunity 2,921,042 2,684,130 189,487 N/A N/A N/A 8
- ------------------------------------------------------------------------------------------------------
Real Estate 362,012 303,076 22,109 N/A N/A N/A 7
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ------------------------------------------------------------------------------------------------------
Cash Management 4,173,165 726,794 20,932 N/A N/A N/A 20,714
- ------------------------------------------------------------------------------------------------------
Core Bond 93,444 114,825 5,557 N/A 16 7 8
- ------------------------------------------------------------------------------------------------------
Disciplined Equity 3,592,175 774,204 30,535 N/A 15 7 360,341
- ------------------------------------------------------------------------------------------------------
Disciplined Small and Mid 36,017 7,170 845 N/A N/A N/A 13,719
Cap Equity
- ------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 34,465 4,763 349 N/A 16 7 N/A
- ------------------------------------------------------------------------------------------------------
Floating Rate 850,476 411,313 148,157 N/A N/A N/A 8
- ------------------------------------------------------------------------------------------------------
Growth 6,060,271 4,642,489 201,604 N/A 16 8 9
- ------------------------------------------------------------------------------------------------------
Income Opportunities 473,678 539,206 53,830 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Inflation Protected 197,429 254,136 22,157 N/A N/A N/A 8
Securities
- ------------------------------------------------------------------------------------------------------
Large Cap Equity 13,273,226 11,344,113 344,990 N/A 16 8 N/A
- ------------------------------------------------------------------------------------------------------
Large Cap Value 160,778 188,820 11,437 N/A 14 7 N/A
- ------------------------------------------------------------------------------------------------------
Limited Duration Bond 166,025 127,161 17,304 N/A N/A N/A 8
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ------------------------------------------------------------------------------------------------------
California Tax-Exempt 412,060 82,230 20,739 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Diversified Bond 4,860,209 3,704,597 168,420 N/A 18 8 128,130
- ------------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt 113,078 78,218 6,386 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Michigan Tax-Exempt 105,247 21,951 12,458 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt 751,419 265,289 76,915 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
New York Tax-Exempt 153,046 59,859 9,503 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Ohio Tax-Exempt 100,075 44,993 12,438 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ------------------------------------------------------------------------------------------------------
Balanced 2,372,601 664,087 47,138 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Disciplined Large Cap 1,799 596 94 N/A 18 9 N/A
Growth(b)
- ------------------------------------------------------------------------------------------------------
Diversified Equity Income 15,091,455 12,454,200 1,006,4- N/A 37 25,993 10
85
- ------------------------------------------------------------------------------------------------------
Mid Cap Value 4,403,769 3,263,100 328,848 N/A 195 272 10
- ------------------------------------------------------------------------------------------------------
Strategic Allocation 3,858,078 2,055,354 433,308 N/A 21 10 N/A
- ------------------------------------------------------------------------------------------------------
Strategic Income 72,743 12,441 3,633 N/A N/A N/A N/A
Allocation(b)
- ------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 147
<Table>
<Caption>
FUND CLASS A CLASS B CLASS C CLASS D CLASS R2 CLASS R3 CLASS W
- -------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ------------------------------------------------------------------------------------------------------
Absolute Return Currency 9,416 38 38 N/A N/A N/A N/A
and Income(c)
- ------------------------------------------------------------------------------------------------------
Disciplined International 10,920 278 104 N/A N/A N/A N/A
Equity(d)
- ------------------------------------------------------------------------------------------------------
Emerging Markets 962,664 874,959 40,971 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Emerging Markets Bond(e) 18,917 2,217 212 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
European Equity 199,348 305,006 14,257 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Global Bond 762,624 850,871 35,610 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Global Equity 1,369,019 1,166,873 41,196 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Global Technology 300,030 449,937 32,281 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
International Aggressive 650,601 659,823 40,332 N/A N/A N/A N/A
Growth
- ------------------------------------------------------------------------------------------------------
International Equity 242,885 263,442 16,516 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
International Opportunity 1,104,799 844,548 31,174 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
International Select Value 3,237,723 3,631,768 217,884 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
International Small Cap 177,484 183,656 9,465 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 222,998 129,780 48,379 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Mid Cap Growth 3,114,493 2,748,569 109,599 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 1,878,827 432,834 62,203 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 8,005,917 1,573,435 199,250 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- ------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 116,536 N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
</Table>
(a) For the period from May 16, 2006 (when shares became publicly available)
to April 30, 2007.
(b) For the period from May 17, 2007 (when shares became publicly available)
to Sept. 30, 2007.
(c) For the period from June 15, 2006 (when shares became publicly available)
to Oct. 31, 2006.
(d) For the period from May 18, 2006 (when shares became publicly available)
to Oct. 31, 2006.
(e) For the period from Feb. 16, 2006 (when shares became publicly available)
to Oct. 31, 2006.
PAYMENTS TO FINANCIAL INSTITUTIONS
The distributor and its affiliates make or support additional cash payments out
of their own resources (including profits earned from providing services to the
funds) to financial institutions, including inter-company allocation of
resources or payment to affiliated broker-dealers, in connection with agreements
between the distributor and financial institutions pursuant to which these
financial institutions sell fund shares and provide services to their clients
who are shareholders of the funds. These payments and intercompany allocations
(collectively, "payments") do not change the price paid by investors and fund
shareholders for the purchase or ownership of shares of the funds, and these
payments are not reflected in the fees and expenses of the funds, as they are
not paid by the funds. These payments are in addition to fees paid by the funds
to the distributor under 12b-1 plans, which fees may be used to compensate
financial institutions for the distribution of fund shares and the servicing of
fund shareholders, or paid by the funds to the transfer agent under the transfer
agent agreement or plan administration agreement, which fees may be used to
support networking or servicing fees to compensate financial institutions for
supporting shareholder account maintenance, sub-accounting, plan recordkeeping
or other services provided directly by the financial institution to shareholders
or plans and plan participants, including retirement plans, 529 plans, Health
Savings Account plans, or other plans, where participants beneficially own
shares of the funds.
These payments are typically made pursuant to an agreement between the
distributor and the financial institution, and are typically made in support of
marketing and sales support efforts or program and shareholder servicing, as
further described below. These payments are usually calculated based on a
percentage of fund assets owned through the financial institution and/or as a
percentage of fund sales attributable to the financial institution. Certain
financial institutions require flat fees instead of or in addition to these
asset-based fees as compensation for including or maintaining funds on their
platforms, and, in certain situations, may require the reimbursement of ticket
or operational charges -- fees that a financial institution charges its
representatives for effecting transactions in the funds. The amount of payment
varies by financial institution, and
Statement of Additional Information - Nov. 29, 2007 Page 148
often is significant. In addition, the amount of payments may differ based upon
the type of fund sold or maintained; for instance, the amount of payments for an
equity fund may differ from payments for a money-market or fixed income fund.
Asset-based payments generally will be made in a range of up to 0.25% of assets
or 0.25% of sales or some combination thereof. Exceptions to these general
ranges will be considered on a case-by-case basis. Flat fees or annual minimum
fees required by a financial institution in addition to such asset-based fees,
are considered on a case-by-case basis.
MARKETING AND SALES SUPPORT
Payments may be paid in support of retail, institutional, plan or other fee-
based advisory program distribution efforts. These payments are typically made
by the distributor in its efforts to advertise to and/or educate the financial
institution's personnel, including its registered representatives, about the
fund. As a result of these payments, the distributor may obtain a higher profile
and greater visibility for the fund within the financial institution's
organization, including placement of the fund on the financial institution's
preferred or recommended list. The distributor may also obtain greater access to
sales meetings, sales representatives, and management representatives of the
financial institution, including potentially having increased opportunity for
fund representatives to participate in and/or present at conferences or
seminars, sales or training programs for invited registered representatives and
their clients and other events sponsored by the financial institution.
PROGRAM AND SHAREHOLDER SERVICING
Payments may be made in support of recordkeeping, reporting, transaction
processing, and other plan administration services provided by a financial
institution to or through retirement plans, 529 plans, Health Savings Account
plans, or other plans or fee-based advisory programs but may also be made in
support of certain retail advisory programs, including wrap programs. A
financial institution may perform program services itself or may arrange with a
third party to perform program services. These payments may also include
services rendered in connection with fund selection and monitoring, employee
enrollment and education, plan balance rollover or separation, or other similar
services.
OTHER PAYMENTS
The distributor and its affiliates may separately pay financial institutions in
order to participate in and/or present at conferences or seminars, sales or
training programs for invited registered representatives and other financial
institution employees, client and investor events and other financial
institution-sponsored events, and for travel expenses, including lodging
incurred by registered representatives and other employees in connection with
prospecting, asset retention and due diligence trips. The amount of these
payments varies depending upon the nature of the event. The distributor and its
affiliates make payments for such events as they deem appropriate, subject to
internal guidelines and applicable law.
From time to time, to the extent permitted by SEC and NASD rules and by other
applicable laws and regulations, the distributor and its affiliates may make
other reimbursements or payment to financial institutions or their registered
representatives, including non-cash compensation, in the form of gifts of
nominal value, occasional meals, tickets, or other entertainment, support for
due diligence trips, training and educational meetings or conference
sponsorships, support for recognition programs, and other forms of non-cash
compensation permissible under regulations to which these financial institutions
and their representatives are subject. To the extent these are made as payments
instead of reimbursement, they may provide profit to the financial institution
to the extent the cost of such services was less than the actual expense of the
service.
FINANCIAL INSTITUTION ARRANGEMENTS
The financial institution through which you are purchasing or own shares of
funds has been authorized directly or indirectly by the distributor to sell
funds and/or to provide services to you as a shareholder of funds. Investors and
current shareholders may wish to take such payment arrangements into account
when considering and evaluating any recommendations they receive relating to
fund shares.
If you have questions regarding the specific details regarding the payments your
financial institution may receive from the distributor or its affiliates related
to your purchase or ownership of funds, please contact your financial
institution.
CUSTODIAN SERVICES
Custody information varies depending on the fund's investment category. You can
find your fund's investment category in Table 1.
FOR BALANCED, EQUITY, FUNDS-OF-FUNDS, TAXABLE MONEY MARKET AND TAXABLE FIXED
INCOME FUNDS OTHER THAN DIVERSIFIED BOND AND HIGH YIELD BOND: The fund's
securities and cash are held by Ameriprise Trust Company, 200 Ameriprise
Financial Center, Minneapolis, MN 55474, through a custodian agreement. The
custodian is permitted to deposit some or all of its securities in central
depository systems as allowed by federal law. For its services, the fund pays
the
Statement of Additional Information - Nov. 29, 2007 Page 149
custodian a maintenance charge and a charge per transaction in addition to
reimbursing the custodian's out-of-pocket expenses.
FOR STATE TAX-EXEMPT FIXED INCOME, TAX-EXEMPT FIXED INCOME AND TAX-EXEMPT MONEY
MARKET FUNDS, AS WELL AS DIVERSIFIED BOND AND HIGH YIELD BOND: The fund's
securities and cash are held by U.S. Bank National Association, 180 E. Fifth
St., St. Paul, MN 55101-1631, through a custodian agreement. The custodian is
permitted to deposit some or all of its securities in central depository systems
as allowed by federal law. For its services, the fund pays the custodian a
maintenance charge and a charge per transaction in addition to reimbursing the
custodian's out-of-pocket expenses.
FOR ALL FUNDS: The custodian may enter into a subcustodian agreement with The
Bank of New York, 90 Washington Street, New York, NY 10286. As part of this
arrangement, securities purchased outside the United States are maintained in
the custody of various foreign branches of The Bank of New York or in other
financial institutions as permitted by law and by the fund's subcustodian
agreement.
BOARD SERVICES CORPORATION
The funds have an agreement with Board Services Corporation (Board Services)
located at 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402. This
agreement sets forth the terms of Board Services' responsibility to serve as an
agent of the funds for purposes of administering the payment of compensation to
each independent Board member, to provide office space for use by the funds and
their boards, and to provide any other services to the boards or the independent
members, as may be reasonably requested.
ORGANIZATIONAL INFORMATION
Each fund is an open-end management investment company. The fund's headquarters
are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.
SHARES
The shares of a fund represent an interest in that fund's assets only (and
profits or losses), and, in the event of liquidation, each share of a fund would
have the same rights to dividends and assets as every other share of that fund.
VOTING RIGHTS
As a shareholder in a fund, you have voting rights over the fund's management
and fundamental policies. You are entitled to vote based on your total dollar
interest in the fund. Each class, if applicable, has exclusive voting rights
with respect to matters for which separate class voting is appropriate under
applicable law. All shares have cumulative voting rights with respect to the
election of Board members. This means that you have as many votes as the dollar
amount you own, including the fractional amount, multiplied by the number of
members to be elected.
DIVIDEND RIGHTS
Dividends paid by a fund, if any, with respect to each applicable class of
shares will be calculated in the same manner, at the same time, on the same day,
and will be in the same amount, except for differences resulting from
differences in fee structures.
SHAREHOLDER LIABILITY
For funds organized as Massachusetts business trusts, under Massachusetts law,
shareholders of a Massachusetts business trust may, under certain circumstances,
be held personally liable as partners for its obligation. However, the
Declaration of Trust that establishes a trust, a copy of which, together with
all amendments thereto (the "Declaration of Trust"), is on file with the office
of the Secretary of the Commonwealth of Massachusetts for each applicable fund,
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust, or of any fund in the Trust. The Declaration of Trust provides
that, if any shareholder (or former shareholder) of a fund in the Trust is
charged or held to be personally liable for any obligation or liability of the
Trust, or of any fund in the Trust, solely by reason of being or having been a
shareholder and not because of such shareholder's acts or omissions or for some
other reason, the Trust (upon request of the shareholder) shall assume the
defense against such charge and satisfy any judgment thereon, and the
shareholder or former shareholder (or the heirs, executors, administrators or
other legal representatives thereof, or in the case of a corporation or other
entity, its
Statement of Additional Information - Nov. 29, 2007 Page 150
corporate or other general successor) shall be entitled (but solely out of the
assets of the fund of which such shareholder or former shareholder is or was the
holder of shares) to be held harmless from and indemnified against all loss and
expense arising from such liability.
The Declaration of Trust also provides that the Trust may maintain appropriate
insurance (for example, fidelity bond and errors and omissions insurance) for
the protection of the Trust, its shareholders, Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are not
binding upon the Trustees individually, but only upon the assets and property of
the Trust, and that the Trustees will not be liable for any action or failure to
act, errors of judgment, or mistakes of fact or law, but nothing in the
Declaration of Trust or other agreement with a Trustee protects a Trustee
against any liability to which he or she would otherwise be subject by reason of
his or her willful bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his or her office. By becoming a shareholder
of the fund, each shareholder shall be expressly held to have assented to and
agreed to be bound by the provisions of the Declaration of Trust.
TABLE 24. FUND HISTORY TABLE FOR RIVERSOURCE FUNDS*
<Table>
<Caption>
FISCAL
DATE OF DATE BEGAN FORM OF STATE OF YEAR
FUND** ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED***
- -------------------------------------------------------------------------------------------------------------------------
BOND SERIES, INC.(3) 4/29/81, 6/13/86(1) Corporation NV/MN 7/31
- -------------------------------------------------------------------------------------------------------------------------
Core Bond Fund 6/19/03 Yes
- -------------------------------------------------------------------------------------------------------------------------
Floating Rate Fund 2/16/06 Yes
- -------------------------------------------------------------------------------------------------------------------------
Income Opportunities Fund 6/19/03 Yes
- -------------------------------------------------------------------------------------------------------------------------
Inflation Protected 3/4/04 No
Securities Fund
- -------------------------------------------------------------------------------------------------------------------------
Limited Duration Bond Fund 6/19/03 Yes
- -------------------------------------------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT TRUST 4/7/86 Business Trust(2) MA 8/31
- -------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt Fund 8/18/86 No
- -------------------------------------------------------------------------------------------------------------------------
DIMENSIONS SERIES, INC. 2/20/68, 6/13/86(1) Corporation NV/MN 7/31
- -------------------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap 5/18/06 Yes
Equity Fund
- -------------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 2/16/06 Yes
Fund
- -------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED INCOME SERIES, 6/27/74, 6/31/86(1) Corporation NV/MN 8/31
INC.(3)
- -------------------------------------------------------------------------------------------------------------------------
Diversified Bond Fund(4) 10/3/74 Yes
- -------------------------------------------------------------------------------------------------------------------------
EQUITY SERIES, INC. 3/18/57, 6/13/86(1) Corporation NV/MN 11/30
- -------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Fund(5) 6/4/57 Yes
- -------------------------------------------------------------------------------------------------------------------------
GLOBAL SERIES, INC. 10/28/88 Corporation MN 10/31
- -------------------------------------------------------------------------------------------------------------------------
Absolute Return Currency and 6/15/06 No
Income Fund
- -------------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond Fund 2/16/06 No
- -------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund(6) 11/13/96 Yes
- -------------------------------------------------------------------------------------------------------------------------
Global Bond Fund 3/20/89 No
- -------------------------------------------------------------------------------------------------------------------------
Global Equity Fund(7),(6) 5/29/90 Yes
- -------------------------------------------------------------------------------------------------------------------------
Global Technology Fund 11/13/96 Yes
- -------------------------------------------------------------------------------------------------------------------------
GOVERNMENT INCOME SERIES, 3/12/85 Corporation MN 5/31
INC.
- -------------------------------------------------------------------------------------------------------------------------
Short Duration U.S. 8/19/85 Yes
Government Fund(4)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage Fund 2/14/02 Yes
- -------------------------------------------------------------------------------------------------------------------------
HIGH YIELD INCOME SERIES, 8/17/83 Corporation MN 5/31
INC.
- -------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund(4) 12/8/83 Yes
- -------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 151
<Table>
<Caption>
FISCAL
DATE OF DATE BEGAN FORM OF STATE OF YEAR
FUND** ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED***
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
INCOME SERIES, INC. 2/10/45; 6/13/86(1) Corporation NV/MN 5/31
- -------------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income 2/16/06 No
Fund
- -------------------------------------------------------------------------------------------------------------------------
Income Builder Enhanced 2/16/06 No
Income Fund
- -------------------------------------------------------------------------------------------------------------------------
Income Builder Moderate 2/16/06 No
Income Fund
- -------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL MANAGERS SERIES, 5/9/01 Corporation MN 10/31
INC.(3)
- -------------------------------------------------------------------------------------------------------------------------
International Aggressive 9/28/01 Yes
Growth Fund
- -------------------------------------------------------------------------------------------------------------------------
International Equity Fund(5) 10/3/02 Yes
- -------------------------------------------------------------------------------------------------------------------------
International Select Value 9/28/01 Yes
Fund
- -------------------------------------------------------------------------------------------------------------------------
International Small Cap Fund 10/3/02 Yes
- -------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SERIES, INC. 7/18/84 Corporation MN 10/31
- -------------------------------------------------------------------------------------------------------------------------
Disciplined International 5/18/06 Yes
Equity Fund
- -------------------------------------------------------------------------------------------------------------------------
European Equity Fund(6) 6/26/00 Yes
- -------------------------------------------------------------------------------------------------------------------------
International Opportunity 11/15/84 Yes
Fund(6),(5)
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT SERIES, INC. 1/18/40; 6/13/86(1) Corporation NV/MN 9/30
- -------------------------------------------------------------------------------------------------------------------------
Balanced Fund(5) 4/16/40 Yes
- -------------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 5/17/07 Yes
Fund
- -------------------------------------------------------------------------------------------------------------------------
Diversified Equity Income 10/15/90 Yes
Fund
- -------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Fund 2/14/02 Yes
- -------------------------------------------------------------------------------------------------------------------------
LARGE CAP SERIES, INC.(3) 5/21/70, 6/13/86(1) Corporation NV/MN 7/31
- -------------------------------------------------------------------------------------------------------------------------
Disciplined Equity Fund(5) 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
- -------------------------------------------------------------------------------------------------------------------------
MANAGERS SERIES, INC.(3) 3/20/01 Corporation MN 5/31
- -------------------------------------------------------------------------------------------------------------------------
Aggressive Growth Fund 4/24/03 Yes
- -------------------------------------------------------------------------------------------------------------------------
Fundamental Growth Fund(5) 4/24/03 Yes
- -------------------------------------------------------------------------------------------------------------------------
Fundamental Value Fund 6/18/01 Yes
- -------------------------------------------------------------------------------------------------------------------------
Select Value Fund 3/8/02 Yes
- -------------------------------------------------------------------------------------------------------------------------
Small Cap Equity Fund(5) 3/8/02 Yes
- -------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 6/18/01 Yes
- -------------------------------------------------------------------------------------------------------------------------
Value Fund 6/18/01 Yes
- -------------------------------------------------------------------------------------------------------------------------
MARKET ADVANTAGE SERIES, INC. 8/25/89 Corporation MN 1/31
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Builder 3/4/04 No
Conservative Fund
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 3/4/04 No
Conservative Fund
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 3/4/04 No
Fund
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 3/4/04 No
Aggressive Fund
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 3/4/04 No
Fund
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Total 3/4/04 No
Equity Fund
- -------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 10/25/99 Yes
- -------------------------------------------------------------------------------------------------------------------------
Small Company Index Fund 8/19/96 Yes
- -------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 152
<Table>
<Caption>
FISCAL
DATE OF DATE BEGAN FORM OF STATE OF YEAR
FUND** ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED***
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
MONEY MARKET SERIES, INC. 8/22/75; 6/13/86(1) Corporation NV/MN 7/31
- -------------------------------------------------------------------------------------------------------------------------
Cash Management Fund 10/6/75 Yes
- -------------------------------------------------------------------------------------------------------------------------
SECTOR SERIES, INC. 3/25/88 Corporation MN 6/30
- -------------------------------------------------------------------------------------------------------------------------
Dividend Opportunity Fund(8) 8/1/88 Yes
- -------------------------------------------------------------------------------------------------------------------------
Real Estate Fund 3/4/04 Yes
- -------------------------------------------------------------------------------------------------------------------------
SELECTED SERIES, INC. 10/5/84 Corporation MN 3/31
- -------------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining 4/22/86 No
Fund(9)
- -------------------------------------------------------------------------------------------------------------------------
SERIES TRUST 1/27/06 Business Trust(2) MA 4/30
- -------------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity Fund 10/18/07 Yes
- -------------------------------------------------------------------------------------------------------------------------
130/30 U.S. Equity Fund 10/18/07 Yes
- -------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 Fund 5/18/06 No
- -------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 Fund 5/18/06 No
- -------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 Fund 5/18/06 No
- -------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 Fund 5/18/06 No
- -------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 Fund 5/18/06 No
- -------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 Fund 5/18/06 No
- -------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 Fund 5/18/06 No
- -------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 Fund 5/18/06 No
- -------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS SERIES, 4/23/68, 6/13/86(1) Corporation NV/MN 7/31
INC.
- -------------------------------------------------------------------------------------------------------------------------
Short-Term Cash Fund 9/26/06 Yes
- -------------------------------------------------------------------------------------------------------------------------
SPECIAL TAX-EXEMPT SERIES 4/7/86 Business Trust(2) MA 8/31
TRUST(10)
- -------------------------------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt Fund 7/2/87 No
- -------------------------------------------------------------------------------------------------------------------------
Michigan Tax-Exempt Fund 7/2/87 No
- -------------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt Fund 8/18/86 Yes(11)
- -------------------------------------------------------------------------------------------------------------------------
New York Tax-Exempt Fund 8/18/86 No
- -------------------------------------------------------------------------------------------------------------------------
Ohio Tax-Exempt Fund 7/2/87 No
- -------------------------------------------------------------------------------------------------------------------------
STRATEGIC ALLOCATION SERIES, 10/9/84 Corporation MN 9/30
INC.(3)
- -------------------------------------------------------------------------------------------------------------------------
Strategic Allocation Fund(5) 1/23/85 Yes
- -------------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation 5/17/07 Yes
Fund
- -------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT INCOME SERIES, 12/21/78; 6/13/86(1) Corporation NV/MN 11/30
INC.(3)
- -------------------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 5/7/79 Yes
Fund(5)
- -------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET 2/29/80, 6/13/86(1) Corporation NV/MN 12/31
SERIES, INC.(3)
- -------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 8/5/80 Yes
Fund(5)
- -------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT SERIES, INC. 9/30/76, 6/13/86(1) Corporation NV/MN 11/30
- -------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt Fund 11/13/96 Yes
- -------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond Fund 11/24/76 Yes
- -------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 153
* The RiverSource Variable Portfolio funds are not included in this
table. Please see the Variable Portfolio funds' SAI for fund history.
** Effective Oct. 1, 2005 American Express Funds changed its name to
RiverSource funds and the names Threadneedle and Partners were removed
from fund names.
*** If a non-diversified fund is managed as if it were a diversified fund
for a period of three years, its status under the 1940 Act will convert
automatically from non-diversified to diversified. A diversified fund
may convert to non-diversified status only with shareholder approval.
(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 April 21, 2006, AXP Discovery Series, Inc. changed its name
to RiverSource Bond Series, Inc.; AXP Fixed Income Series, Inc. changed
its name to RiverSource Diversified Income Series, Inc.; AXP Growth
Series, Inc. changed its name to RiverSource Large Cap Series, Inc.;
AXP High Yield Tax-Exempt Series, Inc. changed its name to RiverSource
Tax-Exempt Income Series, Inc.; AXP Managed Series, Inc. changed its
name to RiverSource Strategic Allocation Series, Inc.; AXP Partners
International Series, Inc. changed its name to RiverSource
International Managers Series, Inc.; AXP Partners Series, Inc. changed
its name to RiverSource Managers Series, Inc.; AXP Tax-Free Money
Series, Inc. changed its name to RiverSource Tax-Exempt Money Market
Series, Inc.; and for all other corporations and business trusts, AXP
was replaced with RiverSource in the registrant name.
(4) 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.
(5) 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.
(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 Equity Fund changed
its name to Threadneedle Global Equity Fund, and International Fund
changed its name to Threadneedle International Fund.
(7) Effective Oct. 20, 2003, Global Growth Fund changed its name to Global
Equity Fund.
(8) Effective Feb. 18, 2004, Utilities Fund changed its name to Dividend
Opportunity Fund.
(9) Effective Nov. 1, 2006, Precious Metals Fund changed its name to
Precious Metals and Mining Fund.
(10) Effective April 13, 2006, the fiscal year end was changed from June 30
to Aug. 31.
(11) Minnesota Tax-Exempt Fund is currently classified as a diversified fund
under the 1940 Act. This means that the fund may not, with respect to
75% of its total assets, invest more than 5% of its total assets in any
one issuer or purchase more than 10% of the outstanding voting
securities of any one issuer. With respect to the remaining 25% of the
fund's total assets, there is no limitation on the amount of assets the
fund may invest in any one issuer. These are "fundamental" policies of
the fund. Section 13(a)(1) of the 1940 Act and Rule 13a-1 thereunder
generally provide that if a non-diversified fund actually operates as
if it were a diversified fund for a period of three years, its
classification under the 1940 Act will convert automatically from non-
diversified to diversified. The fund has been classified as a
diversified fund since Spring 2006, a result of its operation as a
diversified fund for more than three years based on the measurement of
diversification that existed at the time, which is not consistent with
how diversification is currently measured. Specifically, the fund has
historically participated in inverse floater programs, where the fund
transfers to trusts fixed rate municipal bonds (municipal bonds) in
exchange for cash and residual interest in the trusts' assets and cash
flows, which are in the form of inverse floating rate securities
(residual bonds). The trusts fund the purchase of the municipal bonds
by issuing short-term floating rate notes to third parties. The
municipal bonds transferred to the trusts remain in the fund's
investments in securities and the related short-term floating rate
notes are reflected as fund liabilities. Prior to January 2007, the
fund measured diversification based upon the value of the residual
bonds only. Since January 2007, the fund has also measured
diversification based on the full value of the municipal bonds held in
trusts; had this measurement of diversification (considering the full
value of municipal bonds held in trusts) been employed historically,
the fund would not have converted its classification to a diversified
fund in Spring 2006.
The Board of Trustees of the fund has recommended that the fund be
managed as a non-diversified fund, consistent with its original
structure. It is expected that shareholders will vote on this matter in
the first quarter of 2008.
Statement of Additional Information - Nov. 29, 2007 Page 154
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 104
RiverSource funds. Board members serve until the next regular shareholders'
meeting or until he or she reaches the mandatory retirement age established by
the Board. Under the current Board policy, members may serve until the end of
the meeting following their 75th birthday, or the fifteenth anniversary of the
first Board meeting they attended as members of the Board, whichever occurs
first. This policy does not apply to Ms. Jones who may retire after her 75th
birthday.
TABLE 25. BOARD MEMBERS
INDEPENDENT BOARD MEMBERS
<Table>
<Caption>
POSITION
HELD
WITH FUNDS
AND
NAME, ADDRESS, LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE
AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS
- -------------------------------------------------------------------------------------------
Kathleen Blatz Board Chief Justice, Minnesota None Compliance,
901 S. member Supreme Court, 1998-2005 Investment
Marquette Ave. since 2006 Review, Joint
Minneapolis, MN Audit
55402
Age 53
- -------------------------------------------------------------------------------------------
Arne H. Carlson Board Chair, RiverSource Funds, 1999- None Board
901 S. member 2006; former Governor of Governance,
Marquette Ave. since 1999 Minnesota Contracts,
Minneapolis, MN Executive,
55402 Investment
Age 73 Review
- -------------------------------------------------------------------------------------------
Pamela G. Board President, Springboard-Partners None Investment
Carlton member in Cross Cultural Leadership Review, Joint
901 S. since 2007 (consulting company) Audit
Marquette Ave.
Minneapolis, MN
55402
Age 52
- -------------------------------------------------------------------------------------------
Patricia M. Board Trustee Professor of Economics None Board
Flynn member and Management, Bentley Governance,
901 S. since 2004 College; former Dean, McCallum Compliance,
Marquette Ave. Graduate School of Business, Contracts,
Minneapolis, MN Bentley College Investment
55402 Review
Age 56
- -------------------------------------------------------------------------------------------
Anne P. Jones Board Attorney and Consultant None Board
901 S. member Governance,
Marquette Ave. since 1985 Executive,
Minneapolis, MN Investment
55402 Review, Joint
Age 72 Audit
- -------------------------------------------------------------------------------------------
Jeffrey Board Former Managing Director, American Board
Laikind, CFA member Shikiar Asset Management Progressive Governance,
901 S. since 2005 Insurance Investment
Marquette Ave. Review, Joint
Minneapolis, MN Audit
55402
Age 72
- -------------------------------------------------------------------------------------------
Stephen R. Board President Emeritus and Valmont Board
Lewis, Jr. member Professor of Economics, Industries, Governance,
901 S. since 2002 Carleton College Inc. Compliance,
Marquette Ave. and Chair (manufactures Contracts,
Minneapolis, MN of the irrigation Executive,
55402 Board systems) Investment
Age 68 since 2007 Review
- -------------------------------------------------------------------------------------------
Catherine James Board Director, Enterprise Asset Strategic Compliance,
Paglia member Management, Inc. (private real Distribution, Contracts,
901 S. since 2004 estate and asset management Inc. Executive,
Marquette Ave. company) (transporta- Investment
Minneapolis, MN tion, Review
55402 distribution
Age 55 and logistics
consultants)
- -------------------------------------------------------------------------------------------
Alison Taunton- Board Chief Executive Officer, Hybridon, Inc. Contracts,
Rigby member RiboNovix, Inc. since 2003 (biotechnol- Executive,
901 S. since 2002 (biotechnology); former ogy); American Investment
Marquette Ave. President, Forester Biotech Healthways, Review
Minneapolis, MN Inc. (health
55402 management
Age 63 programs)
- -------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 155
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
POSITION
HELD
WITH FUNDS
AND
NAME, ADDRESS, LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE
AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS
- -------------------------------------------------------------------------------------------
William F. Board President - U.S. Asset None Investment
Truscott member Management and Chief Investment Review
53600 since Officer, Ameriprise Financial,
Ameriprise 2001, Vice Inc. and President, Chairman of
Financial President the Board and Chief Investment
Center since 2002 Officer, RiverSource
Minneapolis, MN Investments, LLC since 2005;
55474 President, Ameriprise
Age 47 Certificate
Company since 2006; Senior Vice
President - Chief Investment
Officer, Ameriprise Financial,
Inc. and Chairman of the Board
and Chief Investment Officer,
RiverSource Investments, LLC,
2001-2005
- -------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security
holder and/or employee of RiverSource Investments.
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 26. FUND OFFICERS
<Table>
<Caption>
POSITION HELD
WITH FUNDS AND
LENGTH OF PRINCIPAL OCCUPATION
NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------
Patrick T. Bannigan President since Senior Vice President - Asset Management,
172 Ameriprise 2006 RiverSource Investments, LLC since 2006;
Financial Center Managing Director and Global Head of Product,
Minneapolis, MN 55474 Morgan Stanley Investment Management, 2004-
Age 42 2006; President, Touchstone Investments, 2002-
2004; Director of Strategic Planning,
Evergreen Investments, 1995-2002
- ---------------------------------------------------------------------------------------
Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed
172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and
Financial Center RiverSource Investments, LLC since 2006; Vice
Minneapolis, MN 55474 President - Investments, Ameriprise
Age 43 Certificate Company since 2003; Senior Vice
President - Fixed Income, Ameriprise
Financial, Inc., 2002-2006 and RiverSource
Investments, LLC, 2004-2006; Managing
Director, Zurich Global Assets, 2001-2002
- ---------------------------------------------------------------------------------------
Amy K. Johnson Vice President Vice President - Asset Management and Trust
5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC
Financial Center since 2006; Vice President - Operations and
Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC,
Age 42 2004-2006; Director of Product
Development - Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
- ---------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since Vice President - Investment Accounting,
105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Vice
Financial Center President - Finance, American Express Company,
Minneapolis, MN 55474 2000-2002
Age 52
- ---------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel - Asset
5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since
Financial Center and Secretary 2005; Vice President, General Counsel and
Minneapolis, MN 55474 since 2006 Secretary, Ameriprise Certificate Company
Age 48 since 2005; Vice President - Asset Management
Compliance, Ameriprise Financial, Inc., 2004-
2005; Senior Vice President and Chief
Compliance Officer, U.S. Bancorp Asset
Management, 2002-2004; Second Vice President
and Assistant General Counsel, Hartford Life,
2001-2002
- ---------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 156
<Table>
<Caption>
POSITION HELD
WITH FUNDS AND
LENGTH OF PRINCIPAL OCCUPATION
NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------
Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance
172 Ameriprise Officer since Officer, RiverSource Investments, LLC since
Financial Center 2006 2006; Director - Mutual Funds, Voyageur Asset
Minneapolis, MN 55474 Management, 2003-2006; Director of Finance,
Age 46 Voyageur Asset Management, 2000-2003
- ---------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering
2934 Ameriprise Prevention Officer, Ameriprise Financial, Inc. since
Financial Center Officer since 2004; Manager Anti-Money Laundering,
Minneapolis, MN 55474 2004 Ameriprise Financial, Inc., 2003-2004;
Age 43 Compliance Director and Bank Secrecy Act
Officer, American Express Centurion Bank,
2000-2003
- ---------------------------------------------------------------------------------------
</Table>
RESPONSIBILITIES OF BOARD WITH RESPECT TO FUND MANAGEMENT
The Board initially approves an Investment Management Services Agreement and
other contracts with the investment manager and its affiliates, and other
service providers. Once the contracts are approved, the Board monitors the level
and quality of services including commitments of service providers to achieve
expected levels of investment performance and shareholder services. In addition,
the Board oversees that processes are in place to assure compliance with
applicable rules, regulations and investment policies and addresses possible
conflicts of interest. Annually, the Board evaluates the services received under
the contracts by receiving reports covering investment performance, shareholder
services, marketing, and the investment manager's profitability in order to
determine whether to continue existing contracts or negotiate new contracts.
SEVERAL COMMITTEES FACILITATE ITS WORK
BOARD GOVERNANCE COMMITTEE -- Recommends to the Board the size, structure and
composition of the Board and its committees; the compensation to be paid to
members of the Board; and a process for evaluating the Board's performance. The
committee also reviews candidates for Board membership including candidates
recommended by shareholders. To be considered, recommendations must include a
curriculum vitae and be mailed to the Chairman of the Board, RiverSource Funds,
901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268. The
committee also makes recommendations to the Board regarding responsibilities and
duties of the Board, oversees proxy voting and supports the work of the Board
Chair in relation to furthering the interests of the Funds and their
shareholders on external matters.
COMPLIANCE COMMITTEE -- Supports the Funds' maintenance of a strong compliance
program by providing a forum for independent Board members to consider
compliance matters impacting the Funds or their key service providers;
developing and implementing, in coordination with the Funds' Chief Compliance
Officer (CCO), a process for the review and consideration of compliance reports
that are provided to the Boards; and providing a designated forum for the Funds'
CCO to meet with independent Board members on a regular basis to discuss
compliance matters.
CONTRACTS COMMITTEE -- Reviews and oversees the contractual relationships with
service providers. Receives and analyzes reports covering the level and quality
of services provided under contracts with the fund and advises the Board
regarding actions taken on these contracts during the annual review process.
EXECUTIVE COMMITTEE -- Acts for the Board between meetings of the Board.
INVESTMENT REVIEW COMMITTEE -- Reviews and oversees the management of the Funds'
assets. Considers investment management policies and strategies; investment
performance; risk management techniques; and securities trading practices and
reports areas of concern to the Board.
JOINT AUDIT COMMITTEE -- Oversees the accounting and financial reporting
processes of the Funds and internal controls over financial reporting. Oversees
the quality and integrity of the Funds' financial statements and independent
audits as well as the Funds' compliance with legal and regulatory requirements
relating to the Funds' accounting and financial reporting, internal controls
over financial reporting and independent audits. The committee also makes
recommendations regarding the selection of the Funds' independent auditor and
reviews and evaluates the qualifications, independence and performance of the
auditor.
Statement of Additional Information - Nov. 29, 2007 Page 157
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 27. COMMITTEE MEETINGS
<Table>
<Caption>
BOARD INVEST-
GOVER- COMPLI- CON- EXECU- MENT JOINT
NANCE ANCE TRACTS TIVE REVIEW AUDIT
COMMIT- COMMIT- COMMIT- COMMIT- COMMIT- COMMIT-
FISCAL PERIOD TEE TEE* TEE TEE TEE TEE
- ------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 1 6 1 5 6
January 31
- ------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 1 6 2 5 6
March 31
- ------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 2 6 1 5 6
April 30
- ------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 2 6 1 5 7
May 31
- ------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 2 6 1 5 8
June 30
- ------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 3 6 1 5 8
July 31
- ------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 3 6 1 5 8
August 31
- ------------------------------------------------------------------------------------------------
For funds with fiscal period ending 6 5 6 1 5 8
September 30
- ------------------------------------------------------------------------------------------------
For funds with fiscal period ending 2 N/A 6 0 4 5
October 31
- ------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 N/A 6 0 5 6
November 30
- ------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 N/A 6 1 5 6
December 31
- ------------------------------------------------------------------------------------------------
</Table>
* Committee established December 2006.
BOARD MEMBER HOLDINGS
The following table shows the Board members' dollar range of equity securities
beneficially owned on Dec. 31, 2006 of each individual fund owned by a Board
member, and the aggregate dollar range of equity securities of all RiverSource
funds overseen by the Board members.
TABLE 28. BOARD MEMBER HOLDINGS
Based on net asset values as of Dec. 31, 2006
<Table>
<Caption>
AGGREGATE DOLLAR
RANGE OF
EQUITY SECURITIES
DOLLAR RANGE OF ALL
OF EQUITY RIVERSOURCE FUNDS
SECURITIES IN OVERSEEN
BOARD MEMBER* FUND THE FUND BY BOARD MEMBER
- --------------------------------------------------------------------------------------
Kathleen Blatz Equity Value $10,001- Over $100,000
$50,000
----------------------------------------------
Global Equity $10,001-
$50,000
----------------------------------------------
Strategic Allocation Over $100,000
- --------------------------------------------------------------------------------------
Arne H. Carlson Cash Management $1-$10,000 Over $100,000
----------------------------------------------
Disciplined Equity $10,001-
$50,000
----------------------------------------------
Diversified Equity Income $10,001-
$50,000
----------------------------------------------
Dividend Opportunity $10,001-
$50,000
----------------------------------------------
Fundamental Value $10,001-
$50,000
----------------------------------------------
Global Equity $10,001-
$50,000
----------------------------------------------
Global Technology $10,001-
$50,000
----------------------------------------------
International Equity $10,001-
$50,000
----------------------------------------------
International Select Value $10,001-
$50,000
----------------------------------------------
Strategic Allocation $10,001-
$50,000
- --------------------------------------------------------------------------------------
Patricia M. Flynn Growth** -- Over $100,000**
- -------------------------------------------------------------------
Strategic Allocation** $10,001-
$50,000
- --------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 158
<Table>
<Caption>
AGGREGATE DOLLAR
RANGE OF
EQUITY SECURITIES
DOLLAR RANGE OF ALL
OF EQUITY RIVERSOURCE FUNDS
SECURITIES IN OVERSEEN
BOARD MEMBER* FUND THE FUND BY BOARD MEMBER
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Anne P. Jones Disciplined Equity $50,001- Over $100,000
$100,000
----------------------------------------------
Diversified Bond $10,001-
$50,000
----------------------------------------------
Diversified Equity Income $10,001-
$50,000
----------------------------------------------
Global Bond Over $100,000
----------------------------------------------
Global Equity $50,001-
$100,000
----------------------------------------------
Growth $50,001-
$100,000
----------------------------------------------
High Yield Bond Over $100,000
----------------------------------------------
Short Duration U.S. Government Over $100,000
----------------------------------------------
Small Company Index Over $100,000
- -------------------------------------------------------------------
Strategic Allocation $10,001-
$50,000
- --------------------------------------------------------------------------------------
Jeffrey Laikind Disciplined Equity $10,001- $50,001-$100,000
$50,000
----------------------------------------------
Growth $50,001-
$100,000
----------------------------------------------
Stephen R. Lewis, Cash Management** -- Over $100,000**
Jr.
----------------------------------------------
Diversified Equity Income** $10,001-
$50,000
----------------------------------------------
Emerging Markets** --
----------------------------------------------
International Opportunity** --
----------------------------------------------
Mid Cap Growth $10,001-
$50,000
----------------------------------------------
Portfolio Builder Total --
Equity**
----------------------------------------------
Strategic Allocation $10,001-
$50,000
- --------------------------------------------------------------------------------------
Catherine James Disciplined Equity** -- Over $100,000**
Paglia
- -------------------------------------------------------------------
Diversified Equity Income $10,001-
$50,000
----------------------------------------------
Growth $10,001-
$50,000
----------------------------------------------
Small Cap Advantage** --
----------------------------------------------
Strategic Allocation $50,001-
$100,000
- --------------------------------------------------------------------------------------
Alison Taunton Diversified Equity Income $10,001- Over $100,000
Rigby $50,000
----------------------------------------------
Emerging Markets $10,001-
$50,000
----------------------------------------------
Equity Value $10,001-
$50,000
----------------------------------------------
Global Equity $10,001-
$50,000
----------------------------------------------
Growth $10,001-
$50,000
----------------------------------------------
Income Builder Enhanced Income Over $100,000
----------------------------------------------
International Aggressive Growth $10,001-
$50,000
----------------------------------------------
International Select Value $10,001-
$50,000
----------------------------------------------
Mid Cap Value $10,001-
$50,000
----------------------------------------------
Strategic Allocation $10,001-
$50,000
- --------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 159
<Table>
<Caption>
AGGREGATE DOLLAR
RANGE OF
EQUITY SECURITIES
DOLLAR RANGE OF ALL
OF EQUITY RIVERSOURCE FUNDS
SECURITIES IN OVERSEEN
BOARD MEMBER* FUND THE FUND BY BOARD MEMBER
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
William F. Balanced $50,001- Over $100,000
Truscott $100,000
----------------------------------------------
Cash Management Over $100,000
----------------------------------------------
Disciplined Equity $50,001-
$100,000
----------------------------------------------
Disciplined International $50,001-
Equity $100,000
----------------------------------------------
Dividend Opportunity Over $100,000
----------------------------------------------
Emerging Markets $50,001-
$100,000
----------------------------------------------
Floating Rate Over $100,000
----------------------------------------------
Global Equity Over $100,000
----------------------------------------------
Global Technology $10,001-
$50,000
----------------------------------------------
Growth $50,001-
$100,000
----------------------------------------------
High Yield Bond $50,001-
$100,000
----------------------------------------------
Income Builder Enhanced Income Over $100,000
----------------------------------------------
Income Opportunities $10,001-
$50,000
----------------------------------------------
Intermediate Tax-Exempt $50,001-
$100,000
----------------------------------------------
International Opportunity Over $100,000
----------------------------------------------
Large Cap Equity Over $100,000
----------------------------------------------
Large Cap Value $50,001-
$100,000
----------------------------------------------
Massachusetts Tax-Exempt Over $100,000
----------------------------------------------
Mid Cap Growth $50,001-
$100,000
----------------------------------------------
Mid Cap Value $10,001-
$50,000
----------------------------------------------
Portfolio Builder Moderate Over $100,000
Aggressive
----------------------------------------------
Real Estate $50,001-
$100,000
----------------------------------------------
Retirement Plus 2035 $50,001-
$100,000
----------------------------------------------
Small Cap Advantage $10,001-
$50,000
----------------------------------------------
Small Cap Equity Over $100,000
----------------------------------------------
Small Cap Value $10,001-
$50,000
----------------------------------------------
Strategic Allocation Over $100,000
----------------------------------------------
Tax-Exempt High Income $50,001-
$100,000
- --------------------------------------------------------------------------------------
</Table>
* Ms. Carlton was not a Board member as of Dec. 31, 2006 and therefore is
not included in the table.
** Deferred compensation invested in share equivalents:
<Table>
A. Flynn Growth............. $50,001-$100,000
Strategic $50,001-$100,000
Allocation.........
B. Lewis Cash Management.... $50,001-$100,000
Diversified Equity Over $100,000
Income.............
Emerging Markets... $10,001-$50,000
International $10,001-$50,000
Opportunity........
Portfolio Builder $10,001-$50,000
Total Equity.......
C. Paglia Disciplined $50,001-$100,000
Equity.............
Small Cap $50,001-$100,000
Advantage..........
</Table>
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.
Statement of Additional Information - Nov. 29, 2007 Page 160
This table shows the dollar range of equity securities beneficially owned on
June 30, 2007 of each fund.
TABLE 29. BOARD MEMBER HOLDINGS -- INDIVIDUAL FUNDS AS OF QUARTER END
<Table>
<Caption>
AGGREGATE DOLLAR
RANGE OF
EQUITY SECURITIES
DOLLAR RANGE OF ALL
OF EQUITY RIVERSOURCE FUNDS
SECURITIES IN OVERSEEN
BOARD MEMBER* FUND THE FUND BY BOARD MEMBER
- --------------------------------------------------------------------------------------
Kathleen Blatz Emerging Markets $10,001- Over $100,000
$50,000
----------------------------------------------
Equity Value $50,001-
$100,000
----------------------------------------------
Global Equity $50,001-
$100,000
----------------------------------------------
Real Estate $10,001-
$50,000
----------------------------------------------
Strategic Allocation Over $100,000
- --------------------------------------------------------------------------------------
Arne H. Carlson Cash Management Over $00,000 Over $100,000
----------------------------------------------
Disciplined Equity $10,001-
$50,000
----------------------------------------------
Dividend Opportunity $10,001-
$50,000
----------------------------------------------
Global Technology $10,001-
$50,000
----------------------------------------------
International Equity $10,001-
$50,000
----------------------------------------------
International Select Value $10,001-
$50,000
----------------------------------------------
Strategic Allocation $50,001-
$100,000
- --------------------------------------------------------------------------------------
Patricia M. Flynn Growth $50,001- Over $100,000**
$100,000**
----------------------------------------------
Portfolio Builder Aggressive $10,001-
$50,000**
----------------------------------------------
Strategic Allocation Over
$100,000**
- --------------------------------------------------------------------------------------
Anne P. Jones Disciplined Equity $50,001- Over $100,000
$100,000
----------------------------------------------
Diversified Bond $10,001-
$50,000
----------------------------------------------
Diversified Equity Income $50,001-
$100,000
----------------------------------------------
Global Bond Over $100,000
----------------------------------------------
Global Equity $50,001-
$100,000
----------------------------------------------
Growth $50,001-
$100,000
----------------------------------------------
High Yield Bond Over $100,000
----------------------------------------------
Short Duration U.S. Government Over $100,000
----------------------------------------------
Small Company Index $50,000-
$100,000
----------------------------------------------
Strategic Allocation $50,001-
$100,000
- --------------------------------------------------------------------------------------
Jeffrey Laikind Disciplined Equity $10,001- Over $100,000
$50,000
----------------------------------------------
Growth $50,001-
$100,000
- --------------------------------------------------------------------------------------
Stephen R. Lewis, Cash Management $50,001- Over $100,000**
Jr. $100,000**
----------------------------------------------
Disciplined International $50,001-
Equity $100,000**
----------------------------------------------
Diversified Equity Income Over
$100,000**
----------------------------------------------
Emerging Markets $50,001-
$100,000**
----------------------------------------------
Mid Cap Growth $10,001-
$50,000
----------------------------------------------
Portfolio Builder Total Equity $10,001-
$50,000**
----------------------------------------------
Strategic Allocation $10,001-
$50,000
- --------------------------------------------------------------------------------------
Catherine James Disciplined Equity $50,001- Over $100,000**
Paglia $100,000**
----------------------------------------------
Global Equity $50,001-
$100,000**
----------------------------------------------
Growth $10,001-
$50,000
----------------------------------------------
Small Cap Advantage $50,001-
$100,000**
----------------------------------------------
Strategic Allocation $50,001-
$100,000
- --------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 161
<Table>
<Caption>
AGGREGATE DOLLAR
RANGE OF
EQUITY SECURITIES
DOLLAR RANGE OF ALL
OF EQUITY RIVERSOURCE FUNDS
SECURITIES IN OVERSEEN
BOARD MEMBER* FUND THE FUND BY BOARD MEMBER
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Alison Taunton- Cash Management $10,001- Over $100,000
Rigby $50,000
----------------------------------------------
Diversified Equity Income $50,001-
$100,000
----------------------------------------------
Emerging Markets $50,001-
$100,000
----------------------------------------------
Growth Over $100,000
----------------------------------------------
Income Builder Enhanced Income Over $100,000
----------------------------------------------
International Aggressive Growth Over $100,000
----------------------------------------------
International Select Value Over $100,000
----------------------------------------------
Mid Cap Value $50,001-
$100,000
----------------------------------------------
Small Cap Value $50,001-
$100,000
----------------------------------------------
Strategic Allocation Over $100,000
- --------------------------------------------------------------------------------------
William F. Balanced Over $100,000 Over $100,000
Truscott
----------------------------------------------
Cash Management Over $100,000
----------------------------------------------
Disciplined Equity Over $100,000
----------------------------------------------
Disciplined International Over $100,000
Equity
----------------------------------------------
Disciplined Small & Mid Cap $10,001-
$50,000
----------------------------------------------
Disciplined Small Cap Value Over $100,000
----------------------------------------------
Diversified Bond $10,001-
$50,000
----------------------------------------------
Emerging Markets Over $100,000
----------------------------------------------
Floating Rate Over $100,000
----------------------------------------------
Global Equity Over $100,000
----------------------------------------------
Global Technology $50,001-
$100,000
----------------------------------------------
Growth Over $100,000
----------------------------------------------
High Yield Bond $50,001-
$100,000
----------------------------------------------
Income Builder Enhanced Income Over $100,000
----------------------------------------------
Income Opportunities $10,001-
$50,000
----------------------------------------------
Intermediate Tax-Exempt $50,001-
$100,000
----------------------------------------------
International Equity $10,001-
$50,000
----------------------------------------------
International Opportunity Over $100,000
----------------------------------------------
International Select Value $10,001-
$50,000
----------------------------------------------
International Small Cap Over $100,000
----------------------------------------------
Large Cap Equity Over $100,000
----------------------------------------------
Large Cap Value $50,001-
$100,000
----------------------------------------------
Massachusetts Tax-Exempt Over $100,000
----------------------------------------------
Mid Cap Growth $50,001-
$100,000
----------------------------------------------
Mid Cap Value $10,001-
$50,000
----------------------------------------------
Portfolio Builder Over $100,000
Moderate Aggressive
----------------------------------------------
Real Estate $50,001-
$100,000
----------------------------------------------
Retirement Plus 2035 Over $100,000
----------------------------------------------
Small Cap Advantage $10,001-
$50,000
----------------------------------------------
Small Cap Equity Over $100,000
----------------------------------------------
Small Cap Value $10,001-
$50,000
----------------------------------------------
Strategic Allocation Over $100,000
----------------------------------------------
Tax-Exempt High Income $50,001-
$100,000
- --------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 162
* Pamela Carlton was not a member of the Board as of June 30, 2007.
** Deferred compensation invested in share equivalents:
<Table>
A. Flynn Growth............. $50,001-$100,000
Portfolio Builder $10,001-$50,000
Aggressive.........
Strategic Over $100,000
Allocation.........
B. Lewis Cash Management.... $50,001-$100,000
Disciplined Int'l $50,001-$100,000
Equity.............
Diversified Equity Over $100,000
Income.............
Emerging Markets... $50,001-$100,000
Portfolio Builder $10,001-$50,000
Total Equity.......
C. Paglia Disciplined $50,001-$100,000
Equity.............
Small Cap $50,001-$100,000
Advantage..........
Global Equity...... $50,001-$100,000
</Table>
COMPENSATION OF BOARD MEMBERS
TOTAL COMPENSATION. The following table shows the total compensation paid to
independent Board members from all the RiverSource funds in the last fiscal
period.
TABLE 30. BOARD MEMBER COMPENSATION - ALL FUNDS
<Table>
<Caption>
TOTAL CASH COMPENSATION FROM
PENSION OR RETIREMENT RIVERSOURCE
BOARD MEMBER(A) BENEFITS PAID TO BOARD MEMBER FUNDS PAID TO BOARD MEMBER
- -------------------------------------------------------------------------------------------------------
Kathleen Blatz N/A $150,750
- -------------------------------------------------------------------------------------------------------
Arne H. Carlson(b) 8,250(b) 197,000
- -------------------------------------------------------------------------------------------------------
Pamela Carlton N/A 40,000
- -------------------------------------------------------------------------------------------------------
Patricia M. Flynn N/A 144,300(c)
- -------------------------------------------------------------------------------------------------------
Anne P. Jones N/A 151,150
- -------------------------------------------------------------------------------------------------------
Jeffrey Laikind N/A 151,150
- -------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. N/A 325,950(c)
- -------------------------------------------------------------------------------------------------------
Catherine James Paglia N/A 144,300(c)
- -------------------------------------------------------------------------------------------------------
Vikki L. Pryor(d) N/A 49,917
- -------------------------------------------------------------------------------------------------------
Alan K. Simpson(e) N/A 0
- -------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby N/A 136,800
- -------------------------------------------------------------------------------------------------------
</Table>
(a) Board member compensation is a combination of a base fee and meeting
fees, with the exception of the Chair of the Boards, who receives a base
annual compensation. Payment of compensation is facilitated by a company
providing limited administrative services to the funds and to the
Boards.
(b) Mr. Carlson served as Chair of the Boards through Dec. 31, 2006. The
amount for Mr. Carlson includes base annual compensation for serving as
Chair of the Boards through Dec. 31, 2006. Additionally, during the time
he served as Chair of the Boards, from March 1, 1999 to Dec. 31, 2006,
Mr. Carlson was provided health and certain other benefits, including
participation in a Qualified Retirement Plan (QRP) and a Supplemental
Retirement Plan (SRP). Under the QRP, subject to limits imposed by
applicable law (the Dollar Limits), Mr. Carlson earned annually 15% of
the non-deferred portion of his base annual compensation. The QRP
payments were fully funded by the funds in the year that they were
earned by Mr. Carlson. The above table reflects $11,000 paid pursuant to
the QRP during the fiscal period. To the extent the 15% amount exceeded
the Dollar Limits in any year, the excess was recorded for the benefit
of Mr. Carlson under the SRP. These SRP amounts were accrued as
liabilities of the funds. Table 31B shows the amount of the SRP accrual
in each year for the benefit of Mr. Carlson. Total base annual
compensation from the RiverSource funds paid to Mr. Carlson for the most
recent fiscal period (not including retirement benefits) was $188,750.
(c) Ms. Flynn, Mr. Lewis and Ms. Paglia elected to defer a portion of the
total cash compensation payable during the period in the amount of
$60,650, $95,925 and $144,300, respectively. Amount deferred by fund is
set forth in Table 32. Additional information regarding the deferred
compensation plan is described below.
(d) Ms. Pryor ceased service as a member of the Boards, effective Jan. 11,
2007. (She had commenced serving on the Boards on Feb. 15, 2006.)
(e) Mr. Simpson retired as a member of the Boards, effective Sept. 14, 2006.
Statement of Additional Information - Nov. 29, 2007 Page 163
TABLE 31. SUPPLEMENTAL BOARD MEMBER RETIREMENT BENEFITS -- ALL FUNDS
<Table>
<Caption>
1999 2000 2001 2002 2003 2004 2005 2006
- ---------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson* $13,200 -- $3,750 -- $4,950 $18,000 $17,250 $15,750
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
* Retirement benefit amounts in excess of the Dollar Limits were accrued
annually for the benefit of Mr. Carlson in a SRP. This table shows the
amount of such accruals. Because of his retirement as Chair, the SRP
amounts are now payable to Mr. Carlson. In this regard, it is expected
that the total accrued retirement benefits under the SRP, equal to
approximately $82,000 (which includes earnings and interest on the
contributed amounts set forth in the table), will be paid to Mr.
Carlson in January 2008. SRP payments are funded by the funds. As of
January 2007, neither the Chair nor any Board member earns retirement
benefits.
The independent Board members determine the amount of compensation that they
receive, including the amount paid to the Chair of the Board. In determining
compensation for the independent Board members, the independent Board members
take into account a variety of factors including, among other things, their
collective significant work experience (e.g., in business and finance,
government or academia). The independent Board members also recognize that these
individuals' advice and counsel are in demand by other organizations, that these
individuals may reject other opportunities because the time demands of their
duties as independent Board members, and that they undertake significant legal
responsibilities. The independent Board members also consider the compensation
paid to independent board members of other mutual fund complexes of comparable
size. In determining the compensation paid to the Chair, the independent Board
members take into account, among other things, the Chair's significant
additional responsibilities (e.g., setting the agenda for Board meetings,
communicating or meeting regularly with the Funds' Chief Compliance Officer,
Counsel to the independent Board members, and the Funds' service providers)
which result in a significantly greater time commitment required of the Board
Chair. The Chair's compensation, therefore, has generally been set at a level
between 2.5 and 3 times the level of compensation paid to other independent
Board members.
Effective Jan. 1, 2007, independent Board members will be paid an annual
retainer of $80,000. Committee and sub-committee Chairs will each receive an
additional annual retainer of $5,000. In addition, independent Board members
will be paid the following fees for attending Board and committee meetings:
$5,000 per day of in-person Board meetings and $2,500 per day of in-person
committee or sub-committee meetings (if such meetings are not held on the same
day as a Board meeting). Independent Board members are not paid for special
telephonic meetings. In 2007, the Board's Chair will receive total annual cash
compensation of $385,000, approximately 2.7 times the anticipated average annual
compensation expected to be earned by an independent Board member in 2007.
The independent Board members may elect to defer payment of up to 100% of the
compensation they receive in accordance with a Deferred Compensation Plan (the
Deferred Plan). Under the Deferred Plan, a Board member may elect to have his or
her deferred compensation treated as if they had been invested in shares of one
or more RiverSource funds and the amount paid to the Board member under the
Deferred Plan will be determined based on the performance of such investments.
Distributions may be taken in a lump sum or over a period of years. The Deferred
Plan will remain unfunded for federal income tax purposes under the Internal
Revenue Code of 1986, as amended. It is anticipated that deferral of Board
member compensation in accordance with the Deferred Plan will have, at most, a
negligible impact on Fund assets and liabilities.
COMPENSATION FROM EACH FUND. The following table shows the compensation paid to
independent Board members from each fund during its last fiscal period.
TABLE 32. BOARD MEMBER COMPENSATION -- INDIVIDUAL FUNDS
<Table>
<Caption>
AGGREGATE COMPENSATION FROM FUND
------------------------------------------------------------------------------------------------
TAUNTON-
FUND BLATZ CARLSON* CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA PRYOR** SIMPSON** RIGBY
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder *** *** *** *** *** *** *** *** *** *** ***
Aggressive
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder *** *** *** *** *** *** *** *** *** *** ***
Conservative
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder *** *** *** *** *** *** *** *** *** *** ***
Moderate
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder *** *** *** *** *** *** *** *** *** *** ***
Moderate Aggressive
- ----------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 164
<Table>
<Caption>
AGGREGATE COMPENSATION FROM FUND
------------------------------------------------------------------------------------------------
TAUNTON-
FUND BLATZ CARLSON* CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA PRYOR** SIMPSON** RIGBY
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder *** *** *** *** *** *** *** *** *** *** ***
Moderate
Conservative
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder *** *** *** *** *** *** *** *** *** *** ***
Total Equity
- ----------------------------------------------------------------------------------------------------------------------
S&P 500 415 1,159 N/A 420 474 458 527 436 391 294 412
Index -- total
Amount deferred 0 0 204 0 0 137 436 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Small Company
Index -- total 1,880 5,223 N/A 1,894 2,156 2,078 2,374 1,972 1,777 1,348 1,861
Amount deferred 0 0 922 0 0 615 1,972 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ----------------------------------------------------------------------------------------------------------------------
Equity 1,982 4,553 N/A 1,960 2,252 2,176 3,202 2,036 1,741 1,169 1,921
Value -- total
Amount deferred 0 0 926 0 0 874 2,036 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Precious Metals and 188 432 N/A 186 215 207 304 195 166 114 183
Mining -- total
Amount deferred 0 0 88 0 0 83 195 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Small Cap
Advantage -- total 1,216 2,903 N/A 1,198 1,397 1,345 1,849 1,249 1,100 800 1,178
Amount deferred 0 0 573 0 0 498 1,249 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Small Cap 371 865 N/A 366 423 408 586 381 329 229 359
Growth -- total
Amount deferred 0 0 174 0 0 159 381 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 *** *** *** *** *** *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 *** *** *** *** *** *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 *** *** *** *** *** *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 *** *** *** *** *** *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 *** *** *** *** *** *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 *** *** *** *** *** *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 *** *** *** *** *** *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 *** *** *** *** *** *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ----------------------------------------------------------------------------------------------------------------------
Aggressive 1,025 2,018 N/A 997 1,120 1,078 1,805 1,039 725 448 963
Growth -- total
Amount deferred 0 0 457 0 0 506 1,039 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Fundamental
Growth -- total 360 642 N/A 352 383 372 696 363 232 116 337
Amount deferred 0 0 158 0 0 199 363 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Fundamental 1,991 3,846 N/A 1,933 2,165 2,092 3,558 2,007 1,381 786 1,863
Value -- total
Amount deferred 0 0 882 0 0 1,001 2,007 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
High Yield 3,467 6,785 N/A 3,366 3,784 3,654 6,136 3,496 2,443 1,395 3,247
Bond -- total
Amount deferred 0 0 1,540 0 0 1,723 3,496 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Income Builder Basic *** *** *** *** *** *** *** *** *** *** ***
Income
- ----------------------------------------------------------------------------------------------------------------------
Income Builder *** *** *** *** *** *** *** *** *** *** ***
Enhanced Income
- ----------------------------------------------------------------------------------------------------------------------
Income Builder *** *** *** *** *** *** *** *** *** *** ***
Moderate Income
- ----------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 165
<Table>
<Caption>
AGGREGATE COMPENSATION FROM FUND
------------------------------------------------------------------------------------------------
TAUNTON-
FUND BLATZ CARLSON* CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA PRYOR** SIMPSON** RIGBY
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Select 1,074 2,123 N/A 1,042 1,176 1,134 1,883 1,084 762 451 1,007
Value -- total
Amount deferred 0 0 478 0 0 528 1,084 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Short Duration U.S.
Government -- total 1,703 3,495 N/A 1,651 1,884 1,813 2,881 1,722 1,268 760 1,600
Amount deferred 0 0 764 0 0 801 1,722 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Small Cap 616 1,236 N/A 598 678 652 1,064 624 448 277 579
Equity -- total
Amount deferred 0 0 276 0 0 297 624 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Small Cap 1,740 3,416 N/A 1,690 1,901 1,833 3,072 1,758 1,229 726 1,632
Value -- total
Amount deferred 0 0 774 0 0 862 1,758 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government
Mortgage -- total 483 866 N/A 470 515 500 937 485 292 162 451
Amount deferred 0 0 211 0 0 267 485 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Value -- total 709 1,412 N/A 689 778 750 1,236 717 512 300 666
Amount deferred 0 0 316 0 0 346 717 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ----------------------------------------------------------------------------------------------------------------------
Dividend
Opportunity -- total 2,682 4,351 N/A 2,552 2,855 2,775 5,583 2,632 1,496 722 2,447
Amount deferred 0 0 1,130 0 0 1,606 2,632 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Real Estate -- total 401 641 N/A 384 425 414 849 395 218 99 367
Amount deferred 0 0 169 0 0 245 395 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ----------------------------------------------------------------------------------------------------------------------
Cash 7,831 11,960 969 7,491 7,827 7,827 15,148 7,491 3,536 914 7,077
Management -- total
Amount deferred 0 0 0 3,240 0 0 4,402 7,491 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Core Bond -- total 429 664 61 410 429 429 805 410 193 53 388
Amount deferred 0 0 0 178 0 0 233 410 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Disciplined 4,147 6,259 552 3,964 4,124 4,124 8,033 3,964 1,802 522 3,743
Equity -- total
Amount deferred 0 0 0 1,711 0 0 2,337 3,964 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Disciplined Small
and Mid Cap
Equity -- total 75 67 23 72 70 70 170 72 6 0 67
Amount deferred 0 0 0 29 0 0 51 72 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Disciplined Small
Cap Value -- total 36 32 8 34 33 33 84 34 4 0 32
Amount deferred 0 0 0 14 0 0 25 34 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Floating 873 1,059 136 835 845 845 1,895 835 255 33 780
Rate -- total
Amount deferred 0 0 0 348 0 0 560 835 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Growth -- total 6,225 10,084 633 5,955 6,267 6,267 11,761 5,955 3,117 928 5,648
Amount deferred 0 0 0 2,604 0 0 3,400 5,955 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Income
Opportunities -- to-
tal 626 1,026 61 599 632 632 1,183 599 318 94 569
Amount deferred 0 0 0 262 0 0 342 599 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Inflation Protected
Securities -- total 553 862 77 531 553 553 1,038 531 254 71 502
Amount deferred 0 0 0 230 0 0 301 531 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Large Cap 13,514 23,263 1,243 12,902 13,751 13,751 24,507 12,902 7,411 2,342 12,290
Equity -- total
Amount deferred 0 0 0 5,710 0 0 7,035 12,902 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 166
<Table>
<Caption>
AGGREGATE COMPENSATION FROM FUND
------------------------------------------------------------------------------------------------
TAUNTON-
FUND BLATZ CARLSON* CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA PRYOR** SIMPSON** RIGBY
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Large Cap 187 307 19 179 188 188 350 179 95 30 170
Value -- total
Amount deferred 0 0 0 78 0 0 101 179 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Limited Duration
Bond -- total 287 480 30 275 289 289 528 275 148 51 261
Amount deferred 0 0 0 121 0 0 152 275 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ----------------------------------------------------------------------------------------------------------------------
California Tax-
Exempt -- total 325 473 47 311 329 329 655 311 154 38 295
Amount deferred 0 0 0 135 0 0 190 311 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Diversified
Bond -- total 5,229 7,563 793 5,000 5,279 5,279 10,572 5,000 2,424 588 4,748
Amount deferred 0 0 0 2,171 0 0 3,071 5,000 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Massachusetts Tax-
Exempt -- total 101 151 13 97 103 103 199 97 51 12 92
Amount deferred 0 0 0 42 0 0 58 97 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Michigan Tax-
Exempt -- total 87 131 11 83 89 88 170 83 44 11 79
Amount deferred 0 0 0 36 0 0 49 83 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Minnesota Tax-
Exempt -- total 620 903 87 593 626 626 1,247 593 294 71 563
Amount deferred 0 0 0 258 0 0 362 593 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
New York Tax-
Exempt -- total 128 189 18 122 130 130 255 122 61 14 116
Amount deferred 0 0 0 53 0 0 74 122 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Ohio Tax-
Exempt -- total 88 132 12 84 89 89 173 84 44 11 80
Amount deferred 0 0 0 37 0 0 50 84 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ----------------------------------------------------------------------------------------------------------------------
Balanced -- total 2,015 2,758 484 1,923 2,039 2,039 4,261 1,923 747 0 1,825
Amount deferred 0 0 0 815 0 0 1,249 1,923 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Disciplined Large
Cap Growth -- total 44 42 35 44 42 42 94 44 0 0 42
Amount deferred 0 0 0 18 0 0 28 44 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Diversified Equity
Income -- total 13,740 17,680 3,684 13,164 13,732 13,732 29,971 13,164 4,412 0 12,473
Amount deferred 0 0 0 5,519 0 0 8,830 13,164 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Mid Cap 3,987 4,948 1,144 3,827 3,958 3,958 8,837 3,827 1,151 0 3,623
Value -- total
Amount deferred 0 0 0 1,595 0 0 2,610 3,827 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Strategic 3,251 3,980 976 3,122 3,219 3,219 7,227 3,123 895 0 2,956
Allocation -- total
Amount deferred 0 0 0 1,299 0 0 2,137 3,123 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Strategic Income
Allocation -- total 68 63 48 65 65 65 163 65 0 0 63
Amount deferred 0 0 0 26 0 0 49 65 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ----------------------------------------------------------------------------------------------------------------------
Absolute Return
Currency and
Income(a) -- total 58 15 N/A 8 58 58 8 8 58 0 8
Amount deferred 0 0 4 0 0 2 8 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 167
<Table>
<Caption>
AGGREGATE COMPENSATION FROM FUND
------------------------------------------------------------------------------------------------
TAUNTON-
FUND BLATZ CARLSON* CARLTON FLYNN JONES LAIKIND LEWIS PAGLIA PRYOR** SIMPSON** RIGBY
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Disciplined
International
Equity(b) -- total 58 12 N/A 8 58 58 8 8 58 0 8
Amount deferred 0 0 4 0 0 2 8 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Emerging 1,000 1,972 N/A 1,217 1,282 1,367 1,432 1,282 800 1,257 1,217
Markets -- total
Amount deferred 0 0 608 0 0 358 1,066 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Emerging Markets
Bond(c) -- total 383 45 N/A 333 499 433 449 399 383 441 333
Amount deferred 0 0 167 0 0 112 399 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
European 783 436 N/A 1,000 1,066 1,150 1,216 1,066 617 1,057 1,000
Equity -- total
Amount deferred 0 0 500 0 0 304 849 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Global Bond -- total 975 2,023 N/A 1,192 1,257 1,342 1,407 1,257 758 1,232 1,192
Amount deferred 0 0 596 0 0 352 1,041 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Global 1,067 2,551 N/A 1,283 1,349 1,433 1,499 1,349 850 1,307 1,283
Equity -- total
Amount deferred 0 0 642 0 0 375 1,132 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Global 758 674 N/A 958 1,024 1,108 1,174 1,024 608 1,016 958
Technology -- total
Amount deferred 0 0 479 0 0 294 824 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
International
Aggressive
Growth -- total 950 1,638 N/A 1,200 1,266 1,350 1,416 1,266 750 1,241 1,200
Amount deferred 0 0 600 0 0 354 1,016 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
International 783 704 N/A 1,000 1,066 1,150 1,216 1,066 617 1,057 1,000
Equity -- total
Amount deferred 0 0 500 0 0 304 849 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
International
Opportunity -- total 1,033 2,279 N/A 1,283 1,349 1,433 1,499 1,349 817 1,316 1,283
Amount deferred 0 0 642 0 0 375 1,099 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
International Select
Value -- total 1,483 6,528 N/A 1,700 1,766 1,850 1,916 1,766 1,300 1,657 1,700
Amount deferred 0 0 850 0 0 479 1,549 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
International Small
Cap -- total 783 415 N/A 1,000 1,066 1,150 1,216 1,066 617 1,057 1,000
Amount deferred 0 0 500 0 0 304 849 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ----------------------------------------------------------------------------------------------------------------------
Intermediate Tax-
Exempt -- total 942 489 N/A 1,000 1,266 1,200 1,266 1,066 775 949 1,000
Amount deferred 0 0 500 0 0 316 1,007 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Mid Cap 2,033 7,936 N/A 2,200 2,466 2,400 2,466 2,266 1,650 1,982 2,200
Growth -- total
Amount deferred 0 0 1,100 0 0 616 2,099 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Tax-Exempt 1,375 3,535 N/A 1,467 1,732 1,667 1,732 1,532 1,142 1,332 1,467
Bond -- total
Amount deferred 0 0 733 0 0 433 1,441 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Tax-Exempt High
Income -- total 3,058 14,836 N/A 3,192 3,457 3,392 3,458 3,257 2,475 2,774 3,192
Amount deferred 0 0 1,596 0 0 864 3,124 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money
Market -- total 1,000 519 N/A 1,000 1,316 1,250 1,316 1,066 833 891 1,000
Amount deferred 0 0 500 0 0 329 1,066 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
</Table>
* Mr. Carlson served as Chair of the Boards through Dec. 31, 2006. For
Mr. Carlson, aggregate compensation for fiscal periods through Dec. 31,
2006 was based initially on the total annual cash compensation,
including payments under the Qualified Retirement Plan, but for
Statement of Additional Information - Nov. 29, 2007 Page 168
purposes of this Table 32 was (1) estimated for each fund based on the
relative net assets of all funds for fiscal periods ending on or before
Dec. 31, 2006, and was (2) limited for each fund to compensation paid
by the fund subsequent to Jan. 1, 2006, accrued through the fund's
fiscal period end.
** Ms. Pryor ceased service as a member of the Boards, effective Jan. 11,
2007. Mr. Simpson retired as a member of the Boards, effective Sept.
14, 2006.
*** Funds-of-Funds do not pay additional compensation to the Board members
for attending meetings. Compensation is paid directly from the
underlying funds in which each Fund-of-Funds invests.
(a) For the period from June 15, 2006 (when the Fund became available) to
Oct. 31, 2006.
(b) For the period from May 18, 2006 (when shares became publicly
available) to Oct. 31, 2006.
(c) For the period from Feb. 16, 2006 (when shares became publicly
available) to Oct. 31, 2006.
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:
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENT- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) AGE than 25%)
- -----------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- -----------------------------------------------------------------------------------------
Portfolio Builder Ameriprise Financial, Inc. Class R4 15.94% --
Aggressive (Ameriprise Financial),
Minneapolis, MN
----------------------------------------------------------------------
Charles Schwab & Co., Inc. Class R4 84.06% --
(Charles Schwab), a brokerage
firm in San Francisco, CA
- -----------------------------------------------------------------------------------------
Portfolio Builder Ameriprise Financial Class R4 43.56% --
----------------------------------------------------------------------
Conservative
Charles Schwab Class R4 56.44% --
- -----------------------------------------------------------------------------------------
Portfolio Builder Ameriprise Financial Class R4 16.17% --
----------------------------------------------------------------------
Moderate
Charles Schwab Class R4 83.83% --
- -----------------------------------------------------------------------------------------
Portfolio Builder Charles Schwab Class R4 98.26% --
Moderate
Aggressive
- -----------------------------------------------------------------------------------------
Portfolio Builder Ameriprise Financial Class R4 38.24% --
----------------------------------------------------------------------
Moderate
Conservative
Charles Schwab Class R4 61.76% --
- -----------------------------------------------------------------------------------------
Portfolio Builder Ameriprise Financial Class R4 6.45% --
----------------------------------------------------------------------
Total Equity
Charles Schwab Class R4 93.55% --
- -----------------------------------------------------------------------------------------
S&P 500 Index Ameriprise Trust Company, Class E 83.30% --
Minneapolis, MN
----------------------------------------------------------------------
Charles Schwab Class D 100.00% --
--------------------------------
Class E 16.48%
- -----------------------------------------------------------------------------------------
Small Company Ameriprise Trust Company Class R4 84.96% --
Index
----------------------------------------------------------------------
Charles Schwab Class A 9.37% --
----------------------------------------------------------------------
GWFS Equities Inc. (GWFS Equities), Class R4 10.44% --
Greenwood Village, CO
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 169
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- -----------------------------------------------------------------------------------------
Equity Value Ameriprise Financial Class I 100.00% --
--------------------------------
Class R2 100.00%
--------------------------------
Class R3 100.00%
--------------------------------
Class R5 100.00%
--------------------------------
Class W 100.00%
----------------------------------------------------------------------
Charles Schwab Class A 7.79% --
----------------------------------------------------------------------
John C. Mullarkey, Willowbrook, IL Class C 6.84% --
----------------------------------------------------------------------
Wachovia Bank NA (Wachovia Bank), Class R4 98.72% --
Charlotte, NC
- -----------------------------------------------------------------------------------------
Precious Metals Ameriprise Financial Class I 100.00% --
and Mining
----------------------------------------------------------------------
Charles Schwab Class A 14.66% --
Class R4 97.96% --
----------------------------------------------------------------------
John E. Bridgman, Minneapolis, MN Class C 7.77% --
----------------------------------------------------------------------
Richard L. Venable and Susan Angela Class C 9.25% --
Venable, Argyle, TX
- -----------------------------------------------------------------------------------------
Small Cap Ameriprise Financial Class I 100.00% --
Advantage
--------------------------------
Class R2 100.00%
--------------------------------
Class R3 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Charles Schwab Class A 13.39% --
--------------------------------
Class R4 99.11%
- -----------------------------------------------------------------------------------------
Small Cap Growth Ameriprise Financial Class R2 100.00% --
--------------------------------
Class R3 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Charles Schwab Class A 13.12% --
--------------------------------
Class R4 35.72%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.55% --
----------------------------------------------------------------------
Portfolio Builder Conservative Fund Class I 5.20% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.22% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.25% --
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 21.36% --
----------------------------------------------------------------------
Wachovia Bank Class R4 63.59% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 170
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- -----------------------------------------------------------------------------------------
Retirement Plus Ameriprise Financial Class R2 100.00% --
2010
--------------------------------
Class R3 100.00%
--------------------------------
Class R4 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Charles Schwab Class A 36.67% --
----------------------------------------------------------------------
Wachovia Bank Class Y 98.80% --
----------------------------------------------------------------------
Delbert K and Helen R Havercroft, Class A 14.84% --
Hutchinson, KS
----------------------------------------------------------------------
Charles B. Mark, Kihei, HI Class A 6.16% --
----------------------------------------------------------------------
Nathaniel and Jonnie Jackson, Class A 6.13% --
Toledo, OH
- -----------------------------------------------------------------------------------------
Retirement Plus Ameriprise Financial Class R2 100.00% --
2015
--------------------------------
Class R3 100.00%
--------------------------------
Class R4 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Charles Schwab Class A 7.79% --
----------------------------------------------------------------------
Wachovia Bank Class Y 99.14% --
----------------------------------------------------------------------
Jack R. and Virginia L. Nelson, Class A 11.27% --
Rapid City, SD
----------------------------------------------------------------------
Stephen W. and Denise R. Hatt, Class A 8.26% --
Fredericksburg, VA
----------------------------------------------------------------------
Robert and Pamela R. D'Agostino, Class A 7.81% --
Canton, MA
----------------------------------------------------------------------
Sherellee F. Medlock, Desoto, TX Class A 7.80% --
- -----------------------------------------------------------------------------------------
Retirement Plus Ameriprise Financial Class R2 100.00% --
2020
--------------------------------
Class R3 100.00%
--------------------------------
Class R4 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Wachovia Bank Class Y 99.43% --
----------------------------------------------------------------------
John C. Burowski, Suffern, NY Class A 8.42% --
----------------------------------------------------------------------
William R. and Tina L. Oliver, Las Class A 7.06% --
Vegas, NV
----------------------------------------------------------------------
Lisa J. and Cecil B. Mc Adams, Class A 6.97% --
Tallahassee, FL
----------------------------------------------------------------------
Keith J. Newmark, Coral Springs, FL Class A 5.83% --
- -----------------------------------------------------------------------------------------
Retirement Plus Ameriprise Financial Class R2 100.00% --
2025
--------------------------------
Class R3 100.00%
--------------------------------
Class R4 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Wachovia Bank Class Y 99.42% --
----------------------------------------------------------------------
Darryl Roberts, Toledo, OH Class A 9.08% --
----------------------------------------------------------------------
Kevin S. Vincent, Hillsboro, OR Class A 7.93% --
----------------------------------------------------------------------
Denise A. Spring, Peoria, IL Class A 7.17% --
----------------------------------------------------------------------
William D. Pullins, Hot Springs, SD Class A 5.24% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 171
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Retirement Plus Ameriprise Financial Class R2 100.00% --
2030
--------------------------------
Class R3 100.00%
--------------------------------
Class R4 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Wachovia Bank Class Y 99.39% --
----------------------------------------------------------------------
Stephen T. and Teresa T. Bockian, Class A 10.04% --
Orlando, FL
----------------------------------------------------------------------
Troy and Sandy Farrington, Riverton, Class A 9.70% --
UT
- -----------------------------------------------------------------------------------------
Retirement Plus Ameriprise Financial Class R2 100.00% --
2035
--------------------------------
Class R3 100.00%
--------------------------------
Class R4 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Wachovia Bank Class Y 98.39% --
----------------------------------------------------------------------
Richard and Stefanie A. Nelson, Hot Class A 14.50% --
Springs, SD
----------------------------------------------------------------------
William F. and Kathleen Truscott, Class A 11.81% --
Marblehead, MA
----------------------------------------------------------------------
Paul S. Mumma, St. Louis Park, MN Class A 6.05% --
----------------------------------------------------------------------
Eric J. and Christine X. Dawson, Class A 5.67% --
Spring Lake, MI
- -----------------------------------------------------------------------------------------
Retirement Plus Ameriprise Financial Class R2 100.00% --
2040
--------------------------------
Class R3 100.00%
--------------------------------
Class R4 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Wachovia Bank Class Y 99.20% --
----------------------------------------------------------------------
Larry R. Shum, Shanandoah, IA Class A 7.11% --
----------------------------------------------------------------------
Richard and Stefanie A. Nelson, Hot Class A 5.85% --
Springs, SD
----------------------------------------------------------------------
Yi Chen, Glen Allen, VA Class A 5.11% --
- -----------------------------------------------------------------------------------------
Retirement Plus Ameriprise Financial Class R2 100.00% --
2045
--------------------------------
Class R3 100.00%
--------------------------------
Class R4 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Wachovia Bank Class Y 95.71% --
----------------------------------------------------------------------
Troy M. Brueggemeier, Class A 9.00% --
St. Louis Park, MN
----------------------------------------------------------------------
Anthony D. And Rebecca-Heizer Class A 6.26% --
Marken, Lexington, MA
----------------------------------------------------------------------
Colby L. Morrow, Fresno, CA Class A 5.84% --
----------------------------------------------------------------------
Anna Marcus, New York, NY Class A 5.60% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 172
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING MAY 31
- -----------------------------------------------------------------------------------------
Aggressive Growth Ameriprise Financial Class R2 100.00% --
--------------------------------
Class R3 100.00%
--------------------------------
Class R4 24.74%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Charles Schwab Class R4 75.26% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.55% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.31% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.23% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.24% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 21.23% --
- -----------------------------------------------------------------------------------------
Fundamental Growth Ameriprise Financial Class R4 29.26% 89.30%(b)
----------------------------------------------------------------------
Charles Schwab Class A 5.31% --
--------------------------------
Class R4 70.74%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.72% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 19.95% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.44% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.11% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 21.47% --
----------------------------------------------------------------------
Taylor Ambe-Crain Partnership, Class C 25.77% --
Westlake Vlg, CA
- -----------------------------------------------------------------------------------------
Fundamental Value Charles Schwab Class A 15.19% --
--------------------------------
Class R4 98.51%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.56% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.36% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.21% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.26% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 21.20% --
- -----------------------------------------------------------------------------------------
High Yield Bond Ameriprise Financial Class R2 100.00% --
--------------------------------
Class R3 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
American Enterprise Investment Class W 99.99% --
Services Inc.
Minneapolis, MN
----------------------------------------------------------------------
Charles Schwab Class A 10.83% --
--------------------------------
Class R4 47.70%
----------------------------------------------------------------------
GWFS Equities Class R4 52.04% --
----------------------------------------------------------------------
Income Builder Basic Income Class I 7.38% --
----------------------------------------------------------------------
Income Builder Enhanced Income Class I 58.35% --
----------------------------------------------------------------------
Income Builder Moderate Income Class I 31.36% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 173
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Income Builder Ameriprise Financial Class R2 10.10% --
Basic Income
----------------------------------------------------------------------
Charles Schwab Class A 39.43% --
--------------------------------
Class R4 89.90%
- -----------------------------------------------------------------------------------------
Income Builder Ameriprise Financial Class R4 18.32% --
Enhanced Income
----------------------------------------------------------------------
Charles Schwab Class A 43.43% --
--------------------------------
Class R4 81.68%
- -----------------------------------------------------------------------------------------
Income Builder Ameriprise Financial Class R4 48.68% --
Moderate Income
----------------------------------------------------------------------
Charles Schwab Class A 43.69% --
--------------------------------
Class R4 51.32% --
- -----------------------------------------------------------------------------------------
Select Value Ameriprise Financial Class R4 14.82% --
----------------------------------------------------------------------
Charles Schwab Class A 8.60% --
--------------------------------
Class R4 85.18%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.66% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.54% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 31.91% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.28% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 21.20% --
- -----------------------------------------------------------------------------------------
Short Duration Ameriprise Financial Class W 100.00% --
U.S. Govt.
----------------------------------------------------------------------
Charles Schwab Class A 8.70% --
----------------------------------------------------------------------
GWFS Equities Inc. Class R4 15.27% --
Greenwood Village, CO
----------------------------------------------------------------------
Portfolio Builder Conservative Fund Class I 31.30% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 36.58% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.10% --
Conservative Fund
----------------------------------------------------------------------
Wachovia Bank Class R4 81.70% --
- -----------------------------------------------------------------------------------------
Small Cap Equity Ameriprise Financial Class I 100.00% --
----------------------------------------------------------------------
Charles Schwab Class A 9.07% --
--------------------------------
Class R4 12.33%
----------------------------------------------------------------------
Wachovia Bank Class R4 87.34% --
- -----------------------------------------------------------------------------------------
Small Cap Value Ameriprise Financial Class R2 100.00% --
--------------------------------
Class R3 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Charles Schwab Class A 19.14% --
--------------------------------
Class R4 96.23%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.56% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.15% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.35% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.29% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 21.20% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 174
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
U.S. Government Charles Schwab Class A 18.36% --
Mortgage
----------------------------------------------------------------------
Income Builder Basic Income Class I 36.82% 52.41%(b)
----------------------------------------------------------------------
Income Builder Enhanced Income Class I 8.18% --
----------------------------------------------------------------------
Income Builder Moderate Income Class I 55.00% --
----------------------------------------------------------------------
Wells Fargo Bank, Minneapolis, MN Class R4 99.89% --
- -----------------------------------------------------------------------------------------
Value Ameriprise Financial Class R4 8.78% --
----------------------------------------------------------------------
Charles Schwab Class A 11.58% --
--------------------------------
Class R4 91.22%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.57% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.39% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.19% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.28% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 21.17% --
- -----------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- -----------------------------------------------------------------------------------------
Dividend Ameriprise Financial Class W 100.00% --
Opportunity
----------------------------------------------------------------------
Charles Schwab Class A 23.55%
--------------------------------
Class R4 100.00% --
----------------------------------------------------------------------
Income Builder Basic Income Class I 10.47% --
----------------------------------------------------------------------
Income Builder Enhanced Income Class I 21.32% --
----------------------------------------------------------------------
Income Builder Moderate Income Class I 36.57% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 6.24% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 6.30% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 10.10% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 7.04% --
- -----------------------------------------------------------------------------------------
Real Estate Ameriprise Financial Class R4 8.28% 38.09%(b)
--------------------------------
Class W 100.00%
----------------------------------------------------------------------
Charles Schwab Class A 16.35% --
--------------------------------
Class R4 91.72%
----------------------------------------------------------------------
Income Builder Basic Income Class I 6.22% --
----------------------------------------------------------------------
Income Builder Enhanced Income Class I 13.76% --
----------------------------------------------------------------------
Income Builder Moderate Income Class I 17.20% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 10.56% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 17.24% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 21.14% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 9.77% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 175
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- -----------------------------------------------------------------------------------------
Cash Management Ameriprise Financial Class R5 100.00% --
----------------------------------------------------------------------
American Enterprise Investment Class W 99.99% --
Services Inc.
----------------------------------------------------------------------
Income Builder Basic Income Class I 41.56% --
----------------------------------------------------------------------
Income Builder Moderate Income Class I 13.61% --
----------------------------------------------------------------------
Portfolio Builder Conservative Fund Class I 14.03% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 15.48% --
Conservative Fund
----------------------------------------------------------------------
Stanson Nimiroski, Branford, CT Class C 7.31% --
----------------------------------------------------------------------
Wachovia Bank Class Y 95.15% --
- -----------------------------------------------------------------------------------------
Core Bond Ameriprise Financial Class R2 100.00% 83.63%(b)
--------------------------------
Class R3 100.00%
--------------------------------
Class R5 100.00%
--------------------------------
Class W 100.00%
----------------------------------------------------------------------
RiverSource Life Insurance Company Class R4 99.96% --
----------------------------------------------------------------------
Charles Schwab Class A 12.77% --
----------------------------------------------------------------------
Frank S. Gregory, Derry, NH Class C 6.27% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 9.25% --
----------------------------------------------------------------------
Portfolio Builder Conservative Fund Class I 10.53% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 39.61% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 26.12% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 14.49% --
Conservative Fund
- -----------------------------------------------------------------------------------------
Disciplined Equity Ameriprise Financial Class R2 100.00% --
--------------------------------
Class R3 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
American Enterprise Investment Class W 99.99% --
Services Inc.
----------------------------------------------------------------------
Income Builder Basic Income Class I 6.17% --
----------------------------------------------------------------------
Income Builder Moderate Income Class I 13.86% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 9.05% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 9.16% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 14.57% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 10.17% --
----------------------------------------------------------------------
Retirement Plus Fund 2020 Class I 5.29% --
----------------------------------------------------------------------
Retirement Plus Fund 2025 Class I 5.24% --
----------------------------------------------------------------------
Retirement Plus Fund 2030 Class I 5.12% --
----------------------------------------------------------------------
Wachovia Bank Class R4 99.69% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 176
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Disciplined Small Ameriprise Financial Class A 50.89% 52.21%(b)
and
Mid Cap Equity
--------------------------------
Class C 5.54%
--------------------------------
Class R4 67.87%
----------------------------------------------------------------------
American Enterprise Investment Class W 99.99% --
Services Inc.
----------------------------------------------------------------------
Charles Schwab Class A 11.08% --
--------------------------------
Class R4 32.13%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 10.94% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 11.16% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 17.54% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 12.27% --
----------------------------------------------------------------------
Retirement Plus Fund 2020 Class I 7.86% --
----------------------------------------------------------------------
Retirement Plus Fund 2025 Class I 8.56% --
----------------------------------------------------------------------
Retirement Plus Fund 2030 Class I 8.40% --
----------------------------------------------------------------------
Retirement Plus Fund 2040 Class I 6.22% --
----------------------------------------------------------------------
Deanna L. Rose, Punta Gorda, FL Class C 9.54% --
----------------------------------------------------------------------
William E. and MaryLou K. Carroll, Class C 8.20% --
Punta Gorda, FL
----------------------------------------------------------------------
Contemporary Gardens, Honolulu, HI Class C 6.43% --
----------------------------------------------------------------------
Mary Ruth Neal, Sacramento, CA Class C 6.05% --
----------------------------------------------------------------------
Don M. and Barbara A. Warner, Class C 5.68% --
Fair Oaks, CA
----------------------------------------------------------------------
Claude V. and Julianna K. Neighbors, Class C 5.48% --
Lynchburg, VA
----------------------------------------------------------------------
Kenneth E. and Elaine M. Jacobsen, Class C 5.45% --
Madison, SD
----------------------------------------------------------------------
Heidi and Norbert Schuchbauer, Class C 5.00% --
Fair Oaks, CA
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 177
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Disciplined Small Ameriprise Financial Class A 73.83% 89.88%(b)
Cap Value
--------------------------------
Class C 14.89%
--------------------------------
Class R2 100.00%
--------------------------------
Class R3 100.00%
--------------------------------
Class R4 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
David G. and Sharon M. Michaud, Class B 7.49% --
Gorham, ME
----------------------------------------------------------------------
Joanne and David J. Thorpe, Class B 7.05% --
Lakeville, MA
----------------------------------------------------------------------
David J. Heck, Clermont, FL Class B 6.72% --
----------------------------------------------------------------------
Keith and Sandra Crowell, Class C 30.65% --
Huntersville, NC
----------------------------------------------------------------------
Dale T. and Jennie I. Metzgar, Class C 15.84% --
Shavertown, PA
----------------------------------------------------------------------
Ronald E. and Linda F. Dearing, Class C 11.35% --
Fort Wayne, IN
----------------------------------------------------------------------
Douglas E. and Cynthia A. Thompson, Class C 10.91% --
Churubusco, IN
----------------------------------------------------------------------
Robert and Lynn M. Schuster, Class C 6.88% --
Richardson, TX
----------------------------------------------------------------------
Robert W. and Wanda J. Jordan, Class C 6.71% --
Beverly Hills, MI
----------------------------------------------------------------------
Income Builder Basic Income Class I 29.69% --
----------------------------------------------------------------------
Income Builder Enhanced Income Class I 31.02% --
----------------------------------------------------------------------
Income Builder Moderate Income Class I 39.25% --
- -----------------------------------------------------------------------------------------
Floating Rate Ameriprise Financial Class W 100.00% 28.27%(b)
----------------------------------------------------------------------
Charles Schwab Class A 55.60% --
--------------------------------
Class R4 96.93%
----------------------------------------------------------------------
Income Builder Basic Income Class I 8.06% --
----------------------------------------------------------------------
Income Builder Enhanced Income Class I 37.18% --
----------------------------------------------------------------------
Income Builder Moderate Income Class I 52.66% --
- -----------------------------------------------------------------------------------------
Growth Ameriprise Financial Class R2 100.00% --
--------------------------------
Class R3 100.00%
--------------------------------
Class R5 100.00%
--------------------------------
Class W 100.00%
----------------------------------------------------------------------
Charles Schwab Class A 9.00% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.72% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 19.97% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 31.81% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.09% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 22.16% --
----------------------------------------------------------------------
Wachovia Bank Class R4 47.89% --
----------------------------------------------------------------------
Ameriprise Trust Company Class R4 43.02% --
----------------------------------------------------------------------
New York Life Trust Company Class R4 5.67% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 178
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Income Charles Schwab Class A 17.46% --
Opportunities
--------------------------------
Class R4 93.49%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 11.18% 28.33%(b)
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 59.65% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 24.81% --
Aggressive Fund
----------------------------------------------------------------------
RiverSource Life Insurance Company Class R4 6.51% --
- -----------------------------------------------------------------------------------------
Inflation Ameriprise Financial Class W 100.00% 78.59%(b)
Protected
Securities
----------------------------------------------------------------------
RiverSource Life Insurance Company Class R4 65.66% --
----------------------------------------------------------------------
Charles Schwab Class A 19.90% --
--------------------------------
Class R4 34.34%
----------------------------------------------------------------------
Mary and George Forsman, Class C 5.23% --
Minneapolis, MN
----------------------------------------------------------------------
Income Builder Moderate Income Class I 6.36% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 9.90% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 30.84% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 36.64% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 8.38% --
Conservative Fund
- -----------------------------------------------------------------------------------------
Large Cap Equity Ameriprise Financial Class R2 100.00% --
--------------------------------
Class R3 100.00%
----------------------------------------------------------------------
The Bank of New York Class R5 99.98% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.71% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.04% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 31.71% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.09% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 22.19% --
----------------------------------------------------------------------
Wachovia Bank Class R4 99.89% --
- -----------------------------------------------------------------------------------------
Large Cap Value Ameriprise Financial Class R2 100.00% --
--------------------------------
Class R3 100.00%
--------------------------------
Class R4 30.36%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Charles Schwab Class A 12.75% --
--------------------------------
Class R4 69.64%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.56% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 19.96% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 31.92% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.16% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 22.11% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 179
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Limited Duration Ameriprise Financial Class W 12.19% 52.48%(b)
Bond
----------------------------------------------------------------------
American Enterprise Investment Class W 87.81% --
Services Inc.
----------------------------------------------------------------------
RiverSource Life Insurance Company Class R4 100.00% --
----------------------------------------------------------------------
Charles Schwab Class A 18.56% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 60.09% --
----------------------------------------------------------------------
Portfolio Builder Conservative Fund Class I 39.90% --
----------------------------------------------------------------------
John W. and Cecelia E. Kramar, Class C 17.08% --
Hacienda Heights, CA
----------------------------------------------------------------------
Mary Loretta Jacobsmeyer, Riverside, Class C 8.07% --
CA
----------------------------------------------------------------------
Michael N. Stanley, Palm Springs, CA Class C 7.88% --
----------------------------------------------------------------------
Rita R. and Lawrence E. Dale, Class C 6.52% --
Barstow, CA
----------------------------------------------------------------------
John B. Mudd, Riverside, CA Class C 5.00% --
- -----------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- -----------------------------------------------------------------------------------------
California Tax- Linda A. Wochnik, Sierra Madre, CA Class B 10.88% --
Exempt
----------------------------------------------------------------------
Wells Fargo Bank Class C 7.91% --
----------------------------------------------------------------------
Robert P. and Diane E. Minger, Class C 6.03% --
Huntley, IL
----------------------------------------------------------------------
Yu Chuan Chen, Tyan Yue Hwu and Class C 5.88% --
Vanessa Hwu, Walnut, CA
- -----------------------------------------------------------------------------------------
Diversified Bond Ameriprise Financial Class R2 100.00% --
--------------------
Class R3 100.00%
--------------------
Class R5 100.00%
----------------------------------------------------------------------
American Enterprise Investment Class W 99.99% --
Services Inc.
----------------------------------------------------------------------
Charles Schwab Class A 6.99% --
----------------------------------------------------------------------
GWFS Equities Class R4 5.01% --
----------------------------------------------------------------------
Income Builder Moderate Income Fund Class I 7.35% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 8.27% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 38.13% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 28.74% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 10.16% --
Conservative Fund
----------------------------------------------------------------------
Wacovia Bank Class R4 93.57% --
- -----------------------------------------------------------------------------------------
Massachusetts Tax- Charles Schwab Class A 5.76% --
Exempt
----------------------------------------------------------------------
June P. Venette and Norman E. Class C 21.79% --
Venette, Orange, MA
----------------------------------------------------------------------
Kevin H. and Nancy A. Aiken, Athol, Class C 9.74% --
MA
----------------------------------------------------------------------
Charles M. and Carol A. Breau, Class C 9.13% --
Clinton, MA
----------------------------------------------------------------------
Alphonse A. Di Nardo and Linda Di Class C 6.64% --
Nardo, Leominster, MA
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 180
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Michigan Tax- Ann Marie and Harley R. Arnold, Class B 8.09% --
Exempt Barton City, MI
----------------------------------------------------------------------
Nancy J. Anderson, Iron River, MI Class B 6.85% --
----------------------------------------------------------------------
Elizabeth L. and Dennis P. Sexton, Class B 5.41% --
Benton Harbor, MI
----------------------------------------------------------------------
Orva Lee and Jean E. Ice, Sterling Class B 5.31% --
Hts., MI
----------------------------------------------------------------------
Chester V. and Rose M. Mysliwiec, Class B 5.27% --
Grand Rapids, MI
----------------------------------------------------------------------
Francis D. and Isabel S. Kinser, Class C 8.00% --
Waterford, MI
----------------------------------------------------------------------
Carl L. and Marian A. Beaver, Riga, Class C 7.68% --
MI
----------------------------------------------------------------------
Lorne R. and Vivian T. Trainor, Class C 7.35% --
Erie, MI
----------------------------------------------------------------------
Barry J. Fishman and Teresa A. Class C 6.22% --
McMahon, Cambridge, MA
- -----------------------------------------------------------------------------------------
Minnesota Tax- None None N/A --
Exempt
- -----------------------------------------------------------------------------------------
New York Tax- Charles Schwab Class A 7.81% --
Exempt
----------------------------------------------------------------------
Joan Sabbatini, E. Northport, NY Class B 6.27% --
----------------------------------------------------------------------
Ena S. Ryan, Brooklyn, NY Class C 7.69% --
----------------------------------------------------------------------
Ottoviano Asarese, Buffalo, NY Class C 5.34% --
----------------------------------------------------------------------
Arthur and Sandra Ezersky, Woodbury, Class C 5.29% --
NY
- -----------------------------------------------------------------------------------------
Ohio Tax-Exempt Clarence J. and Nancy J. Varhol, Class B 6.00% --
Euclid, OH
----------------------------------------------------------------------
Richard L. Sears, Parma, OH Class C 12.76% --
----------------------------------------------------------------------
George and Ophelia M. Hill, Class C 8.39% --
Cincinnati, OH
----------------------------------------------------------------------
Randall J. Hohman, Tiffin, OH Class C 6.48% --
- -----------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- -----------------------------------------------------------------------------------------
Balanced Wacovia Bank Class R4 99.81% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 181
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Disciplined Large Charles Schwab Class A 36.15% --
Cap Growth
----------------------------------------------------------------------
Joyce S. Tsuji and Laurence Lance, Class B 8.39% --
Renton, WA
----------------------------------------------------------------------
Fred A. and Christine F. Fox, Class B 6.71% --
Clarkston, MI
----------------------------------------------------------------------
Neocles G. and Karen S. Class B 5.47% --
Athanasiades,
East Setauket, NY
----------------------------------------------------------------------
Michael L. and Melissa M. Gunderson, Class C 28.22% --
Marschall, MN
----------------------------------------------------------------------
Robert M. and Patricia A. Smith, Class C 19.30% --
Camarillo, CA
----------------------------------------------------------------------
Paul L. and Denise B. Powell, North Class C 13.14% --
Hampton, NH
----------------------------------------------------------------------
Marilyn S. and Thomas S. Araki, Class C 7.17% --
Wailuku, HI
----------------------------------------------------------------------
Robert L. Veeneman, Sarasota, FL Class C 5.13% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.35% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 19.96% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 31.39% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.10% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 21.89% --
----------------------------------------------------------------------
Ameriprise Financial Class C 27.04% 95.01%
--------------------
Class R2 100.00%
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
- -----------------------------------------------------------------------------------------
Diversified Equity Charles Schwab Class A 26.75% --
Income
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.61% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.13% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 31.66% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.15% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 22.18% --
----------------------------------------------------------------------
Hartford Life Insurance Company Class R2 89.67% --
(Hartford Life), Weatogue, CT
----------------------------------------------------------------------
GWFS Equities Class R2 7.71% --
Class R3 97.47%
Class R5 16.22%
----------------------------------------------------------------------
Wacovia Bank Class R4 47.97% --
----------------------------------------------------------------------
Wells Fargo Bank Class R4 31.13% --
----------------------------------------------------------------------
American Century Investments, Kansas Class R4 5.28% --
City, MO
----------------------------------------------------------------------
Ameriprise Trust Company Class R5 84.09% --
----------------------------------------------------------------------
Ameriprise Financial Class W 100.00% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 182
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Mid Cap Value Charles Schwab Class A 39.47% --
----------------------------------------------------------------------
First Clearing L.L.C., Glen Allen, Class C 7.09% --
VA
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.51% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.11% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 31.78% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.20% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 22.12% --
----------------------------------------------------------------------
Hartford Life Class R2 98.90% --
----------------------------------------------------------------------
JP Morgan Chase Bank, Kansas City, Class R3 37.46% --
MO
----------------------------------------------------------------------
Hartford Securities, Hartford, CT Class R3 29.81% --
----------------------------------------------------------------------
GWFS Equities Class R3 27.61% --
----------------------------------------------------------------------
Wacovia Bank Class R4 39.95% --
----------------------------------------------------------------------
John Hancock Life Insurance Company, Class R4 31.22% --
Buffalo, NY
----------------------------------------------------------------------
ING Life Insurance and Annuity, Class R4 13.53% --
Hartford, CT
----------------------------------------------------------------------
National Financial Services Corp., Class R4 6.03% --
New York, NY
----------------------------------------------------------------------
Matrix Capital Bank, Denver, CO Class R5 90.25% --
----------------------------------------------------------------------
Securian Financial Services, St. Class R5 9.41% --
Paul, MN
- -----------------------------------------------------------------------------------------
Strategic Charles Schwab Class A 14.68% --
Allocation
----------------------------------------------------------------------
Ameriprise Financial Class I 100.00% --
--------------------------------
Class R2 100.00%
--------------------------------
Class R3 100.00%
--------------------------------
Class R5 100.00%
----------------------------------------------------------------------
Wacovia Bank Class R4 78.72% --
----------------------------------------------------------------------
Charles Schwab Class R4 21.28% --
--------------------------------
- -----------------------------------------------------------------------------------------
Strategic Income Ameriprise Financial Class A 39.42% 36.02%
Allocation
----------------------------------------------------------------------
Charles Schwab Class A 22.87% --
- -----------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- -----------------------------------------------------------------------------------------
Absolute Return Ameriprise Financial Class A 100.00% 100.00%-
Currency (b)
and Income
--------------------------------
Class B 100.00%
--------------------------------
Class C 100.00%
--------------------------------
Class R4 100.00%
----------------------------------------------------------------------
Income Builder Enhanced Income Fund Class I 8.84% --
----------------------------------------------------------------------
Income Builder Moderate Income Fund Class I 10.20% --
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 13.09% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 26.60% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 21.28% --
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 11.73% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 183
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Disciplined Ameriprise Financial Class A 85.29% 97.48%(b)
International
Equity
--------------------------------
Class C 25.45%
--------------------------------
Class R4 49.24%
----------------------------------------------------------------------
Charles Schwab Class R4 50.76% --
----------------------------------------------------------------------
Income Builder Basic Income Fund Class I 10.12% --
----------------------------------------------------------------------
Income Builder Enhanced Income Fund Class I 24.75% --
----------------------------------------------------------------------
Income Builder Moderate Income Fund Class I 23.18% --
----------------------------------------------------------------------
Retirement Plus 2020 Fund Class I 7.61% --
----------------------------------------------------------------------
Retirement Plus 2025 Fund Class I 5.98% --
----------------------------------------------------------------------
Retirement Plus 2030 Fund Class I 6.99% --
----------------------------------------------------------------------
Retirement Plus 2040 Fund Class I 7.94% --
----------------------------------------------------------------------
Corine and Cornelius Armstrong, Class C 7.17% --
Chicago, IL
----------------------------------------------------------------------
Michelle, Aaron and Joshua Flanery, Class C 23.66% --
Roseville, CA
----------------------------------------------------------------------
Jon L. and Patricia M. Worthing, Class C 35.34% --
Santa Clarita, CA
----------------------------------------------------------------------
Diana T. and Murray R. Johnson, Class B 8.26% --
La Grange, IL
----------------------------------------------------------------------
Betty C. Russell, Orlando, FL Class B 7.93% --
----------------------------------------------------------------------
Timothy and Gayle a. Callahan, Class B 6.70% --
Liberty Township, OH
----------------------------------------------------------------------
Lois and Harvey Retzloff, Chicago, Class B 5.86% --
IL
----------------------------------------------------------------------
Drew R. and Madelyn H. Miller, Class B 5.68% --
Bloomsburg, PA
----------------------------------------------------------------------
Audree J. Schmidt, Stockton, CA Class B 5.37% --
----------------------------------------------------------------------
Byron G. Lee and Audrey Y. Williams- Class B 5.15% --
Lee,
Oak Park, IL
- -----------------------------------------------------------------------------------------
Emerging Markets Ameriprise Trust Company Class R4 78.55% --
----------------------------------------------------------------------
Charles Schwab Class A 14.93% --
--------------------------------
Class R4 21.45%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.94% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.32% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 33.06% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Conservative Fund Class I 5.51% --
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 21.13% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 184
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Emerging Markets Ameriprise Financial Class A 84.83% 95.94%(b)
Bond
--------------------------------
Class C 19.61%
--------------------------------
Class R4 70.59%
----------------------------------------------------------------------
Richard J. and Rita A Barse, Class B 9.41% --
New Haven, CT
----------------------------------------------------------------------
Paul F. and Maureen M. Bultinck, Class B 5.38% --
Mishawaka, IN
----------------------------------------------------------------------
Kimberly S. and Scott E. Duerr, Class C 14.41% --
Sulphur Springs, TX
----------------------------------------------------------------------
Wesley W. Smith, Houston, TX Class C 13.49% --
----------------------------------------------------------------------
Jane A. O'Rourke and Frank K. Class C 11.94% --
O'Hara,
Hallowell, ME
----------------------------------------------------------------------
Terry I. and Valerie G. Hansen, Class C 11.90% --
Midvale, UT
----------------------------------------------------------------------
Carl J. and Ruth E. Allrich, Class C 11.47% --
St. Charles, MO
----------------------------------------------------------------------
Michael and Lisa Fischer, Class C 10.21% --
Fremont, CA
----------------------------------------------------------------------
Income Builder Basic Income Fund Class I 12.60% --
----------------------------------------------------------------------
Income Builder Enhanced Income Fund Class I 36.16% --
----------------------------------------------------------------------
Income Builder Moderate Income Fund Class I 49.26% --
- -----------------------------------------------------------------------------------------
European Equity Ameriprise Financial Class I 100.00% --
--------------------------------
Class R4 50.90%
----------------------------------------------------------------------
Charles Schwab Class A 12.95% --
--------------------------------
Class R4 49.10%
----------------------------------------------------------------------
Marilyn O. Matthews Trust, Class C 7.79% --
Pasadena, CA
- -----------------------------------------------------------------------------------------
Global Bond Charles Schwab Class A 14.40% --
--------------------------------
Class R4 100.00%
----------------------------------------------------------------------
Income Builder Basic Income Fund Class I 6.37% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 32.49% 30.38%(b)
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 38.68% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 10.79% --
Conservative Fund
- -----------------------------------------------------------------------------------------
Global Equity Ameriprise Trust Company Class R4 85.55% --
----------------------------------------------------------------------
Charles Schwab Class A 14.01% --
----------------------------------------------------------------------
Met Life Class R4 9.33% --
- -----------------------------------------------------------------------------------------
Global Technology Ameriprise Financial Class I 100.00% --
----------------------------------------------------------------------
Ameriprise Trust Company Class R4 73.88% --
----------------------------------------------------------------------
Charles Schwab Class A 13.94% --
--------------------------------
Class R4 26.03%
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 185
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
International Charles Schwab Class A 13.83% --
Aggressive Growth
--------------------------------
Class R4 97.78%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.61% 25.69%
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.04% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.44% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.44% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 20.78% --
- -----------------------------------------------------------------------------------------
International Ameriprise Financial Class R4 7.78% 35.19%(b)
Equity
----------------------------------------------------------------------
Charles Schwab Class A 11.64% --
--------------------------------
Class R4 92.22%
----------------------------------------------------------------------
Daniel and Linda L. Miklovic, Class C 5.60% --
St. Louis, MO
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.58% --
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.07% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.43% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.43% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 20.78% --
- -----------------------------------------------------------------------------------------
International Charles Schwab Class A 13.36 --
Opportunity
--------------------------------
Class R4 77.43%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.60% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.46% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.43% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.03% --
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 20.79% --
----------------------------------------------------------------------
Met Life Class R4 22.57% --
- -----------------------------------------------------------------------------------------
International Charles Schwab Class A 21.33% --
Select Value
--------------------------------
Class R4 98.79%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.56% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.45% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.44% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.07% --
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 20.78% --
- -----------------------------------------------------------------------------------------
International Ameriprise Financial Class R4 18.27% --
Small Cap
----------------------------------------------------------------------
Charles Schwab Class A 16.46% --
--------------------------------
Class R4 81.73%
----------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 19.45% --
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 32.61% --
Aggressive Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Class I 5.34% --
Conservative Fund
----------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.07% --
----------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 20.74% --
</Table>
Statement of Additional Information - Nov. 29, 2007 Page 186
<Table>
<Caption>
PERCENT
FUND SHARES OF FUND
-------------------- (if
SHARE PERCENTA- greater
FUND SHAREHOLDER NAME, CITY AND STATE CLASS(A) GE than 25%)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- -----------------------------------------------------------------------------------------
Intermediate Tax- Charles Schwab Class A 9.90% --
Exempt
- -----------------------------------------------------------------------------------------
Mid Cap Growth Ameriprise Financial Class I 100.00% --
----------------------------------------------------------------------
Ameriprise Trust Company Class R4 56.81% --
----------------------------------------------------------------------
Charles Schwab Class A 5.29% --
----------------------------------------------------------------------
Charles Schwab Trust Company, Class R4 16.91% --
San Francisco, CA
----------------------------------------------------------------------
GWFS Equities, Class R4 24.73% --
- -----------------------------------------------------------------------------------------
Tax-Exempt Bond J. Hayley Stephens, Calhoun, GA Class C 6.73% --
- -----------------------------------------------------------------------------------------
Tax-Exempt High None -- -- --
Income
- -----------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- -----------------------------------------------------------------------------------------
Tax-Exempt Money None -- -- --
Market
- -----------------------------------------------------------------------------------------
</Table>
* As of the date of this SAI, the fund has not passed its first fiscal
year end, and therefore has no reporting information.
(a) Effective Dec. 11, 2006 Class Y was renamed Class R4.
(b) Combination of Ameriprise Financial initial capital and affiliated
funds-of-funds' investments in Class I shares.
A fund may serve as an underlying investment of funds-of-funds that principally
invest in shares of other RiverSource funds (the underlying funds). The
underlying funds and the funds-of-funds share the same officers, Board members,
and investment manager, RiverSource Investments. The funds-of-funds do not
invest in an underlying fund for the purpose of exercising management or
control; however, from time to time, investments by the funds-of-funds in a fund
may represent a significant portion of a fund. Because the funds-of-funds may
own a substantial portion of the shares of a fund, procedures have been put into
place to assure that public shareholders will determine the outcome of all
actions taken at underlying fund shareholder meetings. In proxy voting, the
funds-of-funds will vote on each proposal in the same proportion that other
shareholders vote on the proposal.
In addition, Ameriprise Financial or an affiliate may own shares of a fund as a
result of an initial capital investment at the inception of the fund or class.
To the extent RiverSource Investments, as manager of the funds-of-funds, may be
deemed a beneficial owner of the shares of an underlying fund held by the funds-
of-funds, and such shares, together with any initial capital investment by
Ameriprise Financial or an affiliate represent more than 25% of a fund,
RiverSource Investments and its affiliated companies may be deemed to control
the fund.
INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company mutual funds and
they purport to bring the action derivatively on behalf of those funds under the
Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid
to the defendants by the funds for investment advisory and administrative
services are excessive. The plaintiffs seek remedies including restitution and
rescission of investment advisory and distribution agreements. The plaintiffs
voluntarily agreed to transfer this case to the United States District Court for
the District of Minnesota. In response to defendant's motion to dismiss the
complaint, the Court dismissed one of plaintiffs' four claims and granted
plaintiffs limited discovery. Defendants moved for summary judgment in April
2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The
plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on
Aug. 8, 2007.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), the parent company of RiverSource Investments, LLC
(RiverSource Investments), entered into settlement agreements with the
Securities and Exchange Commission (SEC) and Minnesota Department of Commerce
(MDOC) related to market timing activities. In connection with these matters,
the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain
provisions of the federal and Minnesota securities
Statement of Additional Information - Nov. 29, 2007 Page 187
laws by failing to adequately disclose market timing activities by allowing
certain identified market timers to continue to market time contrary to
disclosures in mutual fund and variable annuity product prospectuses. The Orders
also alleged that AEFC failed to implement procedures to detect and prevent
market timing in 401(k) plans for employees of AEFC and related companies and
failed to adequately disclose that there were no such procedures. Pursuant to
the MDOC Order, the MDOC also alleged that AEFC allowed inappropriate market
timing to occur by failing to have written policies and procedures and failing
to properly supervise its employees.
As a result of the Orders, AEFC was censured and ordered to cease and desist
from committing or causing any violations of certain provisions of the
Investment Advisers Act of 1940, the Investment Company Act of 1940, and various
Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay
disgorgement of $10 million and civil money penalties of $7 million. AEFC also
agreed to make presentations at least annually to its board of directors and the
relevant mutual funds' board that include an overview of policies and procedures
to prevent market timing, material changes to these policies and procedures and
whether disclosures related to market timing are consistent with the SEC order
and federal securities laws. AEFC also agreed to retain an independent
distribution consultant to assist in developing a plan for distribution of all
disgorgement and civil penalties ordered by the SEC in accordance with various
undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In
addition, AEFC agreed to complete and submit to the MDOC a compliance review of
its procedures regarding market timing within one year of the MDOC Order,
including a summary of actions taken to ensure compliance with applicable laws
and regulations and certification by a senior officer regarding compliance and
supervisory procedures.
Ameriprise Financial and its affiliates have cooperated with the SEC and the
MDOC in these legal proceedings, and have made regular reports to the
RiverSource Funds' Boards of Directors/Trustees.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the ability of Ameriprise Financial or its affiliates to perform
under their contracts with the Funds, these proceedings are subject to
uncertainties and, as such, we are unable to estimate the possible loss or range
of loss that may result. An adverse outcome in one or more of these proceedings
could result in adverse judgments, settlements, fines, penalties or other relief
that could have a material adverse effect on the consolidated financial
condition or results of operations of Ameriprise Financial.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements for the fiscal year ended July 31, 2007 or later
contained in a fund's Annual Report were audited by the independent registered
public accounting firm, Ernst & Young LLP, 220 South 6th Street, Suite 1400,
Minneapolis, MN 55402. The information for periods ended on or before June 30,
2007 was audited by KPMG LLP. The independent registered public accounting firm
also provides other accounting and tax-related services as requested by the
fund.
Statement of Additional Information - Nov. 29, 2007 Page 188
APPENDIX A
DESCRIPTION OF RATINGS
STANDARD & POOR'S LONG-TERM DEBT RATINGS.
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
- Likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation.
- Nature of and provisions of the obligation.
- Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
INVESTMENT GRADE
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
Debt rated CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
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.
Statement of Additional Information - Nov. 29, 2007 A-1
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
MOODY'S LONG-TERM DEBT RATINGS
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements - their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH'S LONG-TERM DEBT RATINGS
Fitch's bond ratings provide a guide to investors in determining the credit risk
associated with a particular security. The ratings represent Fitch's assessment
of the issuer's ability to meet the obligations of a specific debt issue in a
timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Fitch ratings are not recommendations to buy, sell or hold any security. Ratings
do not comment on the adequacy of market price, the suitability of any security
for a particular investor, or the tax-exempt nature of taxability of payments
made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
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.
Statement of Additional Information - Nov. 29, 2007 A-2
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
SPECULATIVE GRADE
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
SHORT-TERM RATINGS
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
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.
Statement of Additional Information - Nov. 29, 2007 A-3
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to possess
very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3 Speculative capacity to pay principal and interest.
Municipal bond rating symbols and definitions are as follows:
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.
MOODY'S SHORT-TERM RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics: (i) leading market
positions in well-established industries, (ii) high rates of return on funds
employed, (iii) conservative capitalization structure with moderate reliance on
debt and ample asset protection, (iv) broad margins in earnings coverage of
fixed financial charges and high internal cash generation, and (v) well
established access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above, but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
MOODY'S SHORT-TERM MUNI BONDS AND NOTES
Short-term municipal bonds and notes are rated by Moody's. The ratings reflect
the liquidity concerns and market access risks unique to notes.
Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Moody's MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded as
required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
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
Statement of Additional Information - Nov. 29, 2007 A-4
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 - Nov. 29, 2007 A-5
APPENDIX B
STATE TAX-EXEMPT FUNDS
STATE RISK FACTORS
California Tax-Exempt Fund, Massachusetts Tax-Exempt Fund, Michigan Tax-Exempt
Fund, Minnesota Tax-Exempt Fund, New York Tax-Exempt Fund and Ohio Tax-Exempt
Fund invest primarily in the municipal securities issued by a single state and
political sub-divisions that state. Each Fund will be particularly affected by
political and economic conditions and developments in the state in which it
invests. This vulnerability to factors affecting the state's tax-exempt
investments will be significantly greater than that of more geographically
diversified funds, which may result in greater losses and volatility. Because of
the relatively small number of issuers of tax-exempt securities, the Fund may
invest a higher percentage of assets in a single issuer and, therefore, be more
exposed to the risk of loss by investing in a few issuers than a fund that
invests more broadly. At times, the Fund and other accounts managed by the
investment manager may own all or most of the debt of a particular issuer. This
concentration of ownership may make it more difficult to sell, or to determine
the fair value of, these investments. In addition, a Fund may concentrate in a
segment of the tax-exempt debt market, such as revenue bonds for health care
facilities, housing or airports. These investments may cause the value of a
fund's shares to change more than the values of funds' shares that invest in
more diversified investments. The yields on the securities in which the Fund
invests generally are dependent on a variety of factors, including the financial
condition of the issuer or other obligor, the revenue source from which the debt
service is payable, general economic and monetary conditions, conditions in the
relevant market, the size of a particular issue, the maturity of the obligation,
and the rating of the issue. In addition to such factors, geographically
concentrated securities will experience particular sensitivity to local
conditions, including political and economic changes, adverse conditions to an
industry significant to the area, and other developments within a particular
locality. Because many tax-exempt bonds may be revenue or general obligations of
local governments or authorities, ratings on tax-exempt bonds may be different
from the ratings given to the general obligation bonds of a particular state.
Certain events may adversely affect all investments within a particular market
segment of the market. Examples include litigation, legislation or court
decisions, concerns about pending or contemplated litigation, legislation or
court decisions, or lower demand for the services or products provided by a
particular market segment. Investing mostly in state-specific tax-exempt
investments makes the Fund more vulnerable to that state's economy and to
factors affecting tax-exempt issuers in that state than would be true for more
geographically diversified funds. These risks include, among others:
- the inability or perceived inability of a government authority to collect
sufficient tax or other revenues to meet its payment obligations;
- natural disasters and ecological or environmental concerns;
- the introduction of constitutional or statutory limits on a tax-exempt
issuer's ability to raise revenues or increase taxes;
- the inability of an issuer to pay interest on or repay principal or
securities in which the funds invest during recessionary periods; and
- economic or demographic factors that may cause a decrease in tax or other
revenues for a government authority or for private operators of publicly
financed facilities.
More information about state specific risks may be available from official state
resources.
The 1995 Minnesota Legislature enacted a statement of intent (codified at Minn.
Stat. sec. 289A.50, subdivision 10) that interest on obligations of Minnesota
governmental units and Indian tribes be included in net income of individuals,
estates and trusts for Minnesota income tax purposes if a court determines that
Minnesota's exemption of such interest unlawfully discriminates against
interstate commerce because interest on obligations of governmental issuers
located in other states is so included. This provision applies to taxable years
that begin during or after the calendar year in which any such court decision
becomes final, irrespective of the date on which the obligations were issued.
Only two states have addressed whether a state's exemption of interest on its
own bonds or those of its political subdivisions, but not of interest on the
bonds of other states or their political subdivisions, unlawfully discriminates
against interstate commerce or otherwise contravenes the United States
Constitution. A court in Ohio decided in 1994 that the Ohio law was not
unconstitutional. However, the Kentucky Court of Appeals held early in 2006 that
the Kentucky law violated the Commerce Clause. The Kentucky Supreme Court
declined to review this decision, however, the U.S. Supreme Court accepted
certiorari in May 2007, and is expected to review the case in the fall of 2007.
The Funds cannot predict the likelihood that interest on the Minnesota bonds
held by the Funds would become taxable for Minnesota income tax purposes under
Section 289A.50, subdivision 10.
Similarly, the other State Tax-Exempt Funds cannot predict the likelihood that
interest on state and municipal bonds held in such funds would become taxable
under such applicable state law.
See "Taxes" for more information.
Statement of Additional Information - Nov. 29, 2007 B-1
APPENDIX C
S&P 500 INDEX FUND
ADDITIONAL INFORMATION ABOUT THE S&P 500 INDEX
The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the shareholders of the Fund
or any member of the public regarding the advisability of investing in
securities generally or in the Fund particularly or the ability of the S&P 500
Index to track general stock market performance. S&P's only relationship to the
Fund is the licensing of certain trademarks and trade names of S&P and of the
S&P 500 Index, which are determined, composed and calculated by S&P without
regard to the Fund. S&P has no obligation to take the needs of the Fund or its
shareholders into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of the Fund or the timing of the issuance
or sale of the Fund or in the determination or calculation of the equation by
which the Fund's shares are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of Fund
shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN (THE S&P INDEX) AND S&P SHALL HAVE NO LIABILITY FOR
ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS
OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, ITS SHAREHOLDERS OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF
THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
S-6500 AD (11/07)
Statement of Additional Information - Nov. 29, 2007 C-1