Exhibit 99(17)(e)
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 2009
<Table>
RIVERSOURCE BOND SERIES, INC.
RiverSource Floating Rate Fund
RiverSource Income Opportunities Fund
RiverSource Inflation Protected Securities
Fund
RiverSource Limited Duration Bond Fund
RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST
RiverSource California Tax-Exempt Fund
RIVERSOURCE DIMENSIONS SERIES, INC.
RiverSource Disciplined Small and Mid Cap
Equity Fund
RiverSource Disciplined Small Cap Value Fund
RIVERSOURCE DIVERSIFIED INCOME SERIES, INC.
RiverSource Diversified Bond Fund
RIVERSOURCE EQUITY SERIES, INC.
RiverSource Mid Cap Growth Fund
RIVERSOURCE GLOBAL SERIES, INC.
RiverSource Absolute Return Currency and
Income Fund
RiverSource Emerging Markets Bond Fund
RiverSource Global Bond Fund
RiverSource Global Technology Fund
Threadneedle Emerging Markets Fund
Threadneedle Global Equity Fund
Threadneedle Global Equity Income Fund
Threadneedle Global Extended Alpha Fund
RIVERSOURCE GOVERNMENT INCOME SERIES, INC.
RiverSource Short Duration U.S. Government
Fund
RiverSource U.S. Government Mortgage Fund
RIVERSOURCE HIGH YIELD INCOME SERIES, INC.
RiverSource High Yield Bond Fund
RIVERSOURCE INCOME SERIES, INC.
RiverSource Income Builder Basic Income Fund
RiverSource Income Builder Enhanced Income
Fund
RiverSource Income Builder Moderate Income
Fund
RIVERSOURCE INTERNATIONAL MANAGERS SERIES,
INC.
RiverSource Partners International Select
Growth Fund
RiverSource Partners International Select
Value Fund
RiverSource Partners International Small Cap
Fund
RIVERSOURCE INTERNATIONAL SERIES, INC.
RiverSource Disciplined International Equity
Fund
Threadneedle European Equity Fund
Threadneedle International Opportunity Fund
RIVERSOURCE INVESTMENT SERIES, INC.
RiverSource Balanced Fund
RiverSource Disciplined Large Cap Growth
Fund
RiverSource Disciplined Large Cap Value Fund
RiverSource Diversified Equity Income Fund
RiverSource Mid Cap Value Fund
RIVERSOURCE LARGE CAP SERIES, INC.
RiverSource Disciplined Equity Fund
RiverSource Growth Fund
RiverSource Large Cap Equity Fund
RiverSource Large Cap Value Fund
RIVERSOURCE MANAGERS SERIES, INC.
RiverSource Partners Aggressive Growth Fund
RiverSource Partners Fundamental Value Fund
RiverSource Partners Select Value Fund
RiverSource Partners Small Cap Equity Fund
RiverSource Partners Small Cap Value Fund
RIVERSOURCE MARKET ADVANTAGE SERIES, INC.
RiverSource Portfolio Builder Aggressive
Fund
RiverSource Portfolio Builder Conservative
Fund
RiverSource Portfolio Builder Moderate
Aggressive Fund
RiverSource Portfolio Builder Moderate
Conservative Fund
RiverSource Portfolio Builder Moderate Fund
RiverSource Portfolio Builder Total Equity
Fund
RiverSource S&P 500 Index Fund
RiverSource Small Company Index Fund
RIVERSOURCE MONEY MARKET SERIES, INC.
RiverSource Cash Management Fund
RIVERSOURCE SECTOR SERIES, INC.
RiverSource Dividend Opportunity Fund
RiverSource Real Estate Fund
RIVERSOURCE SELECTED SERIES, INC.
RiverSource Precious Metals and Mining Fund
RIVERSOURCE SERIES TRUST
RiverSource 120/20 Contrarian Equity Fund
RiverSource Retirement Plus 2010 Fund
RiverSource Retirement Plus 2015 Fund
RiverSource Retirement Plus 2020 Fund
RiverSource Retirement Plus 2025 Fund
RiverSource Retirement Plus 2030 Fund
RiverSource Retirement Plus 2035 Fund
RiverSource Retirement Plus 2040 Fund
RiverSource Retirement Plus 2045 Fund
RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
RiverSource Minnesota Tax-Exempt Fund
RiverSource New York Tax-Exempt Fund
RIVERSOURCE STRATEGIC ALLOCATION SERIES, INC.
RiverSource Strategic Allocation Fund
RiverSource Strategic Income Allocation Fund
RIVERSOURCE STRATEGY SERIES, INC.
RiverSource Equity Value Fund
RiverSource Partners Small Cap Growth Fund
RiverSource Small Cap Advantage Fund
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 Family of 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 (the "Board") that meets
regularly to review a wide variety of matters affecting the funds. Detailed
information about fund governance, the funds' investment manager, RiverSource
Investments, LLC (the "investment manager" or "RiverSource Investments"), a
wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"),
and other aspects of fund management can be found by referencing the Table of
Contents below, or the List of Tables on the following page.
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. 37
Brokerage Commissions Paid to Brokers Affiliated with the Investment Manager.... p. 51
Valuing Fund Shares............................................................. p. 55
Portfolio Holdings Disclosure................................................... p. 66
Proxy Voting.................................................................... p. 67
Investing in a Fund............................................................. p. 70
Selling Shares.................................................................. p. 74
Pay-out Plans................................................................... p. 75
Capital Loss Carryover.......................................................... p. 76
Taxes........................................................................... p. 79
Service Providers............................................................... p. 84
Investment Management Services................................................ p. 84
Administrative Services....................................................... p. 135
Transfer Agency Services...................................................... p. 139
Plan Administration Services.................................................. p. 140
Distribution Services......................................................... p. 140
Plan and Agreement of Distribution............................................ p. 143
Payments to Financial Intermediaries.......................................... 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. 184
Independent Registered Public Accounting Firm................................... p. 185
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
Appendix D: Seligman Funds...................................................... p. D-1
</Table>
Statement of Additional Information - April 1, 2009 Page 2
LIST OF TABLES
<Table>
1. Fund Fiscal Year Ends, Prospectus Date and Investment Categories........... p. 4
2. Fundamental Policies....................................................... p. 7
3. Investment Strategies and Types of Investments............................. p. 11
4. Total Brokerage Commissions................................................ p. 39
5. Brokerage Directed for Research and Turnover Rates......................... p. 42
6. Securities of Regular Brokers or Dealers................................... p. 45
7. Brokerage Commissions Paid to Investment Manager or Affiliates............. p. 51
8. Valuing Fund Shares........................................................ p. 55
9. Class A Sales Charge....................................................... p. 70
10. Public Offering Price...................................................... p. 71
11. Capital Loss Carryover..................................................... p. 76
12. Corporate Deduction and Qualified Dividend Income.......................... p. 81
13. Investment Management Services Agreement Fee Schedule...................... p. 84
14. PIA Indexes................................................................ p. 92
15A. Performance Incentive Adjustment Calculation............................... p. 94
15B. Performance Incentive Adjustment Calculation............................... p. 95
16. Management Fees and Nonadvisory Expenses................................... p. 96
17. Subadvisers and Subadvisory Agreement Fee Schedules........................ p. 99
18. Subadvisory Fees........................................................... p. 101
19. Portfolio Managers......................................................... p. 104
20. Administrative Services Agreement Fee Schedule............................. p. 135
21. Administrative Fees........................................................ p. 137
22. Sales Charges Paid to Distributor.......................................... p. 140
23. 12b-1 Fees................................................................. p. 144
24. Unreimbursed Distribution Expenses......................................... p. 147
25. Fund History Table......................................................... p. 151
26. Board Members.............................................................. p. 155
27. Fund Officers.............................................................. p. 156
28. Committee Meetings......................................................... p. 158
29. Board Member Holdings...................................................... p. 159
30. Board Member Compensation -- All Funds..................................... p. 165
31. Board Member Compensation -- Individual Funds.............................. p. 166
32. Control Persons and Principal Holders of Securities........................ p. 169
</Table>
The RiverSource Family of Funds includes a comprehensive array of funds from
RiverSource Investments, including several Seligman funds. RiverSource
Investments has also partnered with a number of professional investment
managers, including its affiliate, Threadneedle Investments, to expand the array
of funds offered in the RiverSource family. RiverSource funds, RiverSource
Partners funds and Threadneedle funds share the same Board of Directors/Trustees
(the Board), and the same policies and procedures including those set forth in
the service section. Although the Seligman funds share the same Board, they do
not currently have the same policies and procedures, and may not be exchanged
for shares of the RiverSource funds, RiverSource Partners funds or Threadneedle
funds.
Please reference Appendix D for a complete list of Seligman funds.
Statement of Additional Information - April 1, 2009 Page 3
TABLE 1. FUND FISCAL YEAR ENDS, PROSPECTUS DATE AND INVESTMENT CATEGORIES
<Table>
<Caption>
FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY
- ---------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity April 30 June 27, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income October 31 Dec. 30, 2008 Taxable fixed income*
- ---------------------------------------------------------------------------------------------------------------
Balanced September 30 Nov. 28, 2008 Balanced
- ---------------------------------------------------------------------------------------------------------------
California Tax-Exempt August 31** Oct. 30, 2008 State tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Cash Management July 31 Sept. 29, 2008 Taxable money market
- ---------------------------------------------------------------------------------------------------------------
Disciplined Equity July 31 Sept. 29, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Disciplined International Equity October 31 Dec. 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth September 30 Nov. 28, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value September 30 Nov. 28, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity July 31 Sept. 29, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value July 31 Sept. 29, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Diversified Bond August 31 Oct. 30, 2008 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Diversified Equity Income September 30 Nov. 28, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Dividend Opportunity June 30 Aug. 29, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Emerging Markets Bond October 31 Dec. 30, 2008 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Equity Value March 31 May 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Floating Rate July 31 Sept. 29, 2008 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Global Bond October 31 Dec. 30, 2008 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Global Technology October 31 Dec. 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Growth July 31 Sept. 29, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
High Yield Bond May 31 July 30, 2008 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Income Builder Basic Income January 31*** April 1, 2009 Fund-of-funds - fixed income
- ---------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income January 31*** April 1, 2009 Fund-of-funds - fixed income
- ---------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income January 31*** April 1, 2009 Fund-of-funds - fixed income
- ---------------------------------------------------------------------------------------------------------------
Income Opportunities July 31 Sept. 29, 2008 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Inflation Protected Securities July 31 Sept. 29, 2008 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt November 30 Jan. 29, 2009 Tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Large Cap Equity July 31 Sept. 29, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Large Cap Value July 31 Sept. 29, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Limited Duration Bond July 31 Sept. 29, 2008 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Mid Cap Growth November 30 Jan. 29, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Mid Cap Value September 30 Nov. 28, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt August 31** Oct. 30, 2008 State tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
New York Tax-Exempt August 31** Oct. 30, 2008 State tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth May 31 July 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Partners Fundamental Value May 31 July 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Partners International Select Growth October 31 Dec. 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Partners International Select Value October 31 Dec. 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Partners International Small Cap October 31 Dec. 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Partners Select Value May 31 July 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity May 31 July 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth March 31 May 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Partners Small Cap Value May 31 July 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive January 31 April 1, 2009 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative January 31 April 1, 2009 Fund-of-funds - fixed income
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate January 31 April 1, 2009 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive January 31 April 1, 2009 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative January 31 April 1, 2009 Fund-of-funds - fixed income
- ---------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity January 31 April 1, 2009 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Precious Metals and Mining March 31 May 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Real Estate June 30 Aug. 29, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 April 30 June 27, 2008 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 4
<Table>
<Caption>
FUND FISCAL YEAR END PROSPECTUS DATE FUND INVESTMENT CATEGORY
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 April 30 June 27, 2008 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 April 30 June 27, 2008 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 April 30 June 27, 2008 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 April 30 June 27, 2008 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 April 30 June 27, 2008 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 April 30 June 27, 2008 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 April 30 June 27, 2008 Fund-of-funds - equity
- ---------------------------------------------------------------------------------------------------------------
S&P 500 Index January 31 April 1, 2009 Equity
- ---------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government May 31 July 30, 2008 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
Small Cap Advantage March 31 May 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Small Company Index January 31 April 1, 2009 Equity
- ---------------------------------------------------------------------------------------------------------------
Strategic Allocation September 30 Nov. 28, 2008 Balanced
- ---------------------------------------------------------------------------------------------------------------
Strategic Income Allocation September 30 Nov. 28, 2008 Taxable fixed income*
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond November 30 Jan. 29, 2009 Tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income November 30 Jan. 29, 2009 Tax-exempt fixed income
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market December 31 Feb. 27, 2009 Tax-exempt money market
- ---------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets October 31 Dec. 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Threadneedle European Equity October 31 Dec. 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity October 31 Dec. 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Income Fund October 31 Dec. 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha Fund October 31 Dec. 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
Threadneedle International Opportunity October 31 Dec. 30, 2008 Equity
- ---------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage May 31 July 30, 2008 Taxable fixed income
- ---------------------------------------------------------------------------------------------------------------
</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 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 June 30.
*** The fund changed its fiscal year end effective Jan. 31, 2008 from May 31
to Jan. 31. For 2008, the information shown is for the period from June 1,
2007 to Jan. 31, 2008. For years prior to 2008, the fiscal period ended
May 31.
Statement of Additional Information - April 1, 2009 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.
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.
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, the rules
and regulations thereunder and any applicable exemptive relief.
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.
ADDITIONALLY FOR DISCIPLINED LARGE CAP VALUE, INCOME BUILDER FUNDS, PORTFOLIO
BUILDER FUNDS, THREADNEEDLE GLOBAL EQUITY INCOME AND THREADNEEDLE GLOBAL
EXTENDED ALPHA, THE FUNDS WILL NOT:
- Purchase securities (except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) of any one issuer if, as a
result, more than 5% of its total assets will be invested in the
securities of such issuer or it would own more than 10% of the voting
securities of such issuer, except that: (a) up to 25% of its total assets
may be invested without regard to these limitations and (b) a fund's
assets may be invested in the securities of one or more management
investment companies to the extent permitted by the 1940 Act, the rules
and regulations thereunder, or any applicable exemptive relief.
Statement of Additional Information - April 1, 2009 Page 6
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 dash 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>
C D E
BUY MORE INVEST MORE CONCENTRATE
A B THAN THAN IN F
BUY OR SELL BUY OR SELL 10% OF AN 5% IN AN ANY ONE INVEST LESS
FUND REAL ESTATE COMMODITIES ISSUER ISSUER INDUSTRY THAN 80%
- --------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity A1 B5 C1 D1 E8 --
- --------------------------------------------------------------------------------------------------------------
Absolute Return Currency and A1 B1 -- -- E7 --
Income
- --------------------------------------------------------------------------------------------------------------
Balanced A1 B1 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
California Tax-Exempt A1 B1 -- -- -- F1
- --------------------------------------------------------------------------------------------------------------
Cash Management A3 A3 C1 D1 -- --
- --------------------------------------------------------------------------------------------------------------
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 Large Cap Value A1 B3 -- -- E1 --
- --------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap A1 B4 C1 D1 E1 --
Equity
- --------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value A1 B4 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Diversified Bond A1 B1 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Diversified Equity Income A1 B1 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Dividend Opportunity A1 B1 C1 D1 -- --
- --------------------------------------------------------------------------------------------------------------
Emerging Markets Bond A1 B4 -- -- E5 --
- --------------------------------------------------------------------------------------------------------------
Equity Value A1 B1 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Floating Rate A1 B4 C1 D1 E6 --
- --------------------------------------------------------------------------------------------------------------
Global Bond A1 B1 C1 -- 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)
- --------------------------------------------------------------------------------------------------------------
Large Cap Equity A1 B1 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Large Cap Value A1 B3 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Limited Duration Bond A1 B1 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth A1 B1 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Partners Fundamental Value A1 B3 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Partners International Select A1 B3 C1 D1 E1 --
Growth
- --------------------------------------------------------------------------------------------------------------
Partners International Select A1 B3 C1 D1 E1 --
Value
- --------------------------------------------------------------------------------------------------------------
Partners International Small Cap A1 B3 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Partners Select Value A1 B3 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity A1 B3 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 7
<Table>
<Caption>
C D E
BUY MORE INVEST MORE CONCENTRATE
A B THAN THAN IN F
BUY OR SELL BUY OR SELL 10% OF AN 5% IN AN ANY ONE INVEST LESS
FUND REAL ESTATE COMMODITIES ISSUER ISSUER INDUSTRY THAN 80%
- --------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth A1 B1 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Partners Small Cap Value A1 B3 -- -- E1 --
- --------------------------------------------------------------------------------------------------------------
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*
- --------------------------------------------------------------------------------------------------------------
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 --
- --------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government A1 B1 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Small Cap Advantage A1 B1 C1 D1 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
- --------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets A1 B1 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Threadneedle European Equity A1 B1 -- -- E1 --
- --------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity A1 B1 C1 D1 E1 --
- --------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity A1 B3 -- -- E1 --
Income
- --------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended A1 B3 -- -- E1 --
Alpha
- --------------------------------------------------------------------------------------------------------------
Threadneedle International A1 B1 C1 D1 E1 --
Opportunity
- --------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage A1 B1 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.
Statement of Additional Information - April 1, 2009 Page 8
A3 - The fund will not buy or sell real estate, commodities or commodity
contracts. For purposes of this policy, real estate includes real
estate limited partnerships.
B. BUY OR SELL PHYSICAL COMMODITIES
B1 - The fund will not buy or sell physical commodities unless acquired as
a result of ownership of securities or other instruments, except this
shall not prevent the fund from buying or selling options and futures
contracts or from investing in securities or other instruments backed
by, or whose value is derived from, physical commodities.
B2 - The fund will not invest in commodities or commodity contracts.
B3 - The fund will not buy or sell physical commodities unless acquired as
a result of ownership of securities or other instruments, except this
shall not prevent the fund from buying or selling options, futures
contracts and foreign currency or from investing in securities or
other instruments backed by, or whose value is derived from, physical
commodities.
B4 - The fund will not buy or sell physical commodities unless acquired as
a result of ownership of securities or other instruments, except this
shall not prevent the fund from buying or selling options, futures
contracts and foreign currency or from entering into forward currency
contracts or from investing in securities or other instruments backed
by, or whose value is derived from, physical commodities.
B5 - The fund will not buy or sell commodities, except that the fund may to
the extent consistent with its investment objective(s), invest in
securities of companies that purchase or sell commodities or which
invest in such programs, and purchase and sell options, forward
contracts, futures contracts, and options on futures contracts and
enter into swap contracts and other financial transactions relating to
commodities. This restriction does not apply to foreign currency
transactions including without limitation forward currency contracts.
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
Statement of Additional Information - April 1, 2009 Page 9
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 - The fund will not 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.
E8 - The fund will not purchase any securities which would cause 25% or
more of the value of its total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their
principal business activities in the same industry, provided that: a)
there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, any state or territory of the
United States, or any of their agencies, instrumentalities or
political subdivisions; and b) notwithstanding this limitation or any
other fundamental investment limitation, assets may be invested in the
securities of one or more management investment companies to the
extent permitted by the 1940 Act, the rules and regulations thereunder
and any applicable exemptive relief.
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.
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 120/20 CONTRARIAN EQUITY, BALANCED, DISCIPLINED EQUITY, DISCIPLINED LARGE
CAP GROWTH, DISCIPLINED LARGE CAP VALUE DISCIPLINED SMALL AND MID CAP EQUITY,
DISCIPLINED SMALL CAP VALUE, DIVERSIFIED BOND, DIVERSIFIED EQUITY INCOME,
DIVIDEND OPPORTUNITY, EQUITY VALUE, FLOATING RATE, GROWTH, HIGH YIELD BOND,
INCOME OPPORTUNITIES, INFLATION PROTECTED SECURITIES, LARGE CAP EQUITY, LARGE
CAP VALUE, LIMITED DURATION BOND, MID CAP GROWTH, MID CAP VALUE, PARTNERS
AGGRESSIVE GROWTH, PARTNERS FUNDAMENTAL VALUE, PARTNERS SELECT VALUE, PARTNERS
SMALL CAP EQUITY, PARTNERS SMALL CAP GROWTH, PARTNERS SMALL CAP VALUE, REAL
ESTATE, AND SMALL CAP ADVANTAGE:
- 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.
Statement of Additional Information - April 1, 2009 Page 10
INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
This table shows many of the various investment strategies and investments the
funds are allowed to engage in and purchase. It is intended to show the breadth
of investments that the investment manager or subadviser (individually and
collectively, the "investment manager") may make on behalf of a fund. For a
description of principal risks for an individual fund, please see the applicable
prospectus for that fund. Notwithstanding a fund's ability to utilize these
strategies and techniques, the investment manager is not obligated to use them
at any particular time. For example, even though the investment manager is
authorized to adopt temporary defensive positions and is authorized to attempt
to hedge against certain types of risk, these practices are left to the
investment manager's sole discretion.
Fund-of-funds invest in a combination of underlying funds, although they may
invest directly in stocks, bonds and other securities. These underlying funds
have their own investment strategies and types of investments they are allowed
to engage in and purchase. Fund-of-funds currently only invest in underlying
funds, which may invest directly in securities and engage in investment
strategies, indicated in the table below.
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 - - - - D -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
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 - E - - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Investment companies - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Lending of portfolio securities - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Loan participations - - - - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage- and asset-backed securities - - F - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage dollar rolls - G - - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Municipal obligations - - - - -- - - -
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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
- ---------------------------------------------------------------------------------------------------------------------------------
Pay-in-kind securities - - - - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred stock - - - - H -- -- - H -
- ---------------------------------------------------------------------------------------------------------------------------------
Real estate investment trusts - - - - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreements - - - - - -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Short sales I I - I -- -- I I
- ---------------------------------------------------------------------------------------------------------------------------------
Sovereign debt - - - - - -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Structured investments - - - - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Swap agreements - - - - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Variable- or floating-rate securities - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Warrants - - - - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
When-issued securities and forward
commitments - - - - -- -- - -
- ---------------------------------------------------------------------------------------------------------------------------------
Zero-coupon and step-coupon
securities - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
A. The following funds are not authorized to invest in collateralized bond
obligations: Partners International Select Growth, Partners International
Select Value, Partners International Small Cap, Partners Select Value,
Partners Small Cap Equity, Partners Small Cap Growth, Partners 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. While the fund is prohibited from investing in corporate bonds, it may
invest in securities classified as corporate bonds if they meet the
requirements of Rule 2a-7 of the 1940 Act.
E. The following funds are authorized to invest in inverse floaters: Real
Estate.
F. The following funds are not authorized to invest in mortgage- and asset-
backed securities: Partners Small Cap Growth, S&P 500 Index, Small Cap
Advantage, Small Company Index.
G. The following funds are authorized to invest in mortgage dollar rolls:
Real Estate.
H. 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.
I. 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 - April 1, 2009 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.
BORROWING RISK. To the extent the fund borrows money for investment purposes,
which is commonly referred to as "leveraging," the fund's exposure to
fluctuations in the prices of its assets will be increased as compared to the
fund's exposure if the fund did not borrow. The fund's borrowing activities will
exaggerate any increase or decrease in the net asset value of the fund. In
addition, the interest which the fund pays on borrowed money, together with any
additional costs of maintaining a borrowing facility, are additional costs borne
by the fund and could reduce or eliminate any net investment profits. Unless
profits on assets acquired with borrowed funds exceed the costs of borrowing,
the use of borrowing will diminish the investment performance of the fund
compared with what it would have been without borrowing. When the fund borrows
money it must comply with certain asset coverage requirements, which at times
may require the fund to dispose of some of its holdings, even though it may be
disadvantageous to do so at the time.
CREDIT RISK. Credit risk is the risk that the issuer of a security, or the
counterparty to a contract, will default or otherwise become unable or unwilling
to honor a financial obligation, such as payments due on a bond or a note. If
the fund purchases unrated securities, or if the rating of a security is reduced
after purchase, the fund will depend on the investment manager's analysis of
credit risk more heavily than usual.
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.
Statement of Additional Information - April 1, 2009 Page 13
DERIVATIVES RISK. Derivatives are financial instruments that have a value which
depends upon, or is derived from, the value of something else, such as one or
more underlying securities, pools of securities, options, futures, indexes or
currencies. Gains or losses involving derivative instruments may be substantial,
because a relatively small price movement in the underlying security(ies),
instrument, currency or index may result in a substantial gain or loss for the
Fund. Derivative instruments in which the Fund invests will typically increase
the Fund's exposure to Principal Risks to which it is otherwise exposed, and may
expose the Fund to additional risks, including correlation risk, counterparty
credit risk, hedging risk, leverage risk, and liquidity risk.
Correlation risk is related to hedging risk and is the risk that there may be an
incomplete correlation between the hedge and the opposite position, which may
result in increased or unanticipated losses.
Counterparty credit risk is the risk that a counterparty to the derivative
instrument becomes bankrupt or otherwise fails to perform its obligations due to
financial difficulties, and the Fund may obtain no recovery of its investment or
may only obtain a limited recovery, and any recovery may be delayed.
Hedging risk is the risk that derivative instruments used to hedge against an
opposite position may offset losses, but they may also offset gains.
Leverage risk is the risk that losses from the derivative instrument may be
greater than the amount invested in the derivative instrument. Certain
derivatives have the potential for unlimited losses, regardless of the size of
the initial investment.
Liquidity risk is the risk that the derivative instrument may be difficult or
impossible to sell or terminate, which may cause the Fund to be in a position to
do something the investment manager would not otherwise choose, including
accepting a lower price for the derivative instrument, selling other investments
or foregoing another, more appealing investment opportunity.
Certain derivatives have the potential for unlimited losses regardless of the
size of the initial investment.
DIVERSIFICATION RISK. A non-diversified fund may invest more of its assets in
fewer companies than if it were a diversified fund. Because each investment has
a greater effect on the fund's performance, the fund may be more exposed to the
risks of loss and volatility than a fund that invests more broadly.
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.
EXCHANGE-TRADED FUND (ETF) RISK. The price movement of an ETF may not track the
underlying index and may result in a loss. In addition, shareholders bear both
their proportionate share of the fund's expenses and similar expenses incurred
through ownership of the ETF.
FOREIGN/EMERGING MARKETS RISK. Foreign securities are securities of issuers
based outside the United States. An issuer is deemed to be based outside the
United States if it is organized under the laws of another country. Foreign
securities are primarily denominated in foreign currencies. In addition to the
risks normally associated with domestic securities of the same type, foreign
securities are subject to the following foreign risks:
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
Statement of Additional Information - April 1, 2009 Page 14
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.
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.
INITIAL PUBLIC OFFERING (IPO) RISK. IPOs are subject to many of the same risks
as investing in companies with smaller market capitalizations. To the extent a
fund determines to invest in IPOs it may not be able to invest to the extent
desired, because, for example, only a small portion (if any) of the securities
being offered in an IPO may be made available. The investment performance of a
fund during periods when it is unable to invest significantly or at all in IPOs
may be lower than during periods when the fund is able to do so. In addition, as
a fund increases in size, the impact of IPOs on the fund's performance will
generally decrease. IPOs will frequently be sold within 12 months of purchase.
This may result in increased short-term capital gains, which will be taxable to
shareholders as ordinary income.
INTEREST RATE RISK. The securities in the portfolio are subject to the risk of
losses attributable to changes in interest rates. Interest rate risk is
generally associated with bond prices: when interest rates rise, bond prices
fall. In general, the longer the maturity or duration of a bond, the greater its
sensitivity to changes in interest rates.
ISSUER RISK. An issuer, or the value of its stocks or bonds, may perform poorly.
Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
LEVERAGE RISK. Leverage occurs when the fund increases its assets available for
investment using borrowings, short sales, derivatives, or similar instruments or
techniques. Due to the fact that short sales involve borrowing securities and
then selling them, the fund's short sales effectively leverage the fund's
assets. The use of leverage may make any change in the fund's
Statement of Additional Information - April 1, 2009 Page 15
net asset value ("NAV") even greater and thus result in increased volatility of
returns. The fund's assets that are used as collateral to secure the short sales
may decrease in value while the short positions are outstanding, which may force
the fund to use its other assets to increase the collateral. Leverage can also
create an interest expense that may lower the fund's overall returns. Lastly,
there is no guarantee that a leveraging strategy will be successful.
LIQUIDITY RISK. The risk associated from a lack of marketability of securities
which may make it difficult or impossible to sell at desirable prices in order
to minimize loss. The Fund may have to lower the selling price, sell other
investments, or forego another, more appealing investment opportunity.
MARKET RISK. The market value of securities may fall or fail to rise. Market
risk may affect a single issuer, sector of the economy, industry, or the market
as a whole. The market value of securities may fluctuate, sometimes rapidly and
unpredictably. This risk is generally greater for small and mid-sized companies,
which tend to be more vulnerable to adverse developments. In addition, focus on
a particular style, for example, investment in growth or value securities, may
cause the Fund to underperform other mutual funds if that style falls out of
favor with the market.
PREPAYMENT AND EXTENSION RISK. The risk that a bond or other security might be
called, or otherwise converted, prepaid, or redeemed, before maturity. This risk
is primarily associated with asset-backed securities, including mortgage backed
securities. If a security is converted, prepaid, or redeemed, before maturity,
particularly during a time of declining interest rates, the portfolio managers
may not be able to reinvest in securities providing as high a level of income,
resulting in a reduced yield to the fund. Conversely, as interest rates rise,
the likelihood of prepayment decreases. The portfolio managers may be unable to
capitalize on securities with higher interest rates because the Fund's
investments are locked in at a lower rate for a longer period of time.
QUANTITATIVE MODEL RISK. Securities selected using quantitative methods may
perform differently from the market as a whole as a result of the factors used
in the quantitative method, the weight placed on each factor, and changes in the
factors' historical trends. The quantitative methodology employed by the
investment manager has been extensively tested using historical securities
market data, but has only recently begun to be used to manage open-end mutual
funds. There can be no assurance that the methodology will enable the fund to
achieve its objective.
REINVESTMENT RISK. The risk that an investor will not be able to reinvest income
or principal at the same rate it currently is earning.
SECTOR RISK. Investments that are concentrated in a particular issuer,
geographic region, or sector will be more susceptible to changes in price. The
more a fund diversifies, the more it spreads risk and potentially reduces the
risks of loss and volatility.
SHORT SALES RISK. The fund may make short sales, which involves selling a
security the fund does not own in anticipation that the security's price will
decline. The fund must borrow those securities to make delivery to the buyer.
The fund may not always be able to borrow a security it wants to sell short. The
fund will suffer a loss if it sells a security short and the value of the
security rises rather than falls. It is possible that the fund's long positions
will decline in value at the same time that the value of its short positions
increase, thereby increasing potential losses to the fund. Short sales expose
the fund to the risk that it will be required to buy the security sold short
(also known as "covering" the short position) at a time when the security has
appreciated in value, thus resulting in a loss to the fund. The fund may also be
required to close out a short position at a time when it might not otherwise
choose, for example, if the lender of the security calls it back, which may have
the effect of reducing or eliminating potential gain, or cause the fund to
realize a loss. Short positions introduce more risk to the fund than long
positions (purchases) because the maximum sustainable loss on a security
purchased (held long) is limited to the amount paid for the security plus the
transaction costs, whereas there is no maximum attainable price of the shorted
security. Therefore, in theory, securities sold short have unlimited risk.
Additionally, the fund's use of short sales in effect "leverages" the fund, as
the fund intends to use the cash proceeds from short sales to invest in
additional long positions. This leverage effect potentially exposes the fund to
greater risks due to unanticipated market movements, which may magnify losses
and increase the volatility of returns. See Leverage Risk and Market Risk.
SMALL AND MID-SIZED COMPANY RISK. Investments in small and medium companies
often involve greater risks than investments in larger, more established
companies because small and medium companies may lack the management experience,
financial resources, product diversification, experience, and competitive
strengths of larger companies. Additionally, in many instances the securities of
small and medium companies are traded only over-the-counter or on regional
securities exchanges and the frequency and volume of their trading is
substantially less and may be more volatile than is typical of larger companies.
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
Statement of Additional Information - April 1, 2009 Page 16
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 360 days)
and bonds. Agency and government securities are subject to the same concerns as
other debt obligations. (See also Debt Obligations and Mortgage- and Asset-
Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Inflation Risk, Interest Rate Risk, Prepayment and Extension Risk, and
Reinvestment Risk.
BORROWING
If the fund borrows money, its share price may be subject to greater fluctuation
until the borrowing is paid off. If the fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage. Under the
1940 Act, the fund is required to maintain continuous asset coverage of 300%
with respect to such borrowings and to sell (within three days) sufficient
portfolio holdings to restore such coverage if it should decline to less than
300% due to market fluctuations or otherwise, even if such liquidations of the
fund's holdings may be disadvantageous from an investment standpoint. Leveraging
by means of borrowing may exaggerate the effect of any increase or decrease in
the value of portfolio securities or the fund's NAV, and money borrowed will be
subject to interest and other costs (which may include commitment fees and/or
the cost of maintaining minimum average balances) which may or may not exceed
the income received from the securities purchased with borrowed funds.
Statement of Additional Information - April 1, 2009 Page 17
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk.
* On Sept. 7, 2008, the Federal Housing Finance Agency (FHFA), an agency of
the U.S. government, placed the FHLMC and FNMA into conservatorship, a
statutory process with the objective of returning the entities to normal
business operations. FHFA will act as the conservator to operate the
enterprises until they are stabilized.
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 Family of
Funds and other institutional clients of RiverSource Investments.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Credit Risk
and Inflation Risk.
COLLATERALIZED BOND OBLIGATIONS
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of bonds, which may include junk bonds. CBOs are similar in concept to
collateralized mortgage obligations (CMOs), but differ in that CBOs represent
different degrees of credit quality rather than different maturities. (See also
Mortgage- and Asset-Backed Securities.) Underwriters of CBOs package a large and
diversified pool of high-risk, high-yield junk bonds, which is then separated
into "tiers." Typically, the first tier represents the higher quality collateral
and pays the lowest interest rate; the second tier is backed by riskier bonds
and pays a higher rate; the third tier represents the lowest credit quality and
instead of receiving a fixed interest rate receives the residual interest
payments -- money that is left over after the higher tiers have been paid. CBOs,
like CMOs, are substantially overcollateralized and this, plus the
diversification of the pool backing them, may earn certain of the tiers
investment-grade bond ratings. Holders of third-tier CBOs stand to earn high
yields or less money depending on the rate of defaults in the collateral pool.
(See also High-Yield Debt Securities (Junk Bonds).)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Credit Risk, Interest Rate Risk and
Prepayment and Extension Risk.
COMMERCIAL PAPER
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk and
Liquidity Risk.
COMMON STOCK
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of common stock is generally determined by corporate earnings, type of
products or services offered, projected growth rates, experience of management,
liquidity, and general market conditions for the markets on which the stock
trades.
Statement of Additional Information - April 1, 2009 Page 18
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Market Risk,
and Small and Mid-Sized Company Risk.
CONVERTIBLE SECURITIES
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common, preferred or other securities of
the same or a different issuer within a particular period of time at a specified
price. Some convertible securities, such as preferred equity-redemption
cumulative stock (PERCs), have mandatory conversion features. Others are
voluntary. A convertible security entitles the holder to receive interest
normally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted, or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Interest Rate
Risk, Issuer Risk, Market Risk, Prepayment and Extension Risk, and Reinvestment
Risk.
CORPORATE BONDS
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1,000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield Debt Securities (Junk Bonds).) Corporate bonds may be
either secured or unsecured. Unsecured corporate bonds are generally referred to
as "debentures." See Appendix A for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Credit Risk, Interest
Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk.
DEBT OBLIGATIONS
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a fixed, variable or floating rate on specified dates and to repay
principal on a specified maturity date. Certain debt obligations (usually
intermediate- and long-term bonds) have provisions that allow the issuer to
redeem or "call" a bond before its maturity. Issuers are most likely to call
these securities during periods of falling interest rates. When this happens, an
investor may have to replace these securities with lower yielding securities,
which could result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and High-
Yield Debt Securities (Junk Bonds).)
Statement of Additional Information - April 1, 2009 Page 19
Generally, debt obligations that are investment grade are those that have been
rated in one of the top four credit quality categories by two out of the three
independent rating agencies. In the event that a debt obligation has been rated
by only two agencies, the most conservative, or lower, rating must be in one of
the top four credit quality categories in order for the security to be
considered investment grade. If only one agency has rated the debt obligation,
that rating must be in one of the top four credit quality categories for the
security to be considered investment grade. See Appendix A for a discussion of
securities ratings.
All ratings limitations are applied at the time of purchase. Subsequent to
purchase, a debt security may cease to be rated or its rating may be reduced
below the minimum required for purchase by a fund. Neither event will require
the sale of such a security, but it will be a factor in considering whether to
continue to hold the security. To the extent that ratings change as a result of
changes in a rating agency or its rating system, a fund will attempt to use
comparable ratings as standards for selecting investments.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Credit Risk, Interest
Rate Risk, Issuer Risk, Prepayment and Extension Risk, and Reinvestment Risk.
DEPOSITARY RECEIPTS
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. In addition, ADR holders may not have all the legal rights of
shareholders and may experience difficulty in receiving shareholder
communications. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, and Market Risk.
DERIVATIVE INSTRUMENTS
Derivative instruments are commonly defined to include securities or contracts
whose values depend, in whole or in part, on (or "derive" from) the value of one
or more other assets, such as securities, currencies, or commodities.
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable percentage gain or loss in the price of
the derivative instrument.
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward- based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and exchange-
traded options on futures. Diverse types of derivatives may be created by
combining options or futures in different ways, and by applying these structures
to a wide range of underlying assets.
Options. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees for the length of the contract to sell the security at the set price when
the buyer wants to exercise the option, no matter what the market price of the
security is at that time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person who writes a
put option agrees to buy the security at the set price if the purchaser wants to
exercise the option during the length of the contract, no matter what the market
price of the security is at that time. An option is covered if the writer owns
the security (in the case of a call) or sets aside the cash or securities of
equivalent value (in the case of a put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained whether or not the option is
exercised. A writer of a call option may have to sell the
Statement of Additional Information - April 1, 2009 Page 20
security for a below-market price if the market price rises above the exercise
price. A writer of a put option may have to pay an above-market price for the
security if its market price decreases below the exercise price.
When an option is purchased, the buyer pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying security when
the option is exercised. For record keeping and tax purposes, the price obtained
on the sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Options on many securities are listed on options exchanges. If a fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, Chicago Board Options Exchange, or NASDAQ will be valued at
the last quoted sales price or, if such a price is not readily available, at the
mean of the last bid and ask prices.
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a buyer
(holding the "long" position) and a seller (holding the "short" position) for an
asset with delivery deferred until a future date. The buyer agrees to pay a
fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day a buyer
would pay out cash in an amount equal to any decline in the contract's value or
receive cash equal to any increase. At the time a futures contract is closed
out, a nominal commission is paid, which is generally lower than the commission
on a comparable transaction in the cash market.
Futures contracts may be based on various securities, securities indexes (such
as the S&P 500 Index), foreign currencies and other financial instruments and
indexes.
A fund may engage in futures and related options transactions to produce
incremental earnings, to hedge existing positions, and to increase flexibility.
The fund intends to comply with Rule 4.5 of the Commodity Futures Trading
Commission (CFTC), under which a mutual fund is exempt from the definition of a
"commodity pool operator." The fund, therefore, is not subject to registration
or regulation as a pool operator, meaning that the fund may invest in futures
contracts without registering with the CFTC.
Options on Futures Contracts. Options on futures contracts give the holder a
right to buy or sell futures contracts in the future. Unlike a futures contract,
which requires the parties to the contract to buy and sell a security on a set
date (some futures are settled in cash), an option on a futures contract merely
entitles its holder to decide on or before a future date (within nine months of
the date of issue) whether to enter into a contract. If the holder decides not
to enter into the contract, all that is lost is the amount (premium) paid for
the option. Further, because the value of the option is fixed at the point of
sale, there are no daily payments of cash to reflect the change in the value of
the underlying contract. However, since an option gives the buyer the right to
enter into a contract at a set price for a fixed period of time, its value does
change daily.
One of the risks in buying an option on a futures contract is the loss of the
premium paid for the option. The risk involved in writing options on futures
contracts an investor owns, or on securities held in its portfolio, is that
there could be an increase in the market value of these contracts or securities.
If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. An investor could
enter into a closing transaction by purchasing an option with the same terms as
the one previously sold. The cost to close the option and terminate the
investor's obligation, however, might still result in a loss. Further, the
investor might not be able to close the option because of insufficient activity
in the options market. Purchasing options also limits the use of monies that
might otherwise be available for long-term investments.
Statement of Additional Information - April 1, 2009 Page 21
Options on Indexes. Options on indexes are securities traded on national
securities exchanges. An option on an index is similar to an option on a futures
contract except all settlements are in cash. A fund exercising a put, for
example, would receive the difference between the exercise price and the current
index level. Options may also be traded with respect to other types of indexes,
such as options on indexes of commodities futures.
Currency Options. Options on currencies are contracts that give the buyer the
right, but not the obligation, to buy (call options) or sell (put options) a
specified amount of a currency at a predetermined price (strike rate) on or
before the option matures (expiry date). Conversely, the seller has the
obligation to buy or sell a currency option upon exercise of the option by the
purchaser. Currency options are traded either on a national securities exchange
or over-the-counter.
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 Internal Revenue Service (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.
Statement of Additional Information - April 1, 2009 Page 22
Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
(See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Derivatives Risk
and Liquidity Risk.
EXCHANGE-TRADED FUNDS
Exchange-traded funds (ETFs) represent shares of ownership in mutual funds, unit
investment trusts or depositary receipts. ETFs hold portfolios of securities
that 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.
Statement of Additional Information - April 1, 2009 Page 23
Certain of the loans acquired by a fund may involve revolving credit facilities
under which a borrower may from time to time borrow and repay amounts up to the
maximum amount of the facility. In such cases, the fund would have an obligation
to advance its portion of such additional borrowings upon the terms specified in
the loan assignment. To the extent that the fund is committed to make additional
loans under such an assignment, it will at all times designate cash or
securities in an amount sufficient to meet such commitments.
Notwithstanding its intention in certain situations to not receive material,
non-public information with respect to its management of investments in floating
rate loans, the investment manager may from time to time come into possession of
material, non-public information about the issuers of loans that may be held in
a fund's portfolio. Possession of such information may in some instances occur
despite the investment manager's efforts to avoid such possession, but in other
instances the investment manager may choose to receive such information (for
example, in connection with participation in a creditors' committee with respect
to a financially distressed issuer). As, and to the extent, required by
applicable law, the investment manager's ability to trade in these loans for the
account of the fund could potentially be limited by its possession of such
information. Such limitations on the investment manager's ability to trade could
have an adverse effect on the fund by, for example, preventing the fund from
selling a loan that is experiencing a material decline in value. In some
instances, these trading restrictions could continue in effect for a substantial
period of time.
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
Statement of Additional Information - April 1, 2009 Page 24
the value of foreign securities it holds against an adverse move in exchange
rates. The precise matching of forward contract amounts and the value of
securities involved generally will not be possible since the future value of
securities in foreign currencies more than likely will change between the date
the forward contract is entered into and the date it matures. The projection of
short-term currency market movements is extremely difficult and successful
execution of a short-term hedging strategy is highly uncertain. Unless
specifically permitted, a fund would not enter into such forward contracts or
maintain a 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 - April 1, 2009 Page 25
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 - April 1, 2009 Page 26
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 - April 1, 2009 Page 27
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 - April 1, 2009 Page 28
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 - April 1, 2009 Page 29
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 - April 1, 2009 Page 30
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 - April 1, 2009 Page 31
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 - April 1, 2009 Page 32
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
In short selling transactions, a fund sells a security it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, a fund must borrow the security to make delivery to the buyer. A
fund is obligated to replace the security borrowed by purchasing it at the
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by a fund, which may result
in a loss or gain, respectively. Unlike taking a long position in a security by
purchasing the security, where potential losses are limited to the purchase
price, short sales have no cap on maximum losses, and gains are limited to the
price of the security at the time of the short sale.
Short sales of forward commitments and derivatives do not involve borrowing a
security. These types of short sales may include futures, options, contracts for
differences, forward contracts on financial instruments and options such as
contracts, credit linked instruments, and swap contracts.
A fund may not always be able to borrow a security it wants to sell short. A
fund also may be unable to close out an established short position at an
acceptable price and may have to sell long positions at disadvantageous times to
cover its short positions. The value of your investment in a fund will fluctuate
in response to the movements in the market. Fund performance also will depend on
the effectiveness of the investment manager's research and the management team's
investment decisions.
Short sales also involve other costs. A fund must repay to the lender an amount
equal to any dividends or interest that accrues while the loan is outstanding.
To borrow the security, a fund may be required to pay a premium. A fund also
will incur truncation costs in effecting short sales. The amount of any ultimate
gain for a fund resulting from a short sale will be decreased and the amount of
any ultimate loss will be increased, by the amount of premiums, interest or
expenses a fund may be required to pay in connection with the short sale. Until
a fund closes the short position, it will earmark and reserve fund assets, in
cash or liquid securities to offset a portion of the leverage risk. Realized
gains from short sales are typically treated as short-term gains/losses.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Market Risk and Short Sales
Risk.
SOVEREIGN DEBT
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. At times, certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt.
Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness.
Statement of Additional Information - April 1, 2009 Page 33
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 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
Statement of Additional Information - April 1, 2009 Page 34
beginning of the contract and returned at the end of the contract. In addition
to paying and receiving amounts at the beginning and termination of the
agreements, both sides will also have to pay in full periodically based upon the
currency they have borrowed. Change in foreign exchange rates and changes in
interest rates, as described above, may negatively affect currency swaps.
Total Return Swaps. Total return swaps are contracts in which one party agrees
to make periodic payments based on the change in market value of the underlying
assets, which may include a specified security, basket of securities or security
indexes during the specified period, in return for periodic payments based on a
fixed or variable interest rate of the total return from other underlying
assets. Total return swap agreements may be used to obtain exposure to a
security or market without owning or taking physical custody of such security or
market. For example, CMBS total return swaps are bilateral financial contracts
designed to replicate synthetically the total returns of commercial mortgage-
backed securities. In a typical total return equity swap, payments made by the
fund or the counterparty are based on the total return of a particular 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
Statement of Additional Information - April 1, 2009 Page 35
offsetting positions, with a value at least equal to the fund's exposure (any
accrued but unpaid net amounts owed by the fund to any counterparty), on a
marked-to-market basis. In connection with credit default swaps in which a fund
is the seller, the fund will segregate or "earmark" cash or other liquid assets,
or enter into offsetting positions, with a value at least equal to the full
notional amount of the swap (minus any amounts owed to the fund). Such
segregation or "earmarking" will ensure that the fund has assets available to
satisfy its obligations with respect to the transaction. Such segregation or
"earmarking" will not limit the fund's exposure to loss.
The use of swap agreements by a fund entails certain risks, which may be
different from, or possibly greater than, the risks associated with investing
directly in the securities and other investments that are the referenced asset
for the swap agreement. Swaps are highly specialized instruments that require
investment techniques, risk analyses, and tax planning different from those
associated with stocks, bonds, and other traditional investments. The use of a
swap requires an understanding not only of the referenced asset, reference rate,
or index, but also of the swap itself, without the benefit of observing the
performance of the swap under all the possible market conditions. Because some
swap agreements have a leverage component, adverse changes in the value or level
of the underlying asset, reference rate, or index can result in a loss
substantially greater than the amount invested in the swap itself. Certain swaps
have the potential for unlimited loss, regardless of the size of the initial
investment.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with swaps include: Credit Risk, Liquidity Risk and
Market Risk.
VARIABLE- OR FLOATING-RATE SECURITIES
Variable-rate securities provide for automatic establishment of a new interest
rate at fixed intervals (daily, monthly, semiannually, etc.). Floating-rate
securities generally provide for automatic adjustment of the interest rate
whenever some specified interest rate index changes. Variable- or floating-rate
securities frequently include a demand feature enabling the holder to sell the
securities to the issuer at par. In many cases, the demand feature can be
exercised at any time. Some securities that do not have variable or floating
interest rates may be accompanied by puts producing similar results and price
characteristics. Variable-rate demand notes include master demand notes that are
obligations that permit the investor to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the
investor as lender, and the borrower. The interest rates on these notes
fluctuate from time to time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. Because
these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded.
There generally is not an established secondary market for these obligations.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, the lender's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and may involve
heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk.
WARRANTS
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Market Risk.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
When-issued securities and forward commitments involve a commitment to purchase
or sell specific securities at a predetermined price or yield in which payment
and delivery take place after the customary settlement period for that type of
security. Normally, the settlement date occurs within 45 days of the purchase
although in some cases settlement may take longer. The investor does not pay for
the securities or receive dividends or interest on them until the contractual
settlement date. Such instruments involve the risk of loss if the value of the
security to be purchased declines prior to the settlement date and the risk that
the security will not be issued as anticipated. If the security is not issued as
anticipated, a fund may lose the opportunity to obtain a price and yield
considered to be advantageous.
Statement of Additional Information - April 1, 2009 Page 36
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities and forward commitments
include: Credit Risk.
ZERO-COUPON, STEP-COUPON, AND PAY-IN-KIND SECURITIES
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See Appendix A for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero- coupon, step-coupon, and pay-in-kind
securities include: Credit Risk and Interest Rate Risk.
A fund cannot issue senior securities but this does not prohibit certain
investment activities for which assets of the fund are set aside, or margin,
collateral or escrow arrangements are established, to cover the related
obligations. Examples of those activities include borrowing money, delayed-
delivery and when-issued securities transactions, and contracts to buy or sell
options, derivatives, and hedging instruments.
SECURITIES TRANSACTIONS
Except as otherwise noted, the description of policies and procedures in this
section also applies to any fund subadviser. Subject to policies set by the
Board, as well as the terms of the investment management agreements, the
investment manager or subadviser is authorized to determine, consistent with a
fund's investment objective and policies, which securities will be purchased,
held, or sold. In determining where the buy and sell orders are to be placed,
the investment manager has been directed to use its best efforts to obtain the
best available price and the most favorable execution except where otherwise
authorized by the Board.
Each fund, the investment manager, any subadviser and RiverSource Distributors,
Inc. (principal underwriter and distributor of the Funds) has a strict Code of
Ethics that prohibits affiliated personnel from engaging in personal investment
activities that compete with or attempt to take advantage of planned portfolio
transactions for the fund.
A fund's securities may be traded on an agency basis with brokers or dealers or
on a principal basis with dealers. In an agency trade, the broker-dealer
generally is paid a commission. In a principal trade, the investment manager
will trade directly with the issuer or with a dealer who buys or sells for its
own account, rather than acting on behalf of another client. The investment
manager may pay the dealer a commission or instead, the dealer's profit, if any,
is the difference, or spread, between the dealer's purchase and sale price for
the security.
BROKER-DEALER SELECTION
In selecting broker-dealers to execute transactions, the investment manager and
each subadviser will consider from among such factors as the ability to minimize
trading costs, trading expertise, infrastructure, ability to provide information
or services, financial condition, confidentiality, competitiveness of commission
rates, evaluations of execution quality, promptness of execution, past history,
ability to prospect for and find liquidity, difficulty of trade, security's
trading characteristics, size of order, liquidity of market, block trading
capabilities, quality of settlement, specialized expertise, overall
responsiveness, willingness to commit capital and research services provided.
The Board has adopted a policy prohibiting the investment manager, or any
subadviser, from considering sales of shares of the funds as a factor in the
selection of broker-dealers through which to execute securities transactions.
On a periodic basis, the investment manager makes a comprehensive review of the
broker-dealers and the overall reasonableness of their commissions, including
review by an independent third-party evaluator. The review evaluates execution,
operational efficiency, and research services.
COMMISSION DOLLARS
Broker-dealers typically provide a bundle of services including research and
execution of transactions. The research provided can be either proprietary
(created and provided by the broker-dealer) or third party (created by a third
party but provided by the broker-dealer). Consistent with the interests of the
fund, the investment manager and each subadviser may use broker-dealers who
provide both types of research products and services in exchange for
commissions, known as "soft dollars," generated by transactions in fund
accounts.
Statement of Additional Information - April 1, 2009 Page 37
The receipt of research and brokerage products and services is used by the
investment manager, and by each subadviser, to the extent it engages in such
transactions, to supplement its own research and analysis activities, by
receiving the views and information of individuals and research staffs of other
securities firms, and by gaining access to specialized expertise on individual
companies, industries, areas of the economy and market factors. Research and
brokerage products and services may include reports on the economy, industries,
sectors and individual companies or issuers; statistical information; accounting
and tax law interpretations; political analyses; reports on legal developments
affecting portfolio securities; information on technical market actions; credit
analyses; on-line quotation systems; risk measurement; analyses of corporate
responsibility issues; on-line news services; and financial and market database
services. Research services may be used by the investment manager in providing
advice to multiple RiverSource accounts, including the funds (or by any
subadviser to any other client of the subadviser) even though it is not possible
to relate the benefits to any particular account or fund.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
Board has adopted a policy authorizing the investment manager to do so, to the
extent authorized by law, if the investment manager or subadviser determines, in
good faith, that such commission is reasonable in relation to the value of the
brokerage or research services provided by a broker or dealer, viewed either in
the light of that transaction or the investment manager's or subadviser's
overall responsibilities with respect to a fund and the other funds or accounts
for which it acts as investment manager (or by any subadviser to any other
client of that subadviser).
As a result of these arrangements, some portfolio transactions may not be
effected at the lowest commission, but overall execution may be better. The
investment manager and each subadviser have represented that under its
procedures the amount of commission paid will be reasonable and competitive in
relation to the value of the brokerage services and research products and
services provided.
The investment manager or a subadviser may use step-out transactions. A "step-
out" is an arrangement in which the investment manager or subadviser executes a
trade through one broker-dealer but instructs that broker-dealer to step-out all
or a part of the trade to another broker-dealer. The second broker-dealer will
clear and settle, and receive commissions for, the stepped-out portion. The
investment manager or subadviser may receive research products and services in
connection with step-out transactions.
Use of fund commissions may create potential conflicts of interest between the
investment manager or subadviser and a fund. However, the investment manager and
each subadviser has policies and procedures in place intended to mitigate these
conflicts and ensure that the use of fund commissions falls within the "safe
harbor" of Section 28(e) of the Securities Exchange Act of 1934. Some products
and services may be used for both investment decision-making and non-investment
decision-making purposes ("mixed use" items). The investment manager and each
subadviser, to the extent it has mixed use items, has procedures in place to
assure that fund commissions pay only for the investment decision-making portion
of a mixed-use item.
TRADE AGGREGATION AND ALLOCATION
Generally, orders are processed and executed in the order received. When a fund
buys or sells the same security as another portfolio, fund, or account, the
investment manager or subadviser carries out the purchase or sale pursuant to
policies and procedures designed in such a way believed to be fair to the fund.
Purchase and sale orders may be combined or aggregated for more than one account
if it is believed it would be consistent with best execution. Aggregation may
reduce commission costs or market impact on a per-share and per-dollar basis,
although aggregation may have the opposite effect. There may be times when not
enough securities are received to fill an aggregated order, including in an
initial public offering, involving multiple accounts. In that event, the
investment manager and each subadviser has policies and procedures designed in
such a way believed to result in a fair allocation among accounts, including the
fund.
From time to time, different portfolio managers with the investment manager may
make differing investment decisions related to the same security. However, with
certain exceptions for funds managed using strictly quantitative methods, a
portfolio manager or portfolio management team may not sell a security short if
the security is owned in another portfolio managed by that portfolio manager or
portfolio management team. On occasion, a fund may purchase and sell a security
simultaneously in order to profit from short-term price disparities.
The investment manager has portfolio management teams in its Minneapolis and Los
Angeles offices that may share research information regarding leveraged loans.
The investment manager operates separate and independent trading desks in these
locations for the purpose of purchasing and selling leveraged loans. As a
result, the investment manager does not aggregate orders in leveraged loans
across portfolio management teams. For example, funds and other client accounts
being managed by these portfolio management teams may purchase and sell the same
leveraged loan in the secondary market on the same day at different times and at
different prices. There is also the potential for a particular account or group
of accounts, including a fund, to forego an opportunity or to receive a
different allocation (either larger or smaller) than might otherwise
Statement of Additional Information - April 1, 2009 Page 38
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.
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 2009 2008 2007
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ------------------------------------------------------------------------------------------------------
Income Builder Basic Income $ 0 $ 0(a) $ 0
- ------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 0 0(a) 0
- ------------------------------------------------------------------------------------------------------
Income Builder Moderate Income 0 0(a) 0
- ------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 0 0 0
- ------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 0 0 0
- ------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 0 0 0
- ------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive 0 0 0
- ------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative 0 0 0
- ------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 0 0 0
- ------------------------------------------------------------------------------------------------------
S&P 500 Index 16,486 40,706 21,050
- ------------------------------------------------------------------------------------------------------
Small Company Index 123,243 108,360 56,843
- ------------------------------------------------------------------------------------------------------
<Caption>
2008 2007 2006
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ------------------------------------------------------------------------------------------------------
Equity Value 591,525 773,828 721,284
- ------------------------------------------------------------------------------------------------------
Partners Small Cap Growth 581,945 850,077 1,410,791
- ------------------------------------------------------------------------------------------------------
Precious Metals and Mining 960,159 494,184 801,550
- ------------------------------------------------------------------------------------------------------
Small Cap Advantage 2,546,419 3,585,711 3,379,812
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity 38,557(b) N/A N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2010 0 0(c) N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2015 0 0(c) N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2020 0 0(c) N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2025 0 0(c) N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2030 0 0(c) N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2035 0 0(c) N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2040 0 0(c) N/A
- ------------------------------------------------------------------------------------------------------
Retirement Plus 2045 0 0(c) N/A
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ------------------------------------------------------------------------------------------------------
High Yield Bond 0 0 0
- ------------------------------------------------------------------------------------------------------
Partners Aggressive Growth 859,002 1,160,632 556,410
- ------------------------------------------------------------------------------------------------------
Partners Fundamental Value 292,900 217,139 346,840
- ------------------------------------------------------------------------------------------------------
Partners Select Value 838,472 1,757,678 445,429
- ------------------------------------------------------------------------------------------------------
Partners Small Cap Equity 519,535 455,170 459,451
- ------------------------------------------------------------------------------------------------------
Partners Small Cap Value 1,179,158 1,422,160 2,624,255
- ------------------------------------------------------------------------------------------------------
Short Duration U.S. Government 43,210 42,504 24,483
- ------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 17,640 10,386 6,379
- ------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 39
<Table>
<Caption>
TOTAL BROKERAGE COMMISSIONS
- ------------------------------------------------------------------------------------------------------
FUND 2008 2007 2006
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ------------------------------------------------------------------------------------------------------
Dividend Opportunity $ 412,022 $ 576,524 $ 456,446
- ------------------------------------------------------------------------------------------------------
Real Estate 173,705 187,309 152,782
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ------------------------------------------------------------------------------------------------------
Cash Management 0 0 0
- ------------------------------------------------------------------------------------------------------
Disciplined Equity 1,951,255 1,577,337 987,624
- ------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity 124,754 156,759 8,916(d)
- ------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 75,041 64,928 33,110(e)
- ------------------------------------------------------------------------------------------------------
Floating Rate 861 0 0(e)
- ------------------------------------------------------------------------------------------------------
Growth 10,366,547 12,096,184 10,375,981
- ------------------------------------------------------------------------------------------------------
Income Opportunities 0 0 0
- ------------------------------------------------------------------------------------------------------
Inflation Protected Securities 11,586 0 0
- ------------------------------------------------------------------------------------------------------
Large Cap Equity 10,502,917 15,040,354 9,944,390
- ------------------------------------------------------------------------------------------------------
Large Cap Value 61,073 88,935 138,363
- ------------------------------------------------------------------------------------------------------
Limited Duration Bond 4,138 5,172 4,006
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ------------------------------------------------------------------------------------------------------
California Tax-Exempt 1,938 4,143 666(f)
- ------------------------------------------------------------------------------------------------------
Diversified Bond 111,876 91,815 108,055
- ------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt 3,418 7,293 1,254(f)
- ------------------------------------------------------------------------------------------------------
New York Tax-Exempt 724 1,524 255(f)
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ------------------------------------------------------------------------------------------------------
Balanced 493,156 567,773 420,523
- ------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 150,374 45,978(g) N/A
- ------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value 6,631(h) N/A N/A
- ------------------------------------------------------------------------------------------------------
Diversified Equity Income 4,085,552 3,790,954 2,923,490
- ------------------------------------------------------------------------------------------------------
Mid Cap Value 1,672,775 1,219,474 1,354,225
- ------------------------------------------------------------------------------------------------------
Strategic Allocation 1,049,954 1,425,483 638,067
- ------------------------------------------------------------------------------------------------------
Strategic Income Allocation 17,707 6,639(g) N/A
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income 0 0 0(i)
- ------------------------------------------------------------------------------------------------------
Disciplined International Equity 514,960 547,910 60,738(j)
- ------------------------------------------------------------------------------------------------------
Emerging Markets Bond 0 0 0(k)
- ------------------------------------------------------------------------------------------------------
Global Bond 18,925 17,268 9,664
- ------------------------------------------------------------------------------------------------------
Global Technology 471,967 1,027,281 1,237,181
- ------------------------------------------------------------------------------------------------------
Partners International Select Growth 1,690,066 1,932,330 1,265,256
- ------------------------------------------------------------------------------------------------------
Partners International Select Value 1,558,333 1,426,926 1,533,794
- ------------------------------------------------------------------------------------------------------
Partners International Small Cap 270,663 353,096 366,091
- ------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 3,346,690 3,361,865 3,017,380
- ------------------------------------------------------------------------------------------------------
Threadneedle European Equity 396,474 282,104 160,239
- ------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 1,185,084 1,474,583 1,249,847
- ------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Income 5,030(l) N/A N/A
- ------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha 6,647(l) N/A N/A
- ------------------------------------------------------------------------------------------------------
Threadneedle International Opportunity 1,020,584 1,150,182 989,118
- ------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 40
<Table>
<Caption>
TOTAL BROKERAGE COMMISSIONS
- ------------------------------------------------------------------------------------------------------
FUND 2008 2007 2006
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt $ 684 $ 2,175 $ 438
- ------------------------------------------------------------------------------------------------------
Mid Cap Growth 2,165,273 2,813,784 1,867,241
- ------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 6,431 19,450 4,257
- ------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 24,531 74,062 17,679
- ------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- ------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 0 0 0
- ------------------------------------------------------------------------------------------------------
</Table>
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31
to Jan. 31. For 2008, the information shown is for the period from June
1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period
ended on May 31.
(b) For the period from Oct. 18, 2007 (when shares became publicly available)
to April 30, 2008.
(c) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(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 Aug. 1, 2008 (when shares became publicly available)
to Sept. 30, 2008.
(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) For the period from Aug. 1, 2008 (when shares became publicly available)
to Oct. 31, 2008.
Statement of Additional Information - April 1, 2009 Page 41
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 TURNOVER RATES
AMOUNT OF COMMISSIONS -------------------------------------
FUND TRANSACTIONS IMPUTED OR PAID 2009 2008
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ----------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income(a) $ 0(b) $ 0(b) 39% 19%
- ----------------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income(a) 0(b) 0(b) 36 24
- ----------------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income(a) 0(b) 0(b) 40 19
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 0(b) 0(b) 35 40
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 0(b) 0(b) 27 29
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 0(b) 0(b) 34 27
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive 0(b) 0(b) 33 33
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative 0(b) 0(b) 29 31
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 0(b) 0(b) 28 31
- ----------------------------------------------------------------------------------------------------------------------
S&P 500 Index 0 0 5 4
- ----------------------------------------------------------------------------------------------------------------------
Small Company Index 0 0 23 14
- ----------------------------------------------------------------------------------------------------------------------
2008 2007
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ----------------------------------------------------------------------------------------------------------------------
Equity Value 62,307,537 72,239 25 37
- ----------------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth 84,593,491 36,661 122 119
- ----------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining 50,317,759 38,416 241(c) 114
- ----------------------------------------------------------------------------------------------------------------------
Small Cap Advantage 113,545,867 207,170 179 158
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ----------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity 86,825(d) 53 23(d) N/A
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 0(b) 0(b) 92 80(e)
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 0(b) 0(b) 47 48(e)
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 0(b) 0(b) 50 40(e)
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 0(b) 0(b) 41 37(e)
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 0(b) 0(b) 50 32(e)
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 0(b) 0(b) 44 38(e)
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 0(b) 0(b) 52 33(e)
- ----------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 0(b) 0(b) 50 57(e)
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ----------------------------------------------------------------------------------------------------------------------
High Yield Bond 0 0 64 95
- ----------------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth 74,286,129 54,797 141 163
- ----------------------------------------------------------------------------------------------------------------------
Partners Fundamental Value 0 0 14 12
- ----------------------------------------------------------------------------------------------------------------------
Partners Select Value 111,988,669 113,732 88 159(f)
- ----------------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity 5,029,719 7,350 106 70
- ----------------------------------------------------------------------------------------------------------------------
Partners Small Cap Value 474,998,456 70,029 45 58
- ----------------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government 0 0 209 168
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 0 0 354(g) 306(g)
- ----------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 42
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------
BROKERAGE DIRECTED FOR RESEARCH*
-------------------------------------
AMOUNT OF TURNOVER RATES
AMOUNT OF COMMISSIONS -------------------------------------
FUND TRANSACTIONS IMPUTED OR PAID 2008 2007
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ----------------------------------------------------------------------------------------------------------------------
Dividend Opportunity $ 15,749,145 $ 54,405 20% 17%
- ----------------------------------------------------------------------------------------------------------------------
Real Estate 1,084,912 605 52 38
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ----------------------------------------------------------------------------------------------------------------------
Cash Management 0 0 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Disciplined Equity 0 0 58 62
- ----------------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity 0 0 56 84
- ----------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 0 0 87 127
- ----------------------------------------------------------------------------------------------------------------------
Floating Rate 0 0 43 91
- ----------------------------------------------------------------------------------------------------------------------
Growth 1,339,656,389 1,904,948 112 98
- ----------------------------------------------------------------------------------------------------------------------
Income Opportunities 0 0 75 122
- ----------------------------------------------------------------------------------------------------------------------
Inflation Protected Securities 0 0 59 76
- ----------------------------------------------------------------------------------------------------------------------
Large Cap Equity 1,378,682,998 1,744,468 68 66
- ----------------------------------------------------------------------------------------------------------------------
Large Cap Value 9,016,509 10,770 24 35
- ----------------------------------------------------------------------------------------------------------------------
Limited Duration Bond 0 0 218(h) 263
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ----------------------------------------------------------------------------------------------------------------------
California Tax-Exempt(i) 0 0 49 62
- ----------------------------------------------------------------------------------------------------------------------
Diversified Bond 0 0 226 295
- ----------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt(i) 0 0 23 26
- ----------------------------------------------------------------------------------------------------------------------
New York Tax-Exempt(i) 0 0 31 28
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ----------------------------------------------------------------------------------------------------------------------
Balanced 67,135,127 86,479 105 124
- ----------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 0 0 70 21(j)
- ----------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value 0(k) 0(k) 6(k) N/A
- ----------------------------------------------------------------------------------------------------------------------
Diversified Equity Income 557,479,269 554,662 31 31
- ----------------------------------------------------------------------------------------------------------------------
Mid Cap Value 200,044,593 196,118 34 24
- ----------------------------------------------------------------------------------------------------------------------
Strategic Allocation 0 0 123 123
- ----------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation 0 0 137 70
- ----------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ----------------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income 0 0 39 36
- ----------------------------------------------------------------------------------------------------------------------
Disciplined International Equity 0 0 61 47
- ----------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond 0 0 82 41
- ----------------------------------------------------------------------------------------------------------------------
Global Bond 0 0 75 77
- ----------------------------------------------------------------------------------------------------------------------
Global Technology 20,896,126 37,913 81 167
- ----------------------------------------------------------------------------------------------------------------------
Partners International Select Growth 97,589,551 156,876 85 104
- ----------------------------------------------------------------------------------------------------------------------
Partners International Select Value 559,869,117 309,044 40 28
- ----------------------------------------------------------------------------------------------------------------------
Partners International Small Cap 0 0 87 96
- ----------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 0 0 133 125
- ----------------------------------------------------------------------------------------------------------------------
Threadneedle European Equity 0 0 180 114
- ----------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 0 0 97 100
- ----------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Income 0(l) 0(l) 10(l) N/A
- ----------------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha 0(l) 0(l) 36(l) N/A
- ----------------------------------------------------------------------------------------------------------------------
Threadneedle International Opportunity 0 0 78 84
- ----------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 43
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------------
BROKERAGE DIRECTED FOR RESEARCH*
-------------------------------------
AMOUNT OF TURNOVER RATES
AMOUNT OF COMMISSIONS -------------------------------------
FUND TRANSACTIONS IMPUTED OR PAID 2008 2007
- ------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt $ 0 $ 0 36% 53%
- ------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth 54,423,999 96,049 76 87
- ------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 0 0 37 51
- ------------------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 0 0 37 47
- ------------------------------------------------------------------------------------------------------------------------
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 these
amounts have not been included in the table.
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31
to Jan. 31. For 2008, the information shown is for the period from June
1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal
period ended on May 31.
(b) The underlying funds may have directed transactions to firms in exchange
for research services.
(c) Higher turnover rates may result in higher brokerage expenses and taxes.
The higher turnover rate can be primarily attributed to repositioning
the fund to a smaller number of holdings as it worked through risk
management and secondarily, market volatility made up the balance of the
turnover rate.
(d) For the period from Oct. 18, 2007 (when shares became publicly
available) to April 30, 2008.
(e) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(f) The turnover rate increase from 2006 was the result of a change in
subadvisers during the fiscal period.
(g) 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.
(h) Includes mortgage dollar rolls. If mortgage dollar roll transactions
were excluded, the portfolio turnover would have been 124% for the year
ended July 31, 2008.
(i) 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.
(j) For the period from May 17, 2007 (when shares became publicly available)
to Sept. 30, 2007.
(k) For the period from Aug. 1, 2008 (when shares became publicly available)
to Sept. 30, 2008.
(l) For the period from Aug. 1, 2008 (when the Fund became available) to
Oct. 31, 2008.
Statement of Additional Information - April 1, 2009 Page 44
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
- --------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income None N/A
- --------------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income None N/A
- --------------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income None N/A
- --------------------------------------------------------------------------------------------------------------------
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 $ 65,185
--------------------------------------------------------------------
Charles Schwab 190,015
--------------------------------------------------------------------
Citigroup 289,179
--------------------------------------------------------------------
E*Trade Financial 9,587
--------------------------------------------------------------------
Franklin Resources 109,671
--------------------------------------------------------------------
Goldman Sachs Group 533,707
--------------------------------------------------------------------
JPMorgan Chase & Co. 1,423,202
--------------------------------------------------------------------
Legg Mason 34,047
--------------------------------------------------------------------
Morgan Stanley 321,071
--------------------------------------------------------------------
PNC Financial Services Group 207,965
- --------------------------------------------------------------------------------------------------------------------
Small Company Index Investment Technology Group 1,062,970
--------------------------------------------------------------------
LaBranche & Co. 408,547
--------------------------------------------------------------------
optionsXpress 525,824
--------------------------------------------------------------------
Piper Jaffray Companies 490,510
- --------------------------------------------------------------------------------------------------------------------
Stifel Financial 1,019,664
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- --------------------------------------------------------------------------------------------------------------------
Equity Value Citigroup 7,790,004
--------------------------------------------------------------------
JPMorgan Chase & Co. 7,116,343
- --------------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth Investment Technology Group 1,107,259
--------------------------------------------------------------------
optionsXpress Holdings 531,170
- --------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining None N/A
- --------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Investment Technology Group 507,980
--------------------------------------------------------------------
optionsXpress Holdings 890,530
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- --------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity Citigroup 757,493
- --------------------------------------------------------------------------------------------------------------------
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 - April 1, 2009 Page 45
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER END OF FISCAL PERIOD
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- --------------------------------------------------------------------------------------------------------------------
High Yield Bond None N/A
- --------------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth None N/A
- --------------------------------------------------------------------------------------------------------------------
Partners Fundamental Value Citigroup $ 4,183,179
--------------------------------------------------------------------
E*TRADE Financial 234,643
--------------------------------------------------------------------
JPMorgan Chase & Co. 33,857,771
--------------------------------------------------------------------
Merrill Lynch & Co. 4,984,920
--------------------------------------------------------------------
Morgan Stanley 3,640,571
- --------------------------------------------------------------------------------------------------------------------
Partners Select Value None N/A
- --------------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity Eaton Vance 1,570,095
--------------------------------------------------------------------
Knight Capital Group Cl A 65,220
--------------------------------------------------------------------
optionsXpress Holdings 1,281,324
- --------------------------------------------------------------------------------------------------------------------
Partners Small Cap Value Knight Capital Group Cl A 1,312,597
- --------------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government Morgan Stanley Mortgage Loan Trust 3,369,665
- --------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage ChaseFlex Trust 505,036
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mtge Trust 2,982,060
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 2,944,373
--------------------------------------------------------------------
GS Mortgage Securities II 883,204
--------------------------------------------------------------------
JPMorgan Mortgage Trust 820,077
--------------------------------------------------------------------
Morgan Stanley Mortgage Loan Trust 883,637
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- --------------------------------------------------------------------------------------------------------------------
Dividend Opportunity Citigroup 23,201,974
--------------------------------------------------------------------
Goldman Sachs Group 32,663,485
--------------------------------------------------------------------
JPMorgan Chase & Co. 22,009,110
--------------------------------------------------------------------
PNC Financial Services Group 3,911,464
- --------------------------------------------------------------------------------------------------------------------
Real Estate None N/A
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- --------------------------------------------------------------------------------------------------------------------
Cash Management Bear Stearns Companies 25,000,000
--------------------------------------------------------------------
Citigroup Funding 196,618,680
--------------------------------------------------------------------
Credit Suisse NY 146,620,740
--------------------------------------------------------------------
Goldman Sachs Group 25,000,000
--------------------------------------------------------------------
JPMorgan Chase & Co. 136,841,050
--------------------------------------------------------------------
Lehman Brothers Holdings* 80,100,000
--------------------------------------------------------------------
Merrill Lynch & Co. 152,998,540
--------------------------------------------------------------------
Morgan Stanley 20,720,382
- --------------------------------------------------------------------------------------------------------------------
Disciplined Equity Charles Schwab 4,016,005
--------------------------------------------------------------------
Citigroup 89,269,962
--------------------------------------------------------------------
E*TRADE 773,132
--------------------------------------------------------------------
Goldman Sachs Group 4,770,869
--------------------------------------------------------------------
JPMorgan Chase & Co. 41,756,101
--------------------------------------------------------------------
Lehman Brothers Holdings* 7,515,746
--------------------------------------------------------------------
Merrill Lynch & Co. 19,815,362
--------------------------------------------------------------------
Morgan Stanley 39,406,764
- --------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value Knight Capital Group Cl A 145,822
--------------------------------------------------------------------
Piper Jaffray Companies 63,829
--------------------------------------------------------------------
Westwood Holdings Group 134,188
- --------------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity Knight Capital Group Cl A 72,493
- --------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 46
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER END OF FISCAL PERIOD
- --------------------------------------------------------------------------------------------------------------------
Floating Rate Ameritrade Holding Corp. $ 745,332
--------------------------------------------------------------------
Bear Stearns Commercial Mtg Securities 943,533
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mtge Trust 1,952,180
--------------------------------------------------------------------
CS First Boston Mtge Securities 855,783
--------------------------------------------------------------------
Lehman Brothers Holdings* 963,838
--------------------------------------------------------------------
Merrill Lynch Mtge Trust 1,153,729
--------------------------------------------------------------------
Nuveen Investments 1,658,970
- --------------------------------------------------------------------------------------------------------------------
Growth Lehman Brothers Holdings* 6,021,142
- --------------------------------------------------------------------------------------------------------------------
Income Opportunities None N/A
- --------------------------------------------------------------------------------------------------------------------
Inflation Protected Securities None N/A
- --------------------------------------------------------------------------------------------------------------------
Large Cap Equity Citigroup 26,071,447
--------------------------------------------------------------------
Goldman Sachs Group 22,551,709
--------------------------------------------------------------------
JPMorgan Chase & Co. 47,861,246
--------------------------------------------------------------------
Legg Mason 4,714,454
--------------------------------------------------------------------
Lehman Brothers Holdings* 19,819,100
--------------------------------------------------------------------
Merrill Lynch & Co. 4,367,136
--------------------------------------------------------------------
Morgan Stanley 17,105,697
--------------------------------------------------------------------
PNC Financial Services Group 7,082,875
- --------------------------------------------------------------------------------------------------------------------
Large Cap Value Citigroup 878,430
--------------------------------------------------------------------
Goldman Sachs Group 326,303
--------------------------------------------------------------------
JPMorgan Chase & Co. 1,210,083
--------------------------------------------------------------------
Legg Mason 111,487
--------------------------------------------------------------------
Lehman Brothers Holdings* 366,723
--------------------------------------------------------------------
Merrill Lynch & Co. 173,678
--------------------------------------------------------------------
Morgan Stanley 465,824
--------------------------------------------------------------------
PNC Financial Services Group 288,083
- --------------------------------------------------------------------------------------------------------------------
Limited Duration Bond Bear Stearns Adjustable Rate Mortgage
Trust 872,823
--------------------------------------------------------------------
Bear Stearns Commercial Mtg Securities 641,299
--------------------------------------------------------------------
ChaseFlex Trust 248,077
--------------------------------------------------------------------
Citigroup 1,259,000
--------------------------------------------------------------------
Citigroup Commercial Mtge Trust 696,777
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mtge Trust 170,687
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 278,727
--------------------------------------------------------------------
Credit Suisse NY 226,272
--------------------------------------------------------------------
CS First Boston Mtge Securities 676,454
--------------------------------------------------------------------
GS Mortgage Securities II 799,079
--------------------------------------------------------------------
JPMorgan Chase & Co. 991,462
--------------------------------------------------------------------
JPMorgan Chase Commercial Mtge
Securities 3,563,196
--------------------------------------------------------------------
LB-UBS Commercial Mtge Trust 1,587,416
--------------------------------------------------------------------
Lehman Brothers Holdings* 544,494
--------------------------------------------------------------------
Merrill Lynch & Co. 706,410
--------------------------------------------------------------------
Merrill Lynch Mtge Trust 122,321
--------------------------------------------------------------------
Morgan Stanley 944,154
--------------------------------------------------------------------
Morgan Stanley Capital 1 692,480
--------------------------------------------------------------------
Morgan Stanley Mtge Loan Trust 840,855
- --------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 47
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER END OF FISCAL PERIOD
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- --------------------------------------------------------------------------------------------------------------------
California Tax-Exempt None N/A
- --------------------------------------------------------------------------------------------------------------------
Diversified Bond Bear Stearns Adjustable Rate Mortgage
Trust $ 17,436,578
--------------------------------------------------------------------
Bear Stearns Commercial Mtg Securities 21,099,342
--------------------------------------------------------------------
ChaseFlex Trust 1,571,241
--------------------------------------------------------------------
Citigroup 28,310,330
--------------------------------------------------------------------
Citigroup Commercial Mtge Trust 14,460,744
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mtge Trust 3,136,137
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 5,831,624
--------------------------------------------------------------------
Credit Suisse NY 4,591,057
--------------------------------------------------------------------
CS First Boston Mtge Securities 14,248,373
--------------------------------------------------------------------
GS Mortgage Securities II 13,047,600
--------------------------------------------------------------------
JPMorgan Chase Bank 8,319,926
--------------------------------------------------------------------
JPMorgan Chase Commercial Mtge
Securities 69,173,902
--------------------------------------------------------------------
JPMorgan Chase & Co. 16,062,237
--------------------------------------------------------------------
LB-UBS Commercial Mtge Trust 30,843,436
--------------------------------------------------------------------
Lehman Brothers Holdings* 12,531,597
--------------------------------------------------------------------
Merrill Lynch & Co. 13,901,778
--------------------------------------------------------------------
Merrill Lynch Mtge Trust 3,496,976
--------------------------------------------------------------------
Morgan Stanley 16,923,975
--------------------------------------------------------------------
Morgan Stanley Capital 1 16,818,388
--------------------------------------------------------------------
Morgan Stanley Mtge Loan Trust 14,352,406
- --------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt None N/A
- --------------------------------------------------------------------------------------------------------------------
New York Tax-Exempt None N/A
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- --------------------------------------------------------------------------------------------------------------------
Balanced Bear Stearns Adjustable Rate Mortgage
Trust 2,056,495
--------------------------------------------------------------------
Bear Stearns Commercial Mtg Securities 2,433,377
--------------------------------------------------------------------
ChaseFlex Trust 950,665
--------------------------------------------------------------------
Citigroup 11,143,567
--------------------------------------------------------------------
Citigroup Commercial Mtge Trust 1,597,731
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mtge Trust 352,251
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 641,835
--------------------------------------------------------------------
Credit Suisse NY 336,023
--------------------------------------------------------------------
CS First Boston Mtge Securities 618,807
--------------------------------------------------------------------
Goldman Sachs Group 2,224,256
--------------------------------------------------------------------
GS Mortgage Securities II 1,093,832
--------------------------------------------------------------------
JPMorgan Chase & Co. 13,228,624
--------------------------------------------------------------------
JPMorgan Chase Bank 485,791
--------------------------------------------------------------------
JPMorgan Chase Commercial Mtge
Securities 5,788,325
--------------------------------------------------------------------
LB-UBS Commercial Mtge Trust 3,548,011
--------------------------------------------------------------------
Legg Mason 378,164
--------------------------------------------------------------------
Lehman Brothers Holdings* 93,125
--------------------------------------------------------------------
Merrill Lynch & Co. 2,155,227
--------------------------------------------------------------------
Merrill Lynch Mtge Trust 222,584
--------------------------------------------------------------------
Morgan Stanley 1,939,572
--------------------------------------------------------------------
Morgan Stanley Capital 1 1,954,402
--------------------------------------------------------------------
PNC Financial Services Group 2,794,751
- --------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth Goldman Sachs Group 2,407,041
--------------------------------------------------------------------
Merrill Lynch & Co. 1,031,582
--------------------------------------------------------------------
Morgan Stanley 2,026,438
- --------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 48
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER END OF FISCAL PERIOD
- --------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value Citigroup $ 465,556
--------------------------------------------------------------------
Lehman Brothers Holdings* 587
--------------------------------------------------------------------
Merrill Lynch & Co. 131,307
--------------------------------------------------------------------
Morgan Stanley 89,056
- --------------------------------------------------------------------------------------------------------------------
Diversified Equity Income Citigroup 40,913,779
--------------------------------------------------------------------
JPMorgan Chase & Co. 49,760,204
- --------------------------------------------------------------------------------------------------------------------
Mid Cap Value None N/A
- --------------------------------------------------------------------------------------------------------------------
Strategic Allocation Bear Stearns Commercial Mortgage
Securities 3,562,336
--------------------------------------------------------------------
Charles Schwab 1,763,164
--------------------------------------------------------------------
Citigroup 30,594,415
--------------------------------------------------------------------
Citigroup Commercial Mortgage Trust 1,642,261
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mortgage Trust 2,042,743
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 641,835
--------------------------------------------------------------------
CS First Boston Mortgage Securities 4,882,828
--------------------------------------------------------------------
Goldman Sachs Group 994,048
--------------------------------------------------------------------
GS Mortgage Securities II 1,523,546
--------------------------------------------------------------------
JPMorgan Chase & Co. 16,986,581
--------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage
Securities 6,446,223
--------------------------------------------------------------------
Knight Capital Group Cl A 73,899
--------------------------------------------------------------------
LB-UBS Commercial Mortgage Trust 4,304,264
--------------------------------------------------------------------
Lehman Brothers Holdings* 29,688
--------------------------------------------------------------------
Merrill Lynch & Co. 6,168,171
--------------------------------------------------------------------
Merrill Lynch Mortgage Trust 927,435
--------------------------------------------------------------------
Morgan Stanley 7,342,576
--------------------------------------------------------------------
Morgan Stanley Capital 1 1,337,566
--------------------------------------------------------------------
Morgan Stanley Mortgage Loan Trust 1,512,553
- --------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation Ameritrade Holding Corp. - subsidiary 594,322
--------------------------------------------------------------------
Bear Stearns Adjustable Rate Mortgage
Trust 203,614
--------------------------------------------------------------------
Bear Stearns Commercial Mortgage
Securities 909,594
--------------------------------------------------------------------
Charles Schwab 25,090
--------------------------------------------------------------------
Citigroup 720,374
--------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mortgage Trust 939,180
--------------------------------------------------------------------
CS First Boston Mortgage Securities 1,639,456
--------------------------------------------------------------------
Goldman Sachs Group 34,304
--------------------------------------------------------------------
JPMorgan Chase & Co. 217,669
--------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage
Securities 1,875,303
--------------------------------------------------------------------
Lehman Brothers Holdings* 11,788
--------------------------------------------------------------------
Merrill Lynch & Co. 158,624
--------------------------------------------------------------------
Merrill Lynch Mortgage Trust 366,194
--------------------------------------------------------------------
Morgan Stanley 555,840
--------------------------------------------------------------------
Morgan Stanley Capital 1 119,467
--------------------------------------------------------------------
Morgan Stanley Mortgage Loan Trust 756,276
--------------------------------------------------------------------
Nuveen Investments 105,610
- --------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 49
<Table>
<Caption>
VALUE OF SECURITIES OWNED AT
FUND ISSUER END OF FISCAL PERIOD
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- --------------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income Bear Stearns Companies $ 745,926
--------------------------------------------------------------------
Citigroup 619,416
--------------------------------------------------------------------
Credit Suisse First Boston USA 636,727
--------------------------------------------------------------------
GS Mortgage Securities II 2,521,127
--------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage
Securities 849,854
--------------------------------------------------------------------
Lehman Brothers Holdings* 75,200
--------------------------------------------------------------------
Morgan Stanley 633,832
--------------------------------------------------------------------
Morgan Stanley, Dean Witter Capital 1 1,167,921
- --------------------------------------------------------------------------------------------------------------------
Disciplined International Equity None N/A
- --------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond Morgan Stanley 1,258,573
- --------------------------------------------------------------------------------------------------------------------
Global Bond Bear Stearns Commercial Mortgage
Securities 1,106,194
--------------------------------------------------------------------
Citigroup 709,276
--------------------------------------------------------------------
Citigroup Commercial Mortgage Trust 1,294,437
--------------------------------------------------------------------
Credit Suisse Mortgage Capital Ctfs 715,932
--------------------------------------------------------------------
Credit Suisse NY 452,945
--------------------------------------------------------------------
CS First Boston Mortgage Securities 1,407,343
--------------------------------------------------------------------
GS Mortgage Securities II 1,260,948
--------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage
Securities 6,275,448
--------------------------------------------------------------------
LB-UBS Commercial Mortgage Trust 4,531,712
--------------------------------------------------------------------
Lehman Brothers Holdings* 171,600
--------------------------------------------------------------------
Merrill Lynch & Co. 588,461
--------------------------------------------------------------------
Morgan Stanley Capital 1 1,458,809
- --------------------------------------------------------------------------------------------------------------------
Global Technology None N/A
- --------------------------------------------------------------------------------------------------------------------
Partners International Select Growth None N/A
- --------------------------------------------------------------------------------------------------------------------
Partners International Select Value Credit Suisse Group 13,198,329
- --------------------------------------------------------------------------------------------------------------------
Partners International Small Cap None N/A
- --------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets None N/A
- --------------------------------------------------------------------------------------------------------------------
Threadneedle European Equity Credit Suisse Group 791,189
- --------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Goldman Sachs Group 1,322,195
--------------------------------------------------------------------
JPMorgan Chase & Co. 8,071,264
- --------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Income JPMorgan Chase & Co. 138,146
- --------------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha None N/A
- --------------------------------------------------------------------------------------------------------------------
Threadneedle International Opportunity Credit Suisse Group 3,541,191
- --------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- --------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt None N/A
- --------------------------------------------------------------------------------------------------------------------
Mid Cap Growth TD AmeriTrade Holding 5,944,887
- --------------------------------------------------------------------------------------------------------------------
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>
* Subsequent to Aug. 31, 2008. Lehman Brothers Holdings filed a Chapter 11
bankruptcy petition.
Statement of Additional Information - April 1, 2009 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 ----------------------------------------------------------------------------------------------
2009 2008 2007
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- --------------------------------------------------------------------------------------------------------------------------
Income Builder None -- -- -- -- $ 0(a) $ 0
Basic Income
- --------------------------------------------------------------------------------------------------------------------------
Income Builder None -- -- -- -- 0(a) 0
Enhanced Income
- --------------------------------------------------------------------------------------------------------------------------
Income Builder None -- -- -- -- 0(a) 0
Moderate Income
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder None -- -- -- -- 0 0
Aggressive
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder None -- -- -- -- 0 0
Conservative
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate None -- -- -- -- 0 0
Aggressive
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate None -- -- -- -- 0 0
Conservative
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Total None -- -- -- -- 0 0
Equity
- --------------------------------------------------------------------------------------------------------------------------
S&P 500 Index None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Small Company Index None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
2008 2007 2006
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING
MARCH 31
- --------------------------------------------------------------------------------------------------------------------------
Equity Value None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth UBS 1 $3,919 0.67% 1.57% 0 0
Securities
- --------------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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 ----------------------------------------------------------------------------------------------
2008 2007 2006
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- --------------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity None(b) -- -- -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 None -- -- -- -- 0(c) N/A
- --------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 None -- -- -- -- 0(c) N/A
- --------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 None -- -- -- -- 0(c) N/A
- --------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 None -- -- -- -- 0(c) N/A
- --------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 None -- -- -- -- 0(c) N/A
- --------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 None -- -- -- -- 0(c) N/A
- --------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 None -- -- -- -- 0(c) N/A
- --------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 None -- -- -- -- 0(c) N/A
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth JPMorgan 2 $3,532 0.41% 0.26% $ 23 $ 57*
Securities,
Inc.
- --------------------------------------------------------------------------------------------------------------------------
Partners Fundamental Value None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Partners Select Value Gabelli & 3 0 -- -- 7,352 14,216
Co.
- --------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity JPMorgan 2 0 -- -- 568 0
Securities,
Inc.
- --------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Value Goldman 4 0 -- -- 0 1,821
Sachs & Co.
- --------------------------------------------------------------------------------------------------------------------------
Short Duration None -- -- -- -- 0 0
U.S. Government
- --------------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- --------------------------------------------------------------------------------------------------------------------------
Dividend Opportunity -- -- -- -- 0 0
None
- --------------------------------------------------------------------------------------------------------------------------
Real Estate None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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 ----------------------------------------------------------------------------------------------
2008 2007 2006
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- --------------------------------------------------------------------------------------------------------------------------
Cash Management None -- -- -- -- $ 0 $ 0
- --------------------------------------------------------------------------------------------------------------------------
Disciplined Equity None 0 0
- --------------------------------------------------------------------------------------------------------------------------
Disciplined Small and None -- -- -- -- 0 0(d)
Mid Cap Equity
- --------------------------------------------------------------------------------------------------------------------------
Disciplined Small None -- -- -- -- 0 0(e)
Cap Value
- --------------------------------------------------------------------------------------------------------------------------
Floating Rate None -- -- -- -- 0 0(e)
- --------------------------------------------------------------------------------------------------------------------------
Growth None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Income Opportunities None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Inflation Protected None -- -- -- -- 0 0
Securities
- --------------------------------------------------------------------------------------------------------------------------
Large Cap Equity None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Large Cap Value None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Limited Duration Bond None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- --------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt None -- -- -- -- 0 0(f)
- --------------------------------------------------------------------------------------------------------------------------
Diversified Bond None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt None -- -- -- -- 0 0(f)
- --------------------------------------------------------------------------------------------------------------------------
New York Tax-Exempt None -- -- -- -- 0 0(f)
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- --------------------------------------------------------------------------------------------------------------------------
Balanced None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap None -- -- -- -- 0(g) N/A
Growth
- --------------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap None(h) -- -- -- -- N/A N/A
Value
- --------------------------------------------------------------------------------------------------------------------------
Diversified Equity Income None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Mid Cap Value None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Strategic Allocation None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Strategic Income None -- -- -- -- 0(g) N/A
Allocation
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- --------------------------------------------------------------------------------------------------------------------------
Absolute Return Currency None -- -- -- -- 0 0(i)
and Income
- --------------------------------------------------------------------------------------------------------------------------
Disciplined International None -- -- -- -- 0 0(j)
Equity
- --------------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond None -- -- -- -- 0 0(k)
- --------------------------------------------------------------------------------------------------------------------------
Global Bond None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Global Technology None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Partners International JPMorgan 2 0 -- -- 0 8,149
Select Growth Securities,
Inc.
- --------------------------------------------------------------------------------------------------------------------------
Partners International Sanford 5 1,677 0.11% 0.04% N/A N/A
Select Value Bernstein
- --------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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 ----------------------------------------------------------------------------------------------
2008 2007 2006
- --------------------------------------------------------------------------------------------------------------------------
Partners International None -- -- -- -- $ 0 $ 0
Small Cap
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging None -- -- -- -- 0 0
Markets
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle European None -- -- -- -- 0 0
Equity
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity None(l) -- -- -- -- N/A N/A
Income
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle Global None(l) -- -- -- -- N/A N/A
Extended Alpha
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle International None -- -- -- -- 0 0
Opportunity
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- --------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt None -- -- -- -- 0 0
- --------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth -- -- -- -- 0 0
None
- --------------------------------------------------------------------------------------------------------------------------
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) Affiliate of UBS Global Asset Management, a subadviser.
(2) Affiliate of American Century, a subadviser.
(3) Affiliate of GAMCO Investors, Inc. a former subadviser, terminated Sept.
29, 2006.
(4) Affiliate of Goldman Sachs Asset Management, L.P., a subadviser.
(5) Affiliate of AllianceBernstein, a subadviser.
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31
to Jan. 31. For 2008, the information shown is for the period from June
1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal
period ended on May 31.
(b) For the period from Oct. 18, 2007 (when shares became publicly
available) to April 30, 2008.
(c) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(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 Aug. 1, 2008 (when shares became publicly available)
to Sept. 30, 2008.
(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) For the period from Aug. 1, 2008 (when shares became publicly available)
to Oct. 31, 2008.
Statement of Additional Information - April 1, 2009 Page 54
VALUING FUND SHARES
As of the end of the most recent fiscal period, the computation of net asset
value per share of a class of a fund was based on net assets of that class
divided by the number of class shares outstanding as shown in the following
table. All expenses of a fund, including the management fee and, as applicable,
distribution and plan administration fees, are accrued daily and taken into
account for the purpose of determining NAV. 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
- -----------------------------------------------------------------------------------------------------------------
Income Builder Basic Income
Class A $ 186,970,729 22,677,468 $ 8.24
Class B 27,939,305 3,394,885 8.23
Class C 9,281,940 1,126,721 8.24
Class R4 8,257 1,000 8.26
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income
Class A 164,090,568 21,598,784 7.60
Class B 18,998,046 2,503,256 7.59
Class C 7,980,635 1,051,482 7.59
Class R4 103,837 13,670 7.60
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income
Class A 338,875,864 43,137,952 7.86
Class B 40,992,857 5,230,164 7.84
Class C 14,003,542 1,784,927 7.85
Class R4 14,829 1,885 7.87
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive
Class A 294,773,096 45,416,245 6.49
Class B 56,863,918 8,803,125 6.46
Class C 11,330,376 1,765,176 6.42
Class R4 141,064 21,713 6.50
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative
Class A 145,919,328 17,150,019 8.51
Class B 41,589,703 4,905,272 8.48
Class C 10,602,340 1,249,604 8.48
Class R4 20,746 2,461 8.43
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate
Class A 664,054,374 87,640,367 7.58
Class B 144,798,038 19,199,873 7.54
Class C 33,449,418 4,433,154 7.55
Class R4 78,368 10,348 7.57
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive
Class A 644,510,105 91,887,421 7.01
Class B 130,075,493 18,628,806 6.98
Class C 26,360,644 3,778,666 6.98
Class R4 558,316 79,497 7.02
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative
Class A 257,155,177 32,046,209 8.02
Class B 60,844,849 7,606,644 8.00
Class C 15,772,351 1,971,183 8.00
Class R4 25,381 3,177 7.99
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity
Class A 245,908,353 40,787,041 6.03
Class B 45,514,660 7,624,879 5.97
Class C 9,263,309 1,558,801 5.94
Class R4 74,311 12,287 6.05
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 55
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
S&P 500 Index
Class D $ 21,470,665 7,875,153 $ 2.73
Class E 87,567,351 32,008,961 2.74
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Small Company Index
Class A 280,601,738 99,425,503 2.82
Class B 50,844,680 22,379,419 2.27
Class R4 4,364,248 1,490,973 2.93
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- -----------------------------------------------------------------------------------------------------------------
Equity Value
Class A 862,727,060 72,058,965 11.97
Class B 120,949,564 10,071,167 12.01
Class C 5,338,784 448,976 11.89
Class I 12,824 1,070 11.99
Class R2 4,482 374 11.98
Class R3 138,368 11,549 11.98
Class R4 12,091,559 1,009,050 11.98
Class R5 4,482 374 11.98
Class W 4,551 380 11.98
- -----------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth
Class A 85,394,093 21,986,547 3.88
Class B 29,411,794 8,128,195 3.62
Class C 3,421,880 945,054 3.62
Class I 51,476,161 12,858,908 4.00
Class R2 3,727 951 3.92
Class R3 3,743 951 3.94
Class R4 99,565 25,269 3.94
Class R5 3,757 951 3.95
- -----------------------------------------------------------------------------------------------------------------
Precious Metals and Mining
Class A 114,874,726 9,640,748 11.92
Class B 18,946,175 1,733,817 10.93
Class C 2,372,836 220,757 10.75
Class I 11,952 989 12.08
Class R4 126,163 10,436 12.09
- -----------------------------------------------------------------------------------------------------------------
Small Cap Advantage
Class A 230,690,809 57,253,295 4.03
Class B 56,041,681 15,694,536 3.57
Class C 4,766,747 1,332,984 3.58
Class I 6,231 1,484 4.20
Class R2 2,791 679 4.11
Class R3 2,800 679 4.12
Class R4 78,656 18,896 4.16
Class R5 2,814 679 4.14
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- -----------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity
Class A 36,243,211 2,101,033 17.25
Class B 2,370,747 137,839 17.20
Class C 735,615 42,785 17.19
Class I 8,604,172 498,000 17.28
Class R5 8,637 500 17.27
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2010
Class A 3,817,259 401,351 9.51
Class R2 4,456 468 9.52
Class R3 4,457 468 9.52
Class R4 4,457 468 9.52
Class R5 4,456 468 9.52
Class Y 12,474,568 1,310,311 9.52
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 56
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2015
Class A $ 6,249,844 643,613 $ 9.71
Class R2 4,522 465 9.72
Class R3 4,526 465 9.73
Class R4 4,531 465 9.74
Class R5 4,528 465 9.74
Class Y 23,422,088 2,406,288 9.73
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2020
Class A 3,300,828 343,364 9.61
Class R2 4,475 464 9.64
Class R3 4,479 464 9.65
Class R4 4,484 464 9.66
Class R5 4,483 464 9.66
Class Y 28,545,670 2,958,924 9.65
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2025
Class A 2,654,172 275,106 9.65
Class R2 4,509 466 9.68
Class R3 4,509 466 9.68
Class R4 4,508 465 9.69
Class R5 4,508 465 9.69
Class Y 32,457,897 3,352,142 9.68
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2030
Class A 3,045,696 313,665 9.71
Class R2 4,515 464 9.73
Class R3 4,525 464 9.75
Class R4 4,523 464 9.75
Class R5 4,522 464 9.75
Class Y 29,048,235 2,981,594 9.74
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2035
Class A 1,525,615 158,788 9.61
Class R2 4,496 467 9.63
Class R3 4,500 467 9.64
Class R4 4,505 467 9.65
Class R5 4,501 467 9.64
Class Y 19,849,186 2,059,793 9.64
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2040
Class A 1,439,574 151,317 9.51
Class R2 4,428 464 9.54
Class R3 4,433 464 9.55
Class R4 4,438 464 9.56
Class R5 4,433 464 9.55
Class Y 11,851,951 1,241,451 9.55
- -----------------------------------------------------------------------------------------------------------------
Retirement Plus 2045
Class A 1,255,728 130,258 9.64
Class R2 4,500 466 9.66
Class R3 4,503 466 9.66
Class R4 4,507 466 9.67
Class R5 4,505 466 9.67
Class Y 9,024,069 933,476 9.67
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 57
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- -----------------------------------------------------------------------------------------------------------------
High Yield Bond
Class A $1,133,624,554 414,428,945 $ 2.74
Class B 173,554,717 63,456,498 2.74
Class C 18,643,745 6,860,137 2.72
Class I 72,462,449 26,516,567 2.73
Class R2 8,713 3,175 2.74
Class R3 4,652 1,695 2.74
Class R4 919,275 336,077 2.74
Class R5 4,640 1,695 2.74
Class W 22,509,875 8,291,217 2.71
- -----------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth
Class A 397,989,258 37,586,201 10.59
Class B 80,526,824 7,903,728 10.19
Class C 3,063,824 300,672 10.19
Class I 142,475,018 13,230,406 10.77
Class R2 98,864 9,311 10.62
Class R3 6,106 572 10.67
Class R4 194,176 18,142 10.70
Class R5 6,131 572 10.72
- -----------------------------------------------------------------------------------------------------------------
Partners Fundamental Value
Class A 648,273,411 107,013,817 6.06
Class B 161,959,464 27,725,640 5.84
Class C 15,456,453 2,634,236 5.87
Class I 158,842,048 25,935,802 6.12
Class R4 756,584 123,925 6.11
- -----------------------------------------------------------------------------------------------------------------
Partners Select Value
Class A 322,819,045 66,170,721 4.88
Class B 76,607,986 16,502,135 4.64
Class C 6,664,913 1,436,484 4.64
Class I 20,062,162 4,037,490 4.97
Class R4 79,781 16,172 4.93
- -----------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity
Class A 196,047,618 36,467,629 5.38
Class B 25,634,234 5,074,867 5.05
Class C 2,237,185 443,555 5.04
Class I 9,369 1,724 5.43
Class R4 3,201,957 586,546 5.46
- -----------------------------------------------------------------------------------------------------------------
Partners Small Cap Value
Class A 365,495,630 77,217,068 4.73
Class B 128,472,761 28,915,951 4.44
Class C 10,463,204 2,349,002 4.45
Class I 15,384,753 3,159,844 4.87
Class R2 234,161 49,214 4.76
Class R3 5,675 1,183 4.80
Class R4 248,829 51,701 4.81
Class R5 9,191,753 1,907,742 4.82
- -----------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government
Class A 539,251,179 113,827,935 4.74
Class B 158,544,398 33,462,620 4.74
Class C 9,625,747 2,031,863 4.74
Class I 92,658,581 19,540,682 4.74
Class R4 4,755,371 1,003,265 4.74
Class W 4,986 1,053 4.74
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 58
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage
Class A $ 95,365,293 19,102,220 $ 4.99
Class B 33,665,806 6,741,320 4.99
Class C 4,185,697 838,003 4.99
Class I 221,547,618 44,419,486 4.99
Class R4 42,429,496 8,505,084 4.99
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- -----------------------------------------------------------------------------------------------------------------
Dividend Opportunity
Class A 1,166,836,238 151,153,162 7.72
Class B 171,162,689 22,320,646 7.67
Class C 21,336,365 2,787,614 7.65
Class I 196,677,710 25,428,411 7.73
Class R2 N/A N/A N/A
Class R3 N/A N/A N/A
Class R4 884,486 114,314 7.74
Class R5 N/A N/A N/A
Class W 4,393 568 7.73
- -----------------------------------------------------------------------------------------------------------------
Real Estate
Class A 86,019,287 7,529,295 11.42
Class B 14,247,297 1,256,751 11.34
Class C 1,419,450 125,279 11.33
Class I 113,290,977 9,895,570 11.45
Class R4 109,251 9,603 11.38
Class W 3,128 275 11.37
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- -----------------------------------------------------------------------------------------------------------------
Cash Management
Class A 4,728,063,840 4,735,985,483 1.00
Class B 85,972,944 86,123,177 1.00
Class C 7,698,464 7,709,484 1.00
Class I 86,515,821 86,572,983 1.00
Class R5 4,990 5,000 1.00
Class W 38,283,118 38,307,096 1.00
Class Y 33,285,660 33,299,232 1.00
- -----------------------------------------------------------------------------------------------------------------
Disciplined Equity
Class A 1,067,408,739 181,520,585 5.88
Class B 35,383,368 6,102,723 5.80
Class C 2,787,743 482,134 5.78
Class I 391,424,906 66,059,325 5.93
Class R2 3,886 661 5.88
Class R3 3,892 661 5.89
Class R4 126,215,819 21,367,300 5.91
Class R5 3,897 661 5.90
Class W 1,355,143,677 231,124,956 5.86
- -----------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity
Class A 16,737,687 1,995,771 8.39
Class B 1,001,638 121,121 8.27
Class C 162,845 19,685 8.27
Class I 15,280,626 1,816,335 8.41
Class R4 10,136 1,204 8.42
Class W 6,835,033 817,433 8.36
- -----------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value
Class A 12,703,109 1,450,722 8.76
Class B 347,557 40,165 8.65
Class C 54,959 6,351 8.65
Class I 22,825,612 2,600,072 8.78
Class R2 3,982 455 8.75
Class R3 3,987 455 8.76
Class R4 8,777 1,000 8.78
Class R5 3,989 455 8.77
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 59
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Floating Rate
Class A $ 261,075,201 29,120,778 $ 8.97
Class B 23,136,657 2,580,594 8.97
Class C 19,695,527 2,196,860 8.97
Class I 184,939,822 20,637,515 8.96
Class R4 183,544 20,426 8.99
Class R5 4,995 556 8.98
Class W 4,456 497 8.97
- -----------------------------------------------------------------------------------------------------------------
Growth
Class A 1,590,672,418 58,435,801 27.22
Class B 189,224,073 7,631,999 24.79
Class C 13,114,426 530,243 24.73
Class I 326,363,923 11,697,509 27.90
Class R2 4,280 155 27.61
Class R3 4,286 155 27.65
Class R4 55,923,087 2,013,270 27.78
Class R5 4,290 155 27.68
Class W 4,336 157 27.62
- -----------------------------------------------------------------------------------------------------------------
Income Opportunities
Class A 138,240,324 14,797,904 9.34
Class B 25,890,499 2,772,741 9.34
Class C 3,872,515 414,776 9.34
Class I 68,474,383 7,321,389 9.35
Class R4 142,584 15,216 9.37
- -----------------------------------------------------------------------------------------------------------------
Inflation Protected Securities
Class A 222,999,226 21,714,361 10.27
Class B 36,023,542 3,509,539 10.26
Class C 10,682,613 1,040,718 10.26
Class I 402,165,599 39,165,376 10.27
Class R4 43,246 4,214 10.26
Class W 253,836,343 24,718,020 10.27
- -----------------------------------------------------------------------------------------------------------------
Large Cap Equity
Class A 3,388,815,212 750,529,476 4.52
Class B 432,695,950 98,119,285 4.41
Class C 20,752,067 4,701,508 4.41
Class I 38,943,788 8,562,931 4.55
Class R2 3,743 822 4.55
Class R3 3,749 822 4.56
Class R4 179,264,616 39,104,432 4.58
Class R5 3,789 822 4.61
- -----------------------------------------------------------------------------------------------------------------
Large Cap Value
Class A 35,085,132 8,397,421 4.18
Class B 7,328,116 1,765,846 4.15
Class C 659,182 159,562 4.13
Class I 11,230,530 2,671,840 4.20
Class R2 3,187 763 4.18
Class R3 3,192 763 4.18
Class R4 21,573 5,115 4.22
Class R5 3,253 763 4.26
- -----------------------------------------------------------------------------------------------------------------
Limited Duration Bond
Class A 62,676,888 6,707,418 9.34
Class B 7,350,615 786,840 9.34
Class C 1,600,298 171,367 9.34
Class I 105,609,598 11,296,909 9.35
Class R4 9,369 1,000 9.37
Class W 4,793 512 9.36
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 60
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- -----------------------------------------------------------------------------------------------------------------
California Tax-Exempt
Class A $ 172,038,905 35,097,770 $ 4.90
Class B 4,711,779 961,893 4.90
Class C 2,843,385 579,342 4.91
- -----------------------------------------------------------------------------------------------------------------
Diversified Bond
Class A 1,920,027,558 413,143,778 4.65
Class B 254,464,345 54,765,337 4.65
Class C 31,688,522 6,817,452 4.65
Class I 693,189,044 148,965,143 4.65
Class R2 9,610 2,067 4.65
Class R3 9,610 2,067 4.65
Class R4 75,478,505 16,261,328 4.64
Class R5 9,588 2,067 4.64
Class W 655,311,873 140,970,151 4.65
- -----------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt
Class A 289,301,362 56,564,455 5.11
Class B 13,968,961 2,730,369 5.12
Class C 8,460,353 1,653,947 5.12
- -----------------------------------------------------------------------------------------------------------------
New York Tax-Exempt
Class A 52,571,799 10,842,089 4.85
Class B 3,503,352 722,515 4.85
Class C 717,930 148,072 4.85
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- -----------------------------------------------------------------------------------------------------------------
Balanced
Class A 634,072,106 69,966,655 9.06
Class B 26,100,296 2,897,118 9.01
Class C 3,748,762 416,783 8.99
Class R4 47,215,934 5,209,145 9.06
- -----------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth
Class A 25,775,970 3,371,206 7.65
Class B 2,911,541 384,045 7.58
Class C 1,725,877 227,595 7.58
Class I 161,645,963 21,034,723 7.68
Class R2 7,654 1,000 7.65
Class R3 7,669 1,000 7.67
Class R4 22,347 2,910 7.68
Class R5 7,680 1,000 7.68
Class W 4,387 573 7.66
- -----------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value
Class A 394,708 43,191 9.14
Class B 19,345 2,120 9.13
Class C 9,124 1,000 9.12
Class I 8,359,169 914,414 9.14
Class R2 9,129 1,000 9.13
Class R3 9,134 1,000 9.13
Class R4 9,138 1,000 9.14
Class R5 9,142 1,000 9.14
Class W 9,135 1,000 9.14
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 61
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Diversified Equity Income
Class A $4,504,417,578 483,974,117 $ 9.31
Class B 633,359,809 67,927,974 9.32
Class C 93,320,596 10,037,632 9.30
Class I 189,996,681 20,429,835 9.30
Class R2 7,727,583 832,912 9.28
Class R3 108,542,942 11,676,683 9.30
Class R4 182,738,003 19,618,165 9.31
Class R5 45,588,984 4,896,103 9.31
Class W 3,363 361 9.32
- -----------------------------------------------------------------------------------------------------------------
Mid Cap Value
Class A 1,745,361,398 244,325,635 7.14
Class B 164,379,864 23,826,489 6.90
Class C 54,137,367 7,844,791 6.90
Class I 15,525,593 2,138,378 7.26
Class R2 10,456,777 1,468,157 7.12
Class R3 30,952,140 4,330,118 7.15
Class R4 270,774,444 37,623,411 7.20
Class R5 65,029,360 9,020,432 7.21
Class W 3,638 506 7.19
- -----------------------------------------------------------------------------------------------------------------
Strategic Allocation
Class A 1,437,164,150 157,978,918 9.10
Class B 169,089,504 18,763,641 9.01
Class C 59,278,791 6,608,282 8.97
Class I 3,946 434 9.09
Class R2 3,946 434 9.09
Class R3 3,946 434 9.09
Class R4 6,812,658 748,545 9.10
Class R5 3,946 434 9.09
- -----------------------------------------------------------------------------------------------------------------
Strategic Income Allocation
Class A 148,194,341 16,594,182 8.93
Class B 18,190,751 2,036,698 8.93
Class C 5,807,175 650,672 8.92
Class R2 4,797 537 8.93
Class R3 4,797 537 8.93
Class R4 4,797 537 8.93
Class R5 4,797 537 8.93
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- -----------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income
Class A 175,659,037 17,625,597 9.97
Class B 3,268,605 328,166 9.96
Class C 9,463,358 951,266 9.95
Class I 202,106,353 20,252,851 9.98
Class R4 21,219 2,128 9.97
Class R5 9,399 942 9.98
Class W 303,933,095 30,493,927 9.97
- -----------------------------------------------------------------------------------------------------------------
Disciplined International Equity
Class A 56,469,388 9,374,248 6.02
Class B 9,774,655 1,653,855 5.91
Class C 1,125,907 190,230 5.92
Class I 103,041,181 16,963,698 6.07
Class R2 3,062 509 6.02
Class R3 3,064 509 6.02
Class R4 60,625 9,985 6.07
Class R5 3,068 509 6.03
Class W 249,098,785 41,391,645 6.02
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 62
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Emerging Markets Bond
Class A $ 9,670,545 1,370,967 $ 7.05
Class B 1,178,353 167,178 7.05
Class C 190,923 27,123 7.04
Class I 65,282,310 9,254,282 7.05
Class R4 14,966 2,122 7.05
Class W 104,386,031 14,813,074 7.05
- -----------------------------------------------------------------------------------------------------------------
Global Bond
Class A 248,748,168 40,394,613 6.16
Class B 42,399,524 6,810,424 6.23
Class C 4,294,941 695,288 6.18
Class I 205,797,902 33,497,669 6.14
Class R4 118,425 19,229 6.16
Class W 135,156,943 21,988,540 6.15
- -----------------------------------------------------------------------------------------------------------------
Global Technology
Class A 68,868,177 41,145,420 1.67
Class B 15,072,741 10,575,597 1.43
Class C 1,965,181 1,374,828 1.43
Class I 4,802 2,785 1.72
Class R4 80,257 47,182 1.70
- -----------------------------------------------------------------------------------------------------------------
Partners International Select Growth
Class A 190,233,626 40,703,983 4.67
Class B 29,647,619 6,606,389 4.49
Class C 3,212,928 717,874 4.48
Class I 155,259,864 32,753,046 4.74
Class R4 549,030 116,504 4.71
- -----------------------------------------------------------------------------------------------------------------
Partners International Select Value
Class A 659,380,574 131,334,112 5.02
Class B 112,548,353 23,561,229 4.78
Class C 12,609,706 2,647,530 4.76
Class I 95,735,708 18,694,350 5.12
Class R4 557,748 109,344 5.10
- -----------------------------------------------------------------------------------------------------------------
Partners International Small Cap
Class A 27,160,173 7,106,419 3.82
Class B 4,963,699 1,344,161 3.69
Class C 450,022 122,028 3.69
Class I 14,279,407 3,686,270 3.87
Class R4 1,481,699 383,999 3.86
- -----------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets
Class A 250,088,197 50,453,378 4.96
Class B 28,179,486 6,354,512 4.43
Class C 3,162,935 711,847 4.44
Class I 7,972 1,558 5.12
Class R4 782,170 152,215 5.14
Class R5 2,746 535 5.13
- -----------------------------------------------------------------------------------------------------------------
Threadneedle European Equity
Class A 57,915,534 14,934,494 3.88
Class B 10,080,353 2,636,641 3.82
Class C 954,195 250,456 3.81
Class I 5,191 1,336 3.89
Class R4 13,097 3,360 3.90
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 63
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity
Class A $ 380,429,958 73,040,390 $ 5.21
Class B 42,166,196 8,654,662 4.87
Class C 4,754,813 985,451 4.83
Class I 3,498 666 5.25
Class R2 3,314 634 5.23
Class R3 3,322 634 5.24
Class R4 5,067,319 963,574 5.26
Class R5 3,329 634 5.25
Class W 3,342 639 5.23
- -----------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Income
Class A 5,428,904 749,581 7.24
Class B 648,517 89,630 7.24
Class C 57,726 7,976 7.24
Class I 3,573,485 493,000 7.25
Class R2 7,248 1,000 7.25
Class R3 7,250 1,000 7.25
Class R4 8,696 1,199 7.25
Class R5 7,248 1,000 7.25
- -----------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha
Class A 2,207,567 158,009 13.97
Class B 238,583 17,116 13.94
Class C 93,733 6,724 13.94
Class I 3,445,776 246,500 13.98
Class R2 6,979 500 13.96
Class R3 6,984 500 13.97
Class R4 23,241 1,663 13.98
Class R5 6,988 500 13.98
Threadneedle International Opportunity
Class A 248,481,494 38,086,295 6.52
Class B 26,534,037 4,183,815 6.34
Class C 1,937,373 308,820 6.27
Class I 72,732,880 11,020,753 6.60
Class R2 3,285 496 6.62
Class R3 3,293 496 6.64
Class R4 167,848 25,145 6.68
Class R5 3,299 496 6.65
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- -----------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt
Class A 67,541,537 13,860,690 4.87
Class B 4,766,940 979,243 4.87
Class C 2,312,311 475,008 4.87
- -----------------------------------------------------------------------------------------------------------------
Mid Cap Growth
Class A 348,889,713 66,587,189 5.24
Class B 44,292,642 10,090,767 4.39
Class C 2,596,534 591,200 4.39
Class I 53,382,926 9,727,776 5.49
Class R4 2,610,805 484,792 5.39
- -----------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond
Class A 583,790,472 173,452,947 3.37
Class B 19,621,893 5,829,378 3.37
Class C 5,593,015 1,661,152 3.37
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 64
<Table>
<Caption>
FUND NET ASSETS SHARES OUTSTANDING NET ASSET VALUE OF ONE SHARE
- -----------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income
Class A $2,135,093,331 574,689,338 $ 3.72
Class B 53,720,142 14,466,113 3.71
Class C 12,329,720 3,317,475 3.72
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 138,915,998 138,948,951 1.00
- -----------------------------------------------------------------------------------------------------------------
</Table>
FOR FUNDS OTHER THAN MONEY MARKET FUNDS. 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 Exchange.
- Occasionally, events affecting the value of securities occur between the
time the primary market on which the securities are traded closes and the
close of the Exchange. If events materially affect the value of
securities, the securities will be valued at their fair value according to
procedures decided upon in good faith by the Board. This occurs most
commonly with foreign securities, but may occur in other cases. The fair
value of a security is likely to be different from the quoted or published
price.
- Short-term securities maturing more than 60 days from the valuation date
are valued at the readily available market price or approximate market
value based on current interest rates. Short-term securities maturing in
60 days or less that originally had maturities of more than 60 days at
acquisition date are valued at amortized cost using the market value on
the 61st day before maturity. Short-term securities maturing in 60 days or
less at acquisition date are valued at amortized cost. Amortized cost is
an approximation of market value determined by systematically increasing
the carrying value of a security if acquired at a discount, or reducing
the carrying value if acquired at a premium, so that the carrying value is
equal to maturity value on the maturity date.
- Securities without a readily available market price and securities for
which the price quotations or valuations received from other sources are
deemed unreliable or not reflective of market value are valued at fair
value as determined in good faith by the Board. The Board is responsible
for selecting methods it believes provide fair value.
- When possible, bonds are valued by a pricing service independent from the
funds. If a valuation of a bond is not available from a pricing service,
the bond will be valued by a dealer knowledgeable about the bond if such a
dealer is available.
The assets of funds-of-funds consist primarily of shares of the underlying
funds, which are valued at their NAVs. Other securities held by funds-of-funds
are valued as described above.
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
Statement of Additional Information - April 1, 2009 Page 65
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 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.
In addition, the investment manager makes publicly available information
regarding a fund's top ten holdings (including name and percentage of a fund's
assets invested in each such holding) and the percentage breakdown of a fund's
investments by country, sector and industry, as applicable. This holdings
information is generally made available through the website, marketing
communications (including printed advertisements and sales literature), and/or
telephone customer service centers that support the fund. This holdings
information is generally as of a month-end and is not released until it is at
least fifteen (15) days old.
From time to time, the investment manager may make partial or complete fund
holdings information that is not publicly available on the website or otherwise
available in advance of the time restrictions noted above (1) to its affiliated
and unaffiliated service providers that require the information in the normal
course of business in order to provide services to the fund (including, without
limitation entities identified by name in the fund's prospectus or this SAI,
such as custodians, auditors, subadvisers, financial printers (Cenveo, Inc.,
Vestek, Data Communique, Inc.), pricing services (including Reuters Pricing
Service, FT Interactive Data Corporation, Bear Stearns Pricing Service, and
Kenny S&P), proxy voting services (Institutional Shareholder Services), and
companies that deliver or support systems that provide analytical or statistical
information (including Factset Research Systems, Bloomberg, L.P.), (2) to
facilitate the review and/or rating of the fund by
Statement of Additional Information - April 1, 2009 Page 66
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 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
Statement of Additional Information - April 1, 2009 Page 67
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.
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.
Statement of Additional Information - April 1, 2009 Page 68
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 funds may invest in shares of other
funds in the RiverSource Family of Funds (referred to in this context as
"underlying funds") and may own substantial portions of these underlying funds.
The proxy policy of the funds is to ensure that direct public shareholders of
underlying funds control the outcome of any shareholder vote. To help manage
this potential conflict of interest, recognizing that the direct public
shareholders of these underlying funds may represent only a minority interest,
the policy of the funds is to vote proxies of the underlying funds in the same
proportion as the vote of the direct public shareholders. If there are no direct
public shareholders of an underlying fund, the policy is to cast votes in
accordance with instructions from the independent members of the Board.
OBTAIN A PROXY VOTING RECORD
Each year the 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.
Statement of Additional Information - April 1, 2009 Page 69
INVESTING IN A FUND
SALES CHARGE
FOR FUNDS OTHER THAN MONEY MARKET FUNDS:
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, Floating Rate,
Inflation Protected Securities, Intermediate Tax-Exempt, Limited Duration Bond
and Short Duration U.S. Government:
<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>
For Absolute Return Currency and Income, Floating Rate, Inflation Protected
Securities, Intermediate Tax-Exempt, Limited Duration Bond and Short Duration
U.S. Government:
<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.
Statement of Additional Information - April 1, 2009 Page 70
TABLE 10. PUBLIC OFFERING PRICE
<Table>
<Caption>
PUBLIC
NET ASSET 1.0 MINUS MAXIMUM OFFERING
FUND VALUE SALES CHARGE PRICE
- ----------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ----------------------------------------------------------------------------------------------
Income Builder Basic Income $ 8.24 0.9525 $ 8.65
- ----------------------------------------------------------------------------------------------
Income Builder Enhanced Income 7.60 0.9525 7.98
- ----------------------------------------------------------------------------------------------
Income Builder Moderate Income 7.86 0.9525 8.25
- ----------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 6.49 0.9425 6.89
- ----------------------------------------------------------------------------------------------
Portfolio Builder Conservative 8.51 0.9525 8.93
- ----------------------------------------------------------------------------------------------
Portfolio Builder Moderate 7.58 0.9425 8.04
- ----------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive 7.01 0.9425 7.44
- ----------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative 8.02 0.9525 8.42
- ----------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 6.03 0.9425 6.40
- ----------------------------------------------------------------------------------------------
S&P 500 Index (for Class D) 2.73 No sales charge 2.73
- ----------------------------------------------------------------------------------------------
Small Company Index 2.82 0.9425 2.99
- ----------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ----------------------------------------------------------------------------------------------
Equity Value 11.97 0.9425 12.70
- ----------------------------------------------------------------------------------------------
Partners Small Cap Growth 3.88 0.9425 4.12
- ----------------------------------------------------------------------------------------------
Precious Metals and Mining 11.92 0.9425 12.65
- ----------------------------------------------------------------------------------------------
Small Cap Advantage 4.03 0.9425 4.28
- ----------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ----------------------------------------------------------------------------------------------
120/20 Contrarian Equity 17.25 0.9425 18.30
- ----------------------------------------------------------------------------------------------
Retirement Plus 2010 9.51 0.9425 10.09
- ----------------------------------------------------------------------------------------------
Retirement Plus 2015 9.71 0.9425 10.30
- ----------------------------------------------------------------------------------------------
Retirement Plus 2020 9.61 0.9425 10.20
- ----------------------------------------------------------------------------------------------
Retirement Plus 2025 9.65 0.9425 10.24
- ----------------------------------------------------------------------------------------------
Retirement Plus 2030 9.71 0.9425 10.30
- ----------------------------------------------------------------------------------------------
Retirement Plus 2035 9.61 0.9425 10.20
- ----------------------------------------------------------------------------------------------
Retirement Plus 2040 9.51 0.9425 10.09
- ----------------------------------------------------------------------------------------------
Retirement Plus 2045 9.64 0.9425 10.23
- ----------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ----------------------------------------------------------------------------------------------
High Yield Bond 2.74 0.9525 2.88
- ----------------------------------------------------------------------------------------------
Partners Aggressive Growth 10.59 0.9425 11.24
- ----------------------------------------------------------------------------------------------
Partners Fundamental Value 6.06 0.9425 6.43
- ----------------------------------------------------------------------------------------------
Partners Select Value 4.88 0.9425 5.18
- ----------------------------------------------------------------------------------------------
Partners Small Cap Equity 5.38 0.9425 5.71
- ----------------------------------------------------------------------------------------------
Partners Small Cap Value 4.73 0.9425 5.02
- ----------------------------------------------------------------------------------------------
Short Duration U.S. Government 4.74 0.9700 4.89
- ----------------------------------------------------------------------------------------------
U.S. Government Mortgage 4.99 0.9525 5.24
- ----------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ----------------------------------------------------------------------------------------------
Dividend Opportunity 7.72 0.9425 8.19
- ----------------------------------------------------------------------------------------------
Real Estate 11.42 0.9425 12.12
- ----------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ----------------------------------------------------------------------------------------------
Cash Management 1.00 No sales charge 1.00
- ----------------------------------------------------------------------------------------------
Disciplined Equity 5.88 0.9425 6.24
- ----------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity 8.39 0.9425 8.90
- ----------------------------------------------------------------------------------------------
Disciplined Small Cap Value 8.76 0.9425 9.29
- ----------------------------------------------------------------------------------------------
Floating Rate 8.97 0.9700 9.25
- ----------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 71
<Table>
<Caption>
PUBLIC
NET ASSET 1.0 MINUS MAXIMUM OFFERING
FUND VALUE SALES CHARGE PRICE
- ----------------------------------------------------------------------------------------------
Growth $27.22 0.9425 $28.88
- ----------------------------------------------------------------------------------------------
Income Opportunities 9.34 0.9525 9.81
- ----------------------------------------------------------------------------------------------
Inflation Protected Securities 10.27 0.9700 10.59
- ----------------------------------------------------------------------------------------------
Large Cap Equity 4.52 0.9425 4.80
- ----------------------------------------------------------------------------------------------
Large Cap Value 4.18 0.9425 4.44
- ----------------------------------------------------------------------------------------------
Limited Duration Bond 9.34 0.9700 9.63
- ----------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ----------------------------------------------------------------------------------------------
California Tax-Exempt 4.90 0.9525 5.14
- ----------------------------------------------------------------------------------------------
Diversified Bond 4.65 0.9525 4.88
- ----------------------------------------------------------------------------------------------
Minnesota Tax-Exempt 5.11 0.9525 5.36
- ----------------------------------------------------------------------------------------------
New York Tax-Exempt 4.85 0.9525 5.09
- ----------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ----------------------------------------------------------------------------------------------
Balanced 9.06 0.9425 9.61
- ----------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 7.65 0.9425 8.12
- ----------------------------------------------------------------------------------------------
Disciplined Large Cap Value 9.14 0.9425 9.70
- ----------------------------------------------------------------------------------------------
Diversified Equity Income 9.31 0.9425 9.88
- ----------------------------------------------------------------------------------------------
Mid Cap Value 7.14 0.9425 7.58
- ----------------------------------------------------------------------------------------------
Strategic Allocation 9.10 0.9425 9.66
- ----------------------------------------------------------------------------------------------
Strategic Income Allocation 8.93 0.9525 9.38
- ----------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ----------------------------------------------------------------------------------------------
Absolute Return Currency and Income 9.97 0.9700 10.28
- ----------------------------------------------------------------------------------------------
Disciplined International Equity 6.02 0.9425 6.39
- ----------------------------------------------------------------------------------------------
Emerging Markets Bond 7.05 0.9525 7.40
- ----------------------------------------------------------------------------------------------
Global Bond 6.16 0.9525 6.47
- ----------------------------------------------------------------------------------------------
Global Technology 1.67 0.9425 1.77
- ----------------------------------------------------------------------------------------------
Partners International Select Growth 4.67 0.9425 4.95
- ----------------------------------------------------------------------------------------------
Partners International Select Value 5.02 0.9425 5.33
- ----------------------------------------------------------------------------------------------
Partners International Small Cap 3.82 0.9425 4.05
- ----------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 4.96 0.9425 5.26
- ----------------------------------------------------------------------------------------------
Threadneedle European Equity 3.88 0.9425 4.12
- ----------------------------------------------------------------------------------------------
Threadneedle Global Equity 5.21 0.9425 5.53
- ----------------------------------------------------------------------------------------------
Threadneedle Global Equity Income 7.24 0.9425 7.68
- ----------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha 13.97 0.9425 14.82
- ----------------------------------------------------------------------------------------------
Threadneedle International Opportunity 6.52 0.9425 6.92
- ----------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ----------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 4.87 0.9700 5.02
- ----------------------------------------------------------------------------------------------
Mid Cap Growth 5.24 0.9425 5.56
- ----------------------------------------------------------------------------------------------
Tax-Exempt Bond 3.37 0.9525 3.54
- ----------------------------------------------------------------------------------------------
Tax-Exempt High Income 3.72 0.9525 3.91
- ----------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- ----------------------------------------------------------------------------------------------
Tax-Exempt Money Market 1.00 No sales 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. Existing Rights of
Accumulation (ROA) can be included in your LOI. For example, a shareholder
currently has $60,000 ROA in a fund in the RiverSource Family of Funds.
Shareholder completes an LOI to invest $100,000 in funds
Statement of Additional Information - April 1, 2009 Page 72
(ROA eligible accounts). Shareholder only needs to invest an additional $40,000
in funds' Class A shares in order to fulfill the LOI commitment and receive
reduced front-end sales charge(s) over the next 13 months. 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 ROA 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 funds other than
Class A; does not include any new reinvested dividends and directed dividends
earned in any funds during the 13-month period; purchases in funds held within a
wrap product; and purchases of RiverSource Cash Management Fund and RiverSource
Tax-Exempt Money Market Fund unless they are subsequently exchanged to Class A
shares of a RiverSource fund within the 13 month period. A LOI is not an option
(absolute right) to buy shares. If you purchase shares through different
channels, for example, in a brokerage account or through a third party, you must
inform your financial institution in writing about the LOI when placing any
purchase orders during the period of the LOI. If you do not complete and file
the LOI form, or do not request the reduced sales charge at the time of
purchase, you will not be eligible for the reduced sales charge.
CLASS A SHARES
Class A shares may be sold at net asset value to certain persons since such
sales require less sales effort and lower sales-related expenses as compared
with sales to the general public. If you are eligible to purchase Class A shares
without a sales charge, you should inform your financial advisor, financial
intermediary or the transfer agent of such eligibility and be prepared to
provide proof thereof.
INITIAL SALES CHARGE -- WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES. Sales
charges do not apply to:
- Shareholders whose original purchase was in a Strategist fund merged into
a RiverSource fund in 2000.
- Participants of "eligible employee benefit plans" including 403(b) plans
for which Ameriprise Financial Services, Inc. (Ameriprise Financial
Services) serves as broker-dealer, and the school district or group
received a written proposal from Ameriprise Financial Services between
November 1, 2007 and December 31, 2008 (each a Qualifying 403(b) Plan). In
order for participants in one of these 403(b) plans to receive this
waiver, at least one participant account of the 403(b) plan must have been
funded at Ameriprise Financial Services prior to December 31, 2009. This
waiver may be discontinued for any Qualifying 403(b) Plan, in the sole
discretion of the distributor, after December 31, 2009.
- To participants in retirement and benefit plans made through financial
intermediaries that perform participant recordkeeping or other
administrative services for the plans and that have entered into
arrangements with the funds and/or the distributor specifically for such
purchases.
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.
Statement of Additional Information - April 1, 2009 Page 73
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.
In addition, for Class I, Class R and Class W shares, the distributor, in its
sole discretion, may accept investments from other purchasers not listed above.
REJECTION OF BUSINESS
Each fund and RiverSource Distributors, Inc. 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
Statement of Additional Information - April 1, 2009 Page 74
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.
Statement of Additional Information - April 1, 2009 Page 75
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
CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
FUND CARRYOVERS IN 2009 IN 2010 IN 2011 IN 2012 IN 2013
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- --------------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income $ 8,559,573 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 13,065,266 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income 19,970,659 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 10,806,229 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 192,230 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 10,391,694 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate
Aggressive 13,834,899 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate
Conservative 2,290,537 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 11,256,800 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
S&P 500 Index 5,965,014 0 942,797 0 0 2,640,220
- --------------------------------------------------------------------------------------------------------------------------
Small Company Index 22,588,242 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
<Caption>
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
FUND IN 2014 IN 2015 IN 2016 IN 2017 IN 2018
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ------------------------------------------------------------------------------------------------------------
Income Builder Basic Income 0 0 0 $ 2,942,103 $ 5,617,470
- ------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 0 0 0 5,920,892 7,144,374
- ------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income 0 0 0 7,376,558 12,594,101
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 0 0 0 2,936,474 7,869,755
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 0 0 0 0 192,230
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 0 0 0 7,597,638 2,794,056
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate
Aggressive 0 0 0 1,997,917 11,836,982
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate
Conservative 0 0 0 1,062,939 1,227,598
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 0 0 0 3,787,911 7,468,889
- ------------------------------------------------------------------------------------------------------------
S&P 500 Index 235,890 66,065 0 0 2,080,042
- ------------------------------------------------------------------------------------------------------------
Small Company Index 0 0 0 0 22,588,242
- ------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
TOTAL
CAPITAL LOSS AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
CARRY- EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
OVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- --------------------------------------------------------------------------------------------------------------------------
Equity Value 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth 6,394,289 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining 4,849,573 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage 37,352,005 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
<Caption>
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
IN 2013 IN 2014 IN 2015 IN 2016 IN 2017
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ------------------------------------------------------------------------------------------------------------
Equity Value -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth -- -- -- -- 6,394,289
- ------------------------------------------------------------------------------------------------------------
Precious Metals and Mining -- -- -- -- 4,849,573
- ------------------------------------------------------------------------------------------------------------
Small Cap Advantage -- -- -- -- 37,352,005
- ------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 76
<Table>
<Caption>
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
FUND CARRYOVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- --------------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity $ 1,239,657 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
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 103,637 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond 1,376,549,063 0 226,001,198 517,121,802 552,664,309 0
- --------------------------------------------------------------------------------------------------------------------------
Partners
Aggressive
Growth 1,129,815,010 0 763,613,904 315,348,051 23,741,111 27,111,944
- --------------------------------------------------------------------------------------------------------------------------
Partners Fundamental Value 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Partners Select Value 15,718,808 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity 20,350,484 0 0 14,147,440 0 0
- --------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Value 5,425,972 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government 183,673,285 0 117,356,906 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 210,465 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- --------------------------------------------------------------------------------------------------------------------------
Dividend Opportunity 343,927,468 0 0 0 343,927,468 0
- --------------------------------------------------------------------------------------------------------------------------
Real Estate 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- --------------------------------------------------------------------------------------------------------------------------
Cash Management 8,101,462 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Disciplined Equity 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap
Equity 17,293,096 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 3,831,834 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Floating Rate 17,326,421 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Growth 202,027,584 0 0 0 178,158,939 0
- --------------------------------------------------------------------------------------------------------------------------
Income Opportunities 12,433,543 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Inflation Protected Securities 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Large Cap Equity 235,009,471 0 60,717,128 20,982,455 9,473,267 0
- --------------------------------------------------------------------------------------------------------------------------
Large Cap Value 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Limited Duration Bond 2,491,213 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
<Caption>
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
FUND IN 2013 IN 2014 IN 2015 IN 2016 IN 2017
- ---------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ---------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity 0 0 0 0 1,239,657
- ---------------------------------------------------------------------------------------------------------
Retirement Plus 2010 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Retirement Plus 2015 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Retirement Plus 2020 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Retirement Plus 2025 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Retirement Plus 2030 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Retirement Plus 2035 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Retirement Plus 2040 0 0 0 0 103,637
- ---------------------------------------------------------------------------------------------------------
Retirement Plus 2045 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ---------------------------------------------------------------------------------------------------------
High Yield Bond 0 19,078,058 0 6,050,907 55,632,789
- ---------------------------------------------------------------------------------------------------------
Partners
Aggressive
Growth 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------
Partners Fundamental Value -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Partners Select Value 0 0 0 0 15,718,808
- ---------------------------------------------------------------------------------------------------------
Partners Small Cap Equity 0 0 0 0 6,203,044
- ---------------------------------------------------------------------------------------------------------
Partners Small Cap Value 0 0 0 0 5,425,972
- ---------------------------------------------------------------------------------------------------------
Short Duration U.S. Government 36,267,962 20,469,230 9,579,187 0 0
- ---------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 0 0 0 0 210,465
- ---------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ---------------------------------------------------------------------------------------------------------
Dividend Opportunity 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------
Real Estate -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ---------------------------------------------------------------------------------------------------------
Cash Management 0 0 0 6,554 8,094,908
- ---------------------------------------------------------------------------------------------------------
Disciplined Equity -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap
Equity 0 93,125 21,904 2,186,828 14,991,239
- ---------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 0 0 0 554,680 3,277,154
- ---------------------------------------------------------------------------------------------------------
Floating Rate 0 0 33,562 3,488,601 13,804,258
- ---------------------------------------------------------------------------------------------------------
Growth 0 0 0 0 23,868,645
- ---------------------------------------------------------------------------------------------------------
Income Opportunities 0 0 0 1,946,556 10,486,987
- ---------------------------------------------------------------------------------------------------------
Inflation Protected Securities -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Large Cap Equity 0 0 0 0 143,836,621
- ---------------------------------------------------------------------------------------------------------
Large Cap Value -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Limited Duration Bond 0 0 2,205,797 0 285,416
- ---------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 77
<Table>
<Caption>
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
FUND CARRYOVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- --------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt $ 1,415,210 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Diversified Bond 125,823,517 0 56,247,571 49,658,521 0 5,227,159
- --------------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt 2,765,793 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
New York Tax-Exempt 102,852 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- --------------------------------------------------------------------------------------------------------------------------
Balanced 718,823,723 0 0 294,910,142 368,676,980 24,886,878
- --------------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 5,736,409 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value 24,253 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Diversified Equity Income 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Mid Cap Value 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Strategic Allocation 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation 11,089 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- --------------------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Disciplined International Equity 23,521,188 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond 2,399,388 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Global Bond 6,492,562 0 0 3,665,053 0 0
- --------------------------------------------------------------------------------------------------------------------------
Global Technology 348,953,680 0 250,345,326 81,299,227 0 0
- --------------------------------------------------------------------------------------------------------------------------
Partners International Select
Growth 57,544,459 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Partners International Select Value 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Partners International Small Cap 16,740,416 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 8,838,403 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle European Equity 45,298,067 0 19,489,378 16,514,518 5,021,215 0
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 404,243,287 0 170,490,067 143,634,885 30,509,951 0
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Income 182,867 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha 577,229 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Threadneedle International
Opportunity 246,866,293 0 137,301,860 59,231,998 38,262,972 0
- --------------------------------------------------------------------------------------------------------------------------
<Caption>
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
FUND IN 2013 IN 2014 IN 2015 IN 2016 IN 2017
- ---------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ---------------------------------------------------------------------------------------------------------
California Tax-Exempt 0 0 0 $359,905 $1,055,305
- ---------------------------------------------------------------------------------------------------------
Diversified Bond 2,996,287 9,840,520 0 0 1,853,459
- ---------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt 1,199,755 913,006 3,601 0 649,431
- ---------------------------------------------------------------------------------------------------------
New York Tax-Exempt 0 0 0 3,668 99,184
- ---------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ---------------------------------------------------------------------------------------------------------
Balanced 0 0 0 0 30,349,723
- ---------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 0 0 0 0 5,736,409
- ---------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value 0 0 0 24,253 0
- ---------------------------------------------------------------------------------------------------------
Diversified Equity Income -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Mid Cap Value -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Strategic Allocation -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Strategic Income Allocation 0 0 0 0 11,089
- ---------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ---------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Disciplined International Equity 0 0 0 23,521,188 0
- ---------------------------------------------------------------------------------------------------------
Emerging Markets Bond 0 0 0 2,399,388 0
- ---------------------------------------------------------------------------------------------------------
Global Bond 0 498,771 0 2,328,738 0
- ---------------------------------------------------------------------------------------------------------
Global Technology 0 0 0 17,309,127 0
- ---------------------------------------------------------------------------------------------------------
Partners International Select
Growth 0 0 0 57,544,459 0
- ---------------------------------------------------------------------------------------------------------
Partners International Select Value -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Partners International Small Cap 0 0 0 16,740,416 0
- ---------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 0 0 0 8,838,403 0
- ---------------------------------------------------------------------------------------------------------
Threadneedle European Equity 0 0 0 4,272,956 0
- ---------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 0 0 0 59,608,384 0
- ---------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Income 0 0 0 182,867 0
- ---------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha 0 0 0 577,229 0
- ---------------------------------------------------------------------------------------------------------
Threadneedle International
Opportunity 0 0 0 12,069,463 0
- ---------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 78
<Table>
<Caption>
TOTAL AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
CAPITAL LOSS EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
FUND CARRYOVERS IN 2008 IN 2009 IN 2010 IN 2011 IN 2012
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- --------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt $ 538,998 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth 21,448,607 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 9,775,831 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 30,950,938 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 675 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
<Caption>
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
EXPIRING EXPIRING EXPIRING EXPIRING EXPIRING
FUND IN 2013 IN 2014 IN 2015 IN 2016 IN 2017
- ---------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ---------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 0 $ 177,580 0 $ 361,418 0
- ---------------------------------------------------------------------------------------------------------
Mid Cap Growth 0 0 0 21,448,607 0
- ---------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 0 729,270 0 9,046,561 0
- ---------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 0 0 0 30,950,938 0
- ---------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- ---------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 675 0 0 0 0
- ---------------------------------------------------------------------------------------------------------
</Table>
TAXES
SUBCHAPTER M COMPLIANCE
Each fund has elected to be taxed under Subchapter M of the Internal Revenue
Code as a regulated investment company. Each fund intends to maintain its
qualification as a regulated investment company by meeting certain requirements
relating to distributions, source of income, and asset diversification.
Distribution requirements include distributing at least 90% of the fund's
investment company taxable income and tax-exempt ordinary income to fund
shareholders each taxable year. The source of income rules require that at least
90% of the fund's gross income be derived from dividends, interest, certain
payments with respect to securities loans, gain from the sale or other
disposition of stock, securities or foreign currencies (subject to certain
limitations), and certain other income derived with respect to its business of
investing in stock, securities or currencies, and net income from certain
interests in qualified publicly traded partnerships. Asset diversification
requirements are met when the Fund owns, at the end of each quarter of its
taxable year, a portfolio, 50% of which includes cash and cash items, U.S.
government securities, securities of other regulated investment companies and,
securities of other issuers in which the fund has not invested more than 5% of
the value of the fund's assets (or 10% of the value of the outstanding voting
securities of any one issuer). Also, no more than 25% of the fund's assets may
be invested in the securities of any one issuer or two or more issuers which the
fund controls and which are engaged in the same or similar trades or businesses
(excepting U.S. government securities and securities of other regulated
investment companies) or the securities of one or more qualified publicly traded
partnerships. This is a simplified description of the relevant laws.
If the fund fails to qualify as a regulated investment company under Subchapter
M, the fund would be taxed as a corporation on the entire amount of its taxable
income without a dividends paid deduction. Also, "all of" a shareholder's
distributions would become ordinary dividends (or could be treated as a return
of capital, if there weren't sufficient earnings and profits).
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 fund intends to distribute sufficient dividends within each calendar year,
as well as on a fiscal year basis, to avoid income and excise taxes.
A fund may be subject to U.S. taxes resulting from holdings in passive foreign
investment companies (PFIC). To avoid unfavorable tax consequences, a fund may
make an election to mark to market its PFIC investments. A foreign corporation
is a PFIC when 75% or more of its gross income for the taxable year is passive
income or 50% or more of the average value of its assets consists of assets that
produce or could produce passive income.
Income earned by a fund may have had foreign taxes imposed and withheld on it in
foreign countries. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes. If more than 50% of a fund's total assets at the
close of its fiscal year consists of securities of foreign corporations, the
fund will be eligible to file an election with the Internal Revenue Service
(IRS) 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.
Statement of Additional Information - April 1, 2009 Page 79
A fund may use equalization payments to satisfy its requirement to make
distributions of net investment income and capital gain net income. Equalization
payments occur when a fund allocates a portion of its net investment income and
realized capital gain net income to redemptions of fund shares. These payments
reduce the amount of taxable distributions paid to shareholders. The IRS has not
issued any guidance concerning the methods used to allocate investment income
and capital gain to redemptions of shares. If the IRS determines that a fund is
using an improper method of allocation for these purposes, the fund may be
liable for additional federal income tax.
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.
See Appendix B for more information regarding state tax-exempt funds.
EXCHANGES
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).
A capital loss on a sale or redemption of a security in a nonqualified account
may be disallowed for tax purposes if the same or a substantially identical
security is purchased or acquired within 30 days before or after the date of the
loss transaction. This is called a wash sale. When a wash sale occurs, the loss
is disallowed to the extent of shares repurchased, and the cost basis on the
security acquired is increased by the amount of the loss that is disallowed. The
loss is disallowed in a nonqualified account whether the purchase is in a
nonqualified account or in an IRA or Roth IRA, however, an individual's cost
basis in an IRA or Roth IRA is not increased due to the wash sale rules. The
wash sale rules apply only to capital losses. Sales of securities that result in
capital gains are generally recognized when incurred.
If you buy Class A shares and within 91 days exchange into another fund, you may
not include the sales charge in your calculation of tax gain or loss on the sale
of the first fund you purchased. The sales charge may be included in the
calculation of your tax gain or loss on a subsequent sale of the second fund you
purchased.
FOR EXAMPLE
You purchase 100 shares of an equity fund having a public offering price of
$10.00 per share. With a sales load of 5.75%, you pay $57.50 in sales load. With
a NAV of $9.425 per share, the value of your investment is $942.50. Within 91
days of purchasing that fund, you decide to exchange out of that fund, now at a
NAV of $11.00 per share, up from the original NAV of $9.425, and purchase a
second fund, at a NAV of $15.00 per share. The value of your investment is now
$1,100.00 ($11.00 x 100 shares). You cannot use the $57.50 paid as a sales load
when calculating your tax gain or loss in the sale of the first fund shares. So
instead of having a $100.00 gain ($1,100.00 - $1,000.00), you have a $157.50
gain ($1,100.00 - $942.50). You can include the $57.50 sales load in the
calculation of your tax gain or loss when you sell shares in the second fund.
The following paragraphs provide information based on a fund's investment
category. You can find your fund's investment category in Table 1.
FOR STATE TAX-EXEMPT FIXED INCOME AND TAX-EXEMPT FIXED INCOME FUNDS, all
distributions of net investment income during the fund's fiscal year will have
the same percentage designated as tax-exempt. This 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. See wash sale discussion above. 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.
DISTRIBUTIONS
DIVIDENDS
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
Statement of Additional Information - April 1, 2009 Page 80
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 0%
(for lower-bracket taxpayers) tax rates for 2008-2010. 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. PFICs are
excluded from this treatment. 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
- --------------------------------------------------------------------------------------------------
Income Builder Basic Income 13.39% 15.15%
- --------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 10.32 14.00
- --------------------------------------------------------------------------------------------------
Income Builder Moderate Income 14.02 16.58
- --------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 36.36 52.12
- --------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 5.23 7.20
- --------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 12.95 18.45
- --------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive 20.91 29.91
- --------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative 8.87 12.44
- --------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 69.21 99.47
- --------------------------------------------------------------------------------------------------
S&P 500 Index 100.00 100.00
- --------------------------------------------------------------------------------------------------
Small Company Index 100.00 100.00
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- --------------------------------------------------------------------------------------------------
Equity Value 100.00 100.00
- --------------------------------------------------------------------------------------------------
Partners Small Cap Growth 7.42 7.52
- --------------------------------------------------------------------------------------------------
Precious Metals and Mining 1.58 7.77
- --------------------------------------------------------------------------------------------------
Small Cap Advantage 21.98 23.84
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- --------------------------------------------------------------------------------------------------
120/20 Contrarian Equity 0 0
- --------------------------------------------------------------------------------------------------
Retirement Plus 2010 23.79 26.60
- --------------------------------------------------------------------------------------------------
Retirement Plus 2015 29.19 33.29
- --------------------------------------------------------------------------------------------------
Retirement Plus 2020 31.05 36.77
- --------------------------------------------------------------------------------------------------
Retirement Plus 2025 35.39 42.66
- --------------------------------------------------------------------------------------------------
Retirement Plus 2030 38.20 46.35
- --------------------------------------------------------------------------------------------------
Retirement Plus 2035 37.21 44.99
- --------------------------------------------------------------------------------------------------
Retirement Plus 2040 36.10 43.63
- --------------------------------------------------------------------------------------------------
Retirement Plus 2045 33.06 39.67
- --------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 81
<Table>
<Caption>
PERCENT OF DIVIDENDS
QUALIFYING QUALIFIED DIVIDEND INCOME
FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- --------------------------------------------------------------------------------------------------
High Yield Bond 0% 0%
- --------------------------------------------------------------------------------------------------
Partners Aggressive Growth 0 0
- --------------------------------------------------------------------------------------------------
Partners Fundamental Value 100.00 100.00
- --------------------------------------------------------------------------------------------------
Partners Select Value 28.75 30.44
- --------------------------------------------------------------------------------------------------
Partners Small Cap Equity 0 0
- --------------------------------------------------------------------------------------------------
Partners Small Cap Value 53.50 83.57
- --------------------------------------------------------------------------------------------------
Short Duration U.S. Government 0 0
- --------------------------------------------------------------------------------------------------
U.S. Government Mortgage 0 0
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- --------------------------------------------------------------------------------------------------
Dividend Opportunity 100.00 100.00
- --------------------------------------------------------------------------------------------------
Real Estate 1.69 15.81
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- --------------------------------------------------------------------------------------------------
Cash Management 0 0
- --------------------------------------------------------------------------------------------------
Disciplined Equity 100.00 100.00
- --------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity 100.00 100.00
- --------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 100.00 100.00
- --------------------------------------------------------------------------------------------------
Floating Rate 0 0
- --------------------------------------------------------------------------------------------------
Growth 100.00 100.00
- --------------------------------------------------------------------------------------------------
Income Opportunities 0 0
- --------------------------------------------------------------------------------------------------
Inflation Protected Securities 0 0
- --------------------------------------------------------------------------------------------------
Large Cap Equity 100.00 100.00
- --------------------------------------------------------------------------------------------------
Large Cap Value 100.00 100.00
- --------------------------------------------------------------------------------------------------
Limited Duration Bond 0 0
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- --------------------------------------------------------------------------------------------------
California Tax-Exempt 0 0
- --------------------------------------------------------------------------------------------------
Diversified Bond 0 0
- --------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt 0 0
- --------------------------------------------------------------------------------------------------
New York Tax-Exempt 0 0
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- --------------------------------------------------------------------------------------------------
Balanced 60.12 64.58
- --------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 100.00 100.00
- --------------------------------------------------------------------------------------------------
Disciplined Large Cap Value 0 0
- --------------------------------------------------------------------------------------------------
Diversified Equity Income 100.00 100.00
- --------------------------------------------------------------------------------------------------
Mid Cap Value 100.00 100.00
- --------------------------------------------------------------------------------------------------
Strategic Allocation 52.43 76.74
- --------------------------------------------------------------------------------------------------
Strategic Income Allocation 4.53 3.90
- --------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 82
<Table>
<Caption>
PERCENT OF DIVIDENDS
QUALIFYING QUALIFIED DIVIDEND INCOME
FUND FOR CORPORATE DEDUCTION FOR INDIVIDUALS
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- --------------------------------------------------------------------------------------------------
Absolute Return Currency and Income 0% 0%
- --------------------------------------------------------------------------------------------------
Disciplined International Equity 0.54 100.00
- --------------------------------------------------------------------------------------------------
Emerging Markets Bond 0 0
- --------------------------------------------------------------------------------------------------
Global Bond 0 0
- --------------------------------------------------------------------------------------------------
Global Technology 0 0
- --------------------------------------------------------------------------------------------------
Partners International Select Growth 6.48 100.00
- --------------------------------------------------------------------------------------------------
Partners International Select Value 0 0
- --------------------------------------------------------------------------------------------------
Partners International Small Cap 0 0
- --------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 0 0
- --------------------------------------------------------------------------------------------------
Threadneedle European Equity 0 100.00
- --------------------------------------------------------------------------------------------------
Threadneedle Global Equity 100.00 100.00
- --------------------------------------------------------------------------------------------------
Threadneedle Global Equity Income 100.00 100.00
- --------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha 0 0
- --------------------------------------------------------------------------------------------------
Threadneedle International Opportunity 0 100.00
- --------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- --------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 0 0
- --------------------------------------------------------------------------------------------------
Mid Cap Growth 25.80 25.95
- --------------------------------------------------------------------------------------------------
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>
CAPITAL GAINS DISTRIBUTIONS
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 as ordinary income.
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 may be treated as ordinary or capital 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.
RETURN OF CAPITAL
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.
If a fund's distributions exceed its current and accumulated earnings and
profits, that portion of the fund's distributions will be treated as a return of
capital to its shareholders. A return of capital will generally not be taxable,
however, any amounts received in excess of a shareholder's tax basis are treated
as capital gain. Forms 1099 will be sent to shareholders to report any return of
capital.
Statement of Additional Information - April 1, 2009 Page 83
SERVICE PROVIDERS
INVESTMENT MANAGEMENT SERVICES
RiverSource Investments is the investment manager for each fund. Under the
Investment Management Services Agreements, the investment manager, subject to
the policies set by the Board, provides investment management services.
For its services, the investment manager is paid a monthly 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
- ------------------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity First $0.25 0.950% 0.950%
Next 0.25 0.930
Next 0.50 0.910
Over 1.0 0.890
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
Balanced First 1.0 0.530 0.530
Next 1.0 0.505
Next 1.0 0.480
Next 3.0 0.455
Next 1.5 0.430
Next 2.5 0.410
Next 5.0 0.390
Next 9.0 0.370
Over 24.0 0.350
- ------------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt First 0.25 0.410 California - 0.410
Minnesota Tax-Exempt Next 0.25 0.385 Minnesota - 0.405
New York Tax-Exempt Next 0.25 0.360 New York - 0.410
Next 0.25 0.345
Next 6.5 0.320
Next 2.5 0.310
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 - April 1, 2009 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
- ------------------------------------------------------------------------------------------------------------------------------
Disciplined Equity First 1.0 0.600 Disciplined Equity - 0.575
Disciplined Large Cap Growth Next 1.0 0.575 Disciplined Large Cap Growth - 0.600
Disciplined Large Cap Value Next 1.0 0.550 Disciplined Large Cap Value - 0.600
Diversified Equity Income Next 3.0 0.525 Diversified Equity Income - 0.551
Growth Next 1.5 0.500 Growth - 0.584
Large Cap Equity Next 2.5 0.485 Large Cap Equity - 0.562
Large Cap Value Next 5.0 0.470 Large Cap Value - 0.600
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 - 0.790
Threadneedle European Equity Next 0.25 0.775 Threadneedle European Equity - 0.800
Threadneedle Global Equity Next 0.25 0.750 Threadneedle Global Equity - 0.789
Threadneedle Global Equity Income Next 0.25 0.725 Threadneedle Global Equity Income - 0.800
Threadneedle International Opportunity Next 1.0 0.700 Threadneedle International Opportunity - 0.793
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
- ------------------------------------------------------------------------------------------------------------------------------
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 - 0.700
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
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 85
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
Diversified Bond First $1.0 0.480% Diversified Bond - 0.446%
Limited Duration Bond Next 1.0 0.455 Limited Duration Bond - 0.480
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
- ------------------------------------------------------------------------------------------------------------------------------
Dividend Opportunity First 0.50 0.610 0.584
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 Bond First 0.25 0.720 Emerging Markets Bond - 0.720
Global Bond Next 0.25 0.695 Global Bond - 0.699
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
- ------------------------------------------------------------------------------------------------------------------------------
Equity Value First 0.50 0.530 0.517
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
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 86
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
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 0.583
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
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 87
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value First 1.0 0.700 0.682
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
- ------------------------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth First 0.50 0.890 0.885
Next 0.50 0.865
Next 1.0 0.840
Next 1.0 0.815
Next 3.0 0.790
Over 6.0 0.765
- ------------------------------------------------------------------------------------------------------------------------------
Partners Fundamental Value First 0.50 0.730 0.718
Next 0.50 0.705
Next 1.0 0.680
Next 1.0 0.655
Next 3.0 0.630
Over 6.0 0.600
- ------------------------------------------------------------------------------------------------------------------------------
Partners International Select Growth First 0.25 1.000 0.992
Next 0.25 0.975
Next 0.25 0.950
Next 0.25 0.925
Next 1.0 0.900
Over 2.0 0.875
- ------------------------------------------------------------------------------------------------------------------------------
Partners International Select Value First 0.25 0.900 0.868
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
- ------------------------------------------------------------------------------------------------------------------------------
Partners 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
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 88
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
Partners Select Value First $0.50 0.780% 0.780%
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
- ------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity First 0.25 0.970 0.970
Next 0.25 0.945
Next 0.25 0.920
Next 0.25 0.895
Over 1.0 0.870
- ------------------------------------------------------------------------------------------------------------------------------
Partners 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
- ------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Value First 0.25 0.970 0.955
Next 0.25 0.945
Next 0.25 0.920
Next 0.25 0.895
Over 1.0 0.870
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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 0.786
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 Company Index First 0.25 0.360 0.357
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
- ------------------------------------------------------------------------------------------------------------------------------
Strategic Allocation First 1.0 0.570 0.560
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
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 90
<Table>
<Caption>
DAILY RATE ON
ASSETS ANNUAL RATE AT LAST DAY OF MOST
FUND (BILLIONS) EACH ASSET LEVEL RECENT FISCAL PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income First $1.0 0.470% 0.454%
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
- ------------------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets First 0.25 1.100 1.100
Next 0.25 1.080
Next 0.25 1.060
Next 0.25 1.040
Next 1.0 1.020
Next 5.5 1.000
Next 2.5 0.985
Next 5.0 0.970
Net 5.0 0.960
Next 4.0 0.935
Next 26.0 0.920
Over 50.0 0.900
- ------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha First 0.25 1.050 1.050
Next 0.25 1.030
Next 0.50 1.010
Next 1.0 0.990
- ------------------------------------------------------------------------------------------------------------------------------
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>
Statement of Additional Information - April 1, 2009 Page 91
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 Performance Incentive Adjustment Index (PIA
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. PIA INDEXES
<Table>
<Caption>
FEE INCREASE OR
FUND PIA INDEX (DECREASE)
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING MARCH 31
- ----------------------------------------------------------------------------------------------
Equity Value Lipper Large-Cap Value Funds $ 615,240
- ----------------------------------------------------------------------------------------------
Partners Small Cap Growth Lipper Small-Cap Growth Funds 58,432
- ----------------------------------------------------------------------------------------------
Precious Metals and Mining Lipper Gold Funds (79,535)
- ----------------------------------------------------------------------------------------------
Small Cap Advantage Lipper Small-Cap Core Funds (641,110)
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING APRIL 30
- ----------------------------------------------------------------------------------------------
120/20 Contrarian Equity Russell 3000 Index N/A*
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING MAY 31
- ----------------------------------------------------------------------------------------------
Partners Aggressive Growth Lipper Mid-Cap Growth Funds 491,209
- ----------------------------------------------------------------------------------------------
Partners Fundamental Value Lipper Large-Cap Core Funds(a) 219,383
- ----------------------------------------------------------------------------------------------
Partners Select Value Lipper Mid-Cap Value Funds(b) 465,782
- ----------------------------------------------------------------------------------------------
Partners Small Cap Equity Lipper Small-Cap Core Funds (75,993)
- ----------------------------------------------------------------------------------------------
Partners Small Cap Value Lipper Small-Cap Value Funds (289,756)
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING JUNE 30
- ----------------------------------------------------------------------------------------------
Dividend Opportunity Lipper Equity Income Funds 916,530
- ----------------------------------------------------------------------------------------------
Real Estate Lipper Real Estate Funds (190,002)
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING JULY 31
- ----------------------------------------------------------------------------------------------
Disciplined Equity Lipper Large-Cap Core Funds (1,361,345)
- ----------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity Lipper Mid-Cap Core Funds (79,088)
- ----------------------------------------------------------------------------------------------
Disciplined Small Cap Value Lipper Small-Cap Value Funds (38,280)
- ----------------------------------------------------------------------------------------------
Growth Lipper Large-Cap Growth Funds (3,707,468)
- ----------------------------------------------------------------------------------------------
Large Cap Equity Lipper Large-Cap Core Funds (4,214,418)
- ----------------------------------------------------------------------------------------------
Large Cap Value Lipper Large-Cap Value Funds (58,120)
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING SEPTEMBER 30
- ----------------------------------------------------------------------------------------------
Balanced Lipper Balanced Funds (787,804)
- ----------------------------------------------------------------------------------------------
Disciplined Large Cap Growth Lipper Large-Cap Growth Funds (106,808)
- ----------------------------------------------------------------------------------------------
Disciplined Large Cap Value Lipper Large-Cap Value Funds N/A*
- ----------------------------------------------------------------------------------------------
Diversified Equity Income Lipper Equity Income Funds 4,992,605
- ----------------------------------------------------------------------------------------------
Mid Cap Value Lipper Mid-Cap Value Funds 1,681,079
- ----------------------------------------------------------------------------------------------
Strategic Allocation Lipper Flexible Portfolio Funds (1,260,515)
- ----------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 92
<Table>
<Caption>
FEE INCREASE OR
FUND LIPPER INDEX (DECREASE)
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING OCTOBER 31
- ----------------------------------------------------------------------------------------------
Lipper International Large-Cap Core
Disciplined International Equity Funds $ (213,635)
- ----------------------------------------------------------------------------------------------
Lipper Global Science and Technology
Global Technology Funds(c) (148,556)
- ----------------------------------------------------------------------------------------------
Lipper International Multi-Cap
Partners International Select Growth Growth Funds (387,870)
- ----------------------------------------------------------------------------------------------
Lipper International Multi-Cap Value
Partners International Select Value Funds (2,449,779)
- ----------------------------------------------------------------------------------------------
Partners International Small Cap Lipper International Small-Cap Funds (51,416)
- ----------------------------------------------------------------------------------------------
Threadneedle Emerging Markets Lipper Emerging Markets Funds 507,378
- ----------------------------------------------------------------------------------------------
Threadneedle European Equity Lipper European Funds 19,559
- ----------------------------------------------------------------------------------------------
Threadneedle Global Equity Lipper Global Funds 393,409
- ----------------------------------------------------------------------------------------------
Threadneedle Global Equity Income MSCI All Country World Index N/A*
- ----------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha MSCI All Country World Index N/A*
- ----------------------------------------------------------------------------------------------
Lipper International Large-Cap Core
Threadneedle International Opportunity Funds 119,014
- ----------------------------------------------------------------------------------------------
FISCAL YEAR ENDING NOVEMBER 30
- ----------------------------------------------------------------------------------------------
Mid Cap Growth Lipper Mid-Cap Growth Funds (965,508)
- ----------------------------------------------------------------------------------------------
</Table>
* See section titled "Transition Period" below.
(a) The index against which the fund's performance was measured prior to Jan.
1, 2008 was the Lipper Large-Cap Value Funds Index. See "Change in Index"
below.
(b) The index against which the fund's performance was measured prior to Jan.
1, 2008 was the Lipper Multi-Cap Value Funds Index. See "Change in Index"
below.
(c) The index against which the fund's performance was measured prior to July
1, 2008 was the Lipper Science and Technology Funds Index. See "Change in
Index" below.
FOR ALL FUNDS NOTED IN TABLE 14 EXCEPT 120/20 CONTRARIAN EQUITY AND THREADNEEDLE
GLOBAL EXTENDED ALPHA:
The adjustment will be determined monthly by measuring the percentage difference
over a rolling 12-month period (subject to earlier determination based on the
Transition Period, as set forth below) between the annualized performance of one
Class A share of the fund and the annualized performance of the Index
("performance difference"). 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 and is applied against average
daily net assets for the applicable rolling 12-month period or Transition
Period, and divided by 12 to obtain the fee reflecting the performance fee
adjustment for that month. The table is organized by fund category. You can find
your fund's category in Table 1.
Statement of Additional Information - April 1, 2009 Page 93
TABLE 15A. 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.
TRANSITION PERIOD
The performance incentive adjustment will not be calculated for the first 6
months from the inception of the fund. After 6 full calendar months, the
performance fee adjustment will be determined using the average assets and
performance difference over the first 6 full calendar months, and the adjustment
rate will be applied in full. Each successive month an additional calendar month
will be added to the performance adjustment computation. After 12 full calendar
months, the full rolling 12-month period will take affect.
CHANGE IN INDEX
If an Index ceases to be published for a period of more than 90 days, changes in
any material respect, otherwise becomes impracticable or, at the discretion of
the Board, is no longer appropriate to use for purposes of a performance
incentive adjustment, for example, if Lipper reclassifies the fund from one peer
group to another, the Board may take action it deems appropriate and in the best
interests of shareholders, including: (1) discontinuance of the performance
incentive adjustment until such time as it approves a substitute index; or (2)
adoption of a methodology to transition to a substitute index it has approved.
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.
FOR 120/20 CONTRARIAN EQUITY AND THREADNEEDLE GLOBAL EXTENDED ALPHA:
The adjustment will be determined monthly by measuring the percentage difference
over a rolling 36-month period (subject to earlier determination based on the
Transition Period, as set forth below) between the annualized performance of one
Class A share of the fund and the annualized performance of the Index
("performance difference"). The performance difference will then be used to
determine the adjustment rate. The adjustment rate, computed to five decimal
places, is determined in
Statement of Additional Information - April 1, 2009 Page 94
accordance with the following table and is applied against average daily net
assets for the applicable rolling 36-month period or Transition Period, and
divided by 12 to obtain the fee reflecting the performance fee adjustment for
that month.
TABLE 15B. PERFORMANCE INCENTIVE ADJUSTMENT CALCULATION
<Table>
<Caption>
- -----------------------------------------------------------------------------------------
PERFORMANCE
DIFFERENCE ADJUSTMENT RATE
- -----------------------------------------------------------------------------------------
0.00% - 1.00% 0
- -----------------------------------------------------------------------------------------
1.00% - 6.00% 10 basis points times the performance difference over 1.00%, times 100
(maximum 50 basis points if a 6% performance difference)
- -----------------------------------------------------------------------------------------
6.00% or more 50 basis points
- -----------------------------------------------------------------------------------------
</Table>
For example, if the performance difference is 2.38%, the adjustment rate is
0.00138 [the 1.38% performance difference over 1.00%] x 0.0010 [10 basis points]
x 100. Rounded to five decimal places, the adjustment rate is 0.00138. This
adjustment rate of 0.00138 is then applied against the average daily net assets
for the applicable rolling 36-month or Transition Period, and divided by 12,
which provides the performance adjustment fee for that month. Where the fund's
Class A performance exceeds that of the Index for the applicable rolling 36-
month period or Transition Period, the fee paid to the Investment Manager will
increase by the adjustment rate. Where the performance of the Index exceeds the
performance of the fund's Class A shares for the applicable rolling 36-month
period or Transition Period, the fee paid to the Investment Manager will
decrease by the adjustment rate.
The 36-month comparison period rolls over with each succeeding month, so that it
always equals 36 months, ending with the month for which the performance
adjustment is being computed.
TRANSITION PERIOD
The performance incentive adjustment will not be calculated for the first 24
months from the inception of the fund. After 24 full calendar months, the
performance fee adjustment will be determined using the average assets and
Performance Difference over the first 24 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 36
full calendar months, the full rolling 36-month period will take affect.
CHANGE IN INDEX
If an Index ceases to be published for a period of more than 90 days, changes in
any material respect, otherwise becomes impracticable or, at the discretion of
the Board, is no longer appropriate to use for purposes of a performance
incentive adjustment, 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 36-
month blended index return that reflects the performance of the current index
for the portion of the 36-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.
Statement of Additional Information - April 1, 2009 Page 95
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 2009 2008 2007 2009 2008 2007
- -------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- -------------------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income N/A N/A N/A $ 139,640 $ 103,636(a) $ 145,971
- -------------------------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income N/A N/A N/A 118,255 134,546(a) 153,282
- -------------------------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income N/A N/A N/A 175,842 129,062(a) 202,410
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive N/A N/A N/A* 199,501 168,942 209,004
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative N/A N/A N/A* 146,492 96,147 134,788
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate N/A N/A N/A* 278,861 247,980 246,216
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate
Aggressive N/A N/A N/A* 299,503 247,472 355,360
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate
Conservative N/A N/A N/A* 170,774 117,533 140,615
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity N/A N/A N/A* 149,589 173,675 188,843
- -------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index $ 371,178 $ 579,548 $ 566,109 (194,370) (254,777) (272,996)
- -------------------------------------------------------------------------------------------------------------------------------
(1,171,6- (1,007,3-
Small Company Index 1,990,095 3,292,392 3,889,499 27) 06) (662,392)
- -------------------------------------------------------------------------------------------------------------------------------
2008 2007 2006 2008 2007 2006
- -------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- -------------------------------------------------------------------------------------------------------------------------------
Equity Value 6,797,853 6,969,436 7,043,854 413,170 361,720 400,520
- -------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth 1,887,518 2,066,992 1,878,991 99,186 111,014 343,335
- -------------------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining 956,280 876,127 579,779 175,405 144,337 207,159
- -------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage 2,903,208 4,703,119 5,845,601 (383,991) (252,816) 510,707
- -------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- -------------------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity 159,311(c) N/A N/A 21,297(b) N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 N/A N/A N/A 41 4,075(c) N/A
- -------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 N/A N/A N/A 310 3,927(c) N/A
- -------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 N/A N/A N/A 745 6,231(c) N/A
- -------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 N/A N/A N/A 332 4,478(c) N/A
- -------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 N/A N/A N/A 431 2,766(c) N/A
- -------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 N/A N/A N/A 487 878(c) N/A
- -------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 N/A N/A N/A (796) 2,640(c) N/A
- -------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 N/A N/A N/A (2,131) (2,522)(c) N/A
- -------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- -------------------------------------------------------------------------------------------------------------------------------
11,401,8- 12,713,3-
High Yield Bond 9,610,810 45 21 665,785 481,606 688,374
- -------------------------------------------------------------------------------------------------------------------------------
(1,047,8-
Partners Aggressive Growth 5,729,264 4,627,106 1,950,153 (786,490) 23) (167,264)
- -------------------------------------------------------------------------------------------------------------------------------
Partners Fundamental Value 7,668,633 7,530,722 7,971,622 (213,176) (215,041) 501,862
- -------------------------------------------------------------------------------------------------------------------------------
Partners Select Value 4,388,735 4,807,861 5,211,061 (142,897) (162,440) 330,794
- -------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity 2,441,742 2,964,236 2,525,974 (539,268) (464,274) (134,739)
- -------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Value 6,511,571 9,159,989 9,285,758 (972,781) (878,605) 735,477
- -------------------------------------------------------------------------------------------------------------------------------
(1,025,9- (1,688,3-
Short Duration U.S. Government 3,816,196 4,419,003 6,683,201 (771,512) 39) 00)
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 1,958,404 1,348,887 1,327,433 (389,262) (438,473) (549,885)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 96
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------------
MANAGEMENT FEES NONADVISORY EXPENSES
- -----------------------------------------------------------------------------------------------------------------
FUND 2008 2007 2006 2008 2007 2006
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- -----------------------------------------------------------------------------------------------------------------
Dividend Opportunity $12,015,660 $10,678,661 $ 7,688,134 $ 626,341 $ 540,349 $ 480,473
- -----------------------------------------------------------------------------------------------------------------
Real Estate 1,667,040 2,299,121 1,398,778 138,649 207,925 153,244
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- -----------------------------------------------------------------------------------------------------------------
Cash Management 15,026,220 12,713,351 10,801,723 1,290,897 859,062 (1,747,535)
- -----------------------------------------------------------------------------------------------------------------
Disciplined Equity 17,556,244 14,110,274 5,175,451 726,080 (202,920) (83,131)
- -----------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap
Equity 365,578 273,481 13,335(d) 125,645 91,799 4,577(d)
- -----------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 286,759 206,071 49,035(e) 33,868 37,535 9,684(e)
- -----------------------------------------------------------------------------------------------------------------
Floating Rate 3,509,190 3,332,472 412,667(e) 293,676 151,486 19,402(e)
- -----------------------------------------------------------------------------------------------------------------
Growth 12,541,267 22,705,786 19,922,079 850,735 954,358 1,214,759
- -----------------------------------------------------------------------------------------------------------------
Income Opportunities 1,767,885 2,116,555 2,229,460 196,944 187,627 198,512
- -----------------------------------------------------------------------------------------------------------------
Inflation Protected Securities 2,554,103 1,313,892 1,078,635 (238,396) (126,032) (45,905)
- -----------------------------------------------------------------------------------------------------------------
Large Cap Equity 25,467,893 39,667,264 20,724,477 (995,206) 1,168,504 682,652
- -----------------------------------------------------------------------------------------------------------------
Large Cap Value 401,168 602,406 715,200 205,428 184,710 186,504
- -----------------------------------------------------------------------------------------------------------------
Limited Duration Bond 792,200 726,809 990,881 (78,320) (73,339) (96,959)
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- -----------------------------------------------------------------------------------------------------------------
California Tax-Exempt 715,946 717,999 1,008,174(f) 44,499 20,854 (8,449)(f)
- -----------------------------------------------------------------------------------------------------------------
Diversified Bond 14,772,880 12,770,016 12,388,294 (461,298) (1,129,485) (1,870,049)
- -----------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt 1,246,083 1,351,439 1,898,065(f) 506,328 676,782 599,362(f),(g)
- -----------------------------------------------------------------------------------------------------------------
New York Tax-Exempt 242,807 279,438 402,241(f) 75,790 134,099 133,306(f),(g)
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- -----------------------------------------------------------------------------------------------------------------
Balanced 3,977,541 6,315,077 5,690,832 437,940 368,447 563,493
- -----------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 905,956 114,048(h) N/A 195,661 54,709(h) N/A
- -----------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value 6,618(i) N/A N/A 2,877(i) N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Diversified Equity Income 44,177,652 42,530,087 37,321,661 1,905,627 1,561,033 1,761,776
- -----------------------------------------------------------------------------------------------------------------
Mid Cap Value 18,813,340 15,908,732 11,459,838 992,201 826,273 728,841
- -----------------------------------------------------------------------------------------------------------------
Strategic Allocation 10,108,947 11,025,000 7,064,937 1,047,907 921,198 665,164
- -----------------------------------------------------------------------------------------------------------------
Strategic Income Allocation 904,660 168,875(h) N/A 294,099 76,656(h) N/A
- -----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- -----------------------------------------------------------------------------------------------------------------
Absolute Return Currency and
Income 4,188,137 887,341 176,149(j) 313,877 103,119 28,907(j)
- -----------------------------------------------------------------------------------------------------------------
Disciplined International Equity 5,209,129 2,161,563 147,388(k) 512,793 358,005 48,716(k)
- -----------------------------------------------------------------------------------------------------------------
Emerging Markets Bond 1,182,004 706,943 191,237(l) 172,124 120,044 77,772(l)
- -----------------------------------------------------------------------------------------------------------------
Global Bond 5,074,934 3,438,893 3,734,676 165,694 (17,529) (159,716)
- -----------------------------------------------------------------------------------------------------------------
Global Technology 857,290 1,412,081 1,327,883 188,087 187,390 249,939
- -----------------------------------------------------------------------------------------------------------------
Partners International Select
Growth 5,965,413 6,048,963 4,039,162 334,550 672,542 530,707
- -----------------------------------------------------------------------------------------------------------------
Partners International Select
Value 13,239,202 20,067,871 15,936,398 1,054,830 1,286,758 990,734
- -----------------------------------------------------------------------------------------------------------------
Partners International Small Cap 1,057,146 1,270,558 1,050,011 63,912 208,621 246,920
- -----------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 7,352,591 7,106,815 5,659,680 1,138,897 1,190,259 745,246
- -----------------------------------------------------------------------------------------------------------------
Threadneedle European Equity 980,629 952,484 821,750 223,792 199,237 182,061
- -----------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 5,825,153 6,075,014 5,791,016 554,139 577,463 517,920
- -----------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity
Income 15,723(m) N/A N/A 2,989(m) N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended
Alpha 16,485(m) N/A N/A 1,122(m) N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Threadneedle International
Opportunity 4,661,800 4,923,040 4,840,788 486,074 545,663 505,513
- -----------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 97
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------
MANAGEMENT FEES NONADVISORY EXPENSES
- ----------------------------------------------------------------------------------------------------------------
2008 2007 2006 2008 2007 2006
- ----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ----------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt $ 291,762 $ 321,011 $ 435,316 $ 2,588 $ (4,565) $ (25,206)
- ----------------------------------------------------------------------------------------------------------------
Mid Cap Growth 4,726,590 6,373,531 9,852,112 437,496 241,412 670,574
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 2,764,541 3,157,092 3,345,629 506,736 (8,650) 905,255
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 11,447,732 13,006,578 15,027,647 2,984,232 (847,490) 8,025,340
- ----------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 464,177 406,763 390,170 161,459 32,730 118,441
- ----------------------------------------------------------------------------------------------------------------
</Table>
* Effective Feb. 1, 2006, this fee was eliminated.
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31
to Jan. 31. For 2008, the information shown is for the period from June
1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period
ended on May 31.
(b) For the period from Oct. 18, 2007 (when shares became publicly available)
to April 30, 2008.
(c) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(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 and 2005 were reported as $(68,320) and
$161,536 for Minnesota Tax-Exempt Fund and $(21,864) and $54,945 for New
York 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 Aug. 1, 2008 (when shares became publicly available)
to Sept. 30, 2008.
(j) For the period from June 15, 2006 (when the Fund became available) to
Oct. 31, 2006.
(k) For the period from May 18, 2006 (when shares became publicly available)
to Oct. 31, 2006.
(l) For the period from Feb. 16, 2006 (when shares became publicly available)
to Oct. 31, 2006.
(m) For the period from Aug. 1, 2008 (when shares became publicly available)
to Oct. 31, 2008.
MANAGER OF MANAGERS EXEMPTION
The funds have received an order from the SEC that permits RiverSource
Investments, subject to the approval of the Board, to appoint a subadviser or
change the terms of a subadvisory agreement for a fund without first obtaining
shareholder approval. The order permits the fund to add or change unaffiliated
subadvisers or the fees paid to subadvisers from time to time without the
expense and delays associated with obtaining shareholder approval of the change.
For California Tax-Exempt, Cash Management, Diversified Bond, Global Bond, High
Yield Bond, Intermediate Tax- Exempt, Massachusetts Tax-Exempt, Michigan Tax-
Exempt, Minnesota Tax-Exempt, New York Tax-Exempt, Ohio Tax-Exempt, Short
Duration U.S. Government, Tax-Exempt Bond, Tax-Exempt High Income, Tax-Exempt
Money Market and U.S. Government Mortgage funds: before the fund may rely on the
order, holders of a majority of the fund's outstanding voting securities will
need to approve operating the fund in this manner. There is no assurance
shareholder approval will be received, and no changes will be made without
shareholder approval until that time.
SUBADVISORY AGREEMENTS
The assets of certain funds are managed by subadvisers that have been selected
by the investment manager, subject to the review and approval of the Board. The
investment manager has recommended the subadvisers to the Board based upon its
assessment of the skills of the subadvisers in managing other assets with
objectives and investment strategies substantially similar to those of the
applicable fund. Short-term investment performance is not the only factor in
selecting or terminating a subadviser, and the investment manager does not
expect to make frequent changes of subadvisers. Certain subadvisers, affiliated
with the investment manager, have been directly approved by shareholders. These
subadvisers are noted in Table 18.
The investment manager allocates the assets of a fund with multiple subadvisers
among the subadvisers. Each subadviser has discretion, subject to oversight by
the Board and the investment manager, to purchase and sell portfolio assets,
consistent with the fund's investment objectives, policies, and restrictions.
Generally, the services that a subadviser provides to the fund are limited to
asset management and related recordkeeping services.
The investment manager has entered into an advisory agreement with each
subadviser under which the subadviser provides investment advisory assistance
and day-to-day management of some or all of the fund's portfolio, as well as
investment research and statistical information. A subadviser may also serve as
a discretionary or non-discretionary investment adviser to management or
advisory accounts that are unrelated in any manner to the investment manager or
its affiliates.
Statement of Additional Information - April 1, 2009 Page 98
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
FUND SUBADVISER COMPANY FEE SCHEDULE
- ---------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ---------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth Essex Investment Management Company, LLC A 0.70% on the first $20 million, reducing to
(effective Sept. 23, 2005) 0.60% as assets increase
------------------------------------------------------------------------------------------------------
Federated MDTA, LLC (MDTA)(a) (effective B 0.60% on the first $75 million, reducing to
Sept. 23, 2005) 0.50% as assets increase
------------------------------------------------------------------------------------------------------
Turner Investment Partners, Inc. N/A 0.60% on the first $50 million, reducing to
(Turner) (effective Aug. 18, 2003) 0.50% as assets increase
------------------------------------------------------------------------------------------------------
UBS Global Asset N/A 0.55% on the first $150 million, reducing to
Management (Americas) (UBS) 0.50% as assets increase
(effective Aug. 18, 2003)
- ---------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ---------------------------------------------------------------------------------------------------------------------------------
Partners Aggressive American Century Investment C 0.50% on the first $100 million, reducing to
Growth Management, Inc. (American Century) 0.38% as assets increase
(effective April 24, 2003)
------------------------------------------------------------------------------------------------------
Turner N/A 0.55% on the first $100 million, reducing to
(effective April 24, 2003) 0.38% as assets increase
- ---------------------------------------------------------------------------------------------------------------------------------
Partners Fundamental Davis Selected Advisers, N/A 0.45% on the first $100 million, reducing to
Value LP (Davis)(a), (b) 0.25% as assets increase
(effective June 18, 2001)
- ---------------------------------------------------------------------------------------------------------------------------------
Partners Select Value Systematic Financial Management, D 0.50% on the first $50 million,
L.P. (Systematic)(a) reducing to 0.30% as assets
(effective Sept. 29, 2006) increase
------------------------------------------------------------------------------------------------------
WEDGE Capital Management N/A 0.75% on the first $10 million,
L.L.P. (WEDGE)(a) reducing to 0.30% as assets
(effective Sept. 29, 2006) increase
- ---------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity American Century C 0.65% on the first $25 million, reducing to
(effective Dec. 12, 2003) 0.55% as assets increase
------------------------------------------------------------------------------------------------------
Jennison Associates LLC (Jennison) E 0.55% on all assets
(effective Feb. 22, 2008)
------------------------------------------------------------------------------------------------------
Lord, Abbett & Co. LLC N/A 0.65% on the first $100 million,
(Lord Abbett) reducing to 0.55% as assets
(effective Dec. 12, 2003) increase
- ---------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Value Barrow, Hanley, Mewhinney & F 1.00% on the first $10 million,
Strauss (BHMS)(a) 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)(a) reducing to 0.55% as assets
(effective March 12, 2004) increase
------------------------------------------------------------------------------------------------------
MDTA(a) B 0.60% on the first $75 million, reducing to
(effective June 6, 2008) 0.50% as assets increase
------------------------------------------------------------------------------------------------------
Metropolitan West Capital Management, LLC G 0.50% on all assets
(MetWest Capital) (effective April 24, 2006)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 99
<Table>
<Caption>
PARENT
FUND SUBADVISER COMPANY FEE SCHEDULE
- ---------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ---------------------------------------------------------------------------------------------------------------------------------
Partners International Columbia Wanger Asset Management L.P. H 0.70% on the first $100 million, reducing to
Select Growth (Columbia WAM) (effective Sept. 5, 2001) 0.50% as assets increase
------------------------------------------------------------------------------------------------------
Principal Global Investors, LLC N/A 0.40% on the first $250 million, reducing to
(Principal) (effective April 24, 2006) 0.25% as assets increase
- ---------------------------------------------------------------------------------------------------------------------------------
Partners International AllianceBernstein L.P. N/A 0.65% on the first $75 million, reducing to
Select Value (AllianceBernstein) 0.30% as assets increase
(effective Sept. 17, 2001)
------------------------------------------------------------------------------------------------------
Mondrian Investment Partners Limited N/A 0.70% on all assets
(Mondrian) (effective August 18, 2008)
------------------------------------------------------------------------------------------------------
Tradewinds Global Investors, LLC N/A 0.50% on the first $250 million, reducing to
(Tradewinds) (effective August 18, 2008) 0.40 as assets increase
- ---------------------------------------------------------------------------------------------------------------------------------
Partners International AIG Global Investment Corp. (AIGGIC) I 0.75% on the first $100 million, reducing to
Small Cap (effective April 24, 2006) 0.70% as assets increase
------------------------------------------------------------------------------------------------------
Batterymarch Financial Management, Inc. J 0.75% on the first $100 million, reducing to
(Batterymarch) (effective April 24, 2006) 0.70% as assets increase
- ---------------------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Threadneedle International Limited(b) K 0.45% of the first $150 million, reducing to
Markets (Threadneedle) 0.30% as assets increase, and subject to a
(effective July 9, 2004) performance incentive adjustment(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Threadneedle European Threadneedle(b) K 0.35% of the first $150 million, reducing to
Equity (effective July 9, 2004) 0.20% as assets increase, and subject to a
performance incentive adjustment(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Threadneedle(b) K 0.35% of the first $150 million, reducing to
Equity (effective July 9, 2004) 0.20% as assets increase, and subject to a
performance incentive adjustment(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Threadneedle(b) K 0.45% of the first $250 million, reducing to
Equity Income (effective Aug. 1, 2008) 0.35% as assets increase, and subject to a
performance incentive adjustment(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Threadneedle(b) K 0.70% of the first $250 million, reducing to
Extended Alpha (effective Aug. 1, 2008) 0.60% as assets increase, and subject to a
performance incentive adjustment(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Threadneedle Threadneedle(b) K 0.35% of the first $150 million, reducing to
International Opportunity (effective July 9, 2004) 0.20% as assets increase, and subject to a
performance incentive adjustment(c)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) The fee is calculated based on the combined net assets subject to the
subadviser's investment management.
(b) 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. Threadneedle
is an affiliate of the investment manager as an indirect wholly-owned
subsidiary of Ameriprise Financial.
(c) The adjustment for Threadneedle is based on the performance of one Class
A share of the fund and the change in the PIA Index described in Table
14. The performance of the fund and the Index will be calculated using
the method described above for the performance incentive adjustment paid
to the investment manager under the terms of the Investment Management
Services Agreement. The amount of the adjustment to Threadneedle's fee,
whether positive or negative, shall be equal to one-half of the
performance incentive adjustment made to the investment management fee
payable to the investment manager under the terms of the Investment
Management Services Agreement. The performance incentive adjustment was
effective Dec. 1, 2004.
A - Essex is majority owned by Affiliated Managers Group.
B - Federated MDTA LLC is an indirect subsidiary of Federated Investors,
Inc.
C - American Century Investment Management, Inc. is a direct, wholly-owned
subsidiary of American Century Companies, Inc.
Statement of Additional Information - April 1, 2009 Page 100
D - Systematic is an affiliate of Affiliated Managers Group.
E - Jennison Associates LLC's sole member is Prudential Investments
Management, Inc. which is a direct, wholly-owned subsidiary of
Prudential Asset Management Holding Company LLC, which is a direct,
wholly-owned subsidiary of Prudential Financial, Inc.
F - BHMS is an independent-operating subsidiary of Old Mutual Asset
Management.
G - MetWest Capital is a majority-owned subsidiary of Evergreen Investments
and Wachovia Corporation.
H - 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.
I - AIGGIC is an indirect wholly-owned subsidiary of American International
Group, Inc. (AIG).
J - Batterymarch is a wholly-owned, independent subsidiary of Legg Mason,
Inc.
K - Threadneedle is an indirect wholly-owned subsidiary of Ameriprise
Financial.
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 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Essex $ 257,999 $ 281,295 $ 120,556(a)
Growth
--------------------------------------------------------------------------------------------
MDTA 397,581 411,034 165,110(a)
--------------------------------------------------------------------------------------------
Turner 241,810 265,516 321,406
--------------------------------------------------------------------------------------------
UBS 293,079 342,871 371,341
--------------------------------------------------------------------------------------------
Former Subadviser: Bjurman, Barry & Associates N/A N/A 175,818(b)
(from Aug. 18, 2003 to Sept. 23, 2005)
--------------------------------------------------------------------------------------------
Former Subadviser: RS Investment Management, L.P. N/A N/A 257,675(b)
(from Jan. 24, 2001 to Sept. 23, 2005)
- ------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Former Subadviser: Kenwood 2,318,621 3,180,483 2,856,138
(from May 4, 1999 to Nov. 21, 2008)
- ------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ------------------------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth American Century 1,438,912 1,321,245 512,880
--------------------------------------------------------------------------------------------
Turner 1,310,040 1,304,994 525,422
- ------------------------------------------------------------------------------------------------------------------------------
Partners Fundamental Value Davis 3,220,929 3,673,544 3,787,565
- ------------------------------------------------------------------------------------------------------------------------------
Partners Select Value Systematic 1,025,272 753,292(c) N/A
--------------------------------------------------------------------------------------------
WEDGE 981,822 776,260(c) N/A
--------------------------------------------------------------------------------------------
Former subadviser: GAMCO Asset Management Inc. N/A 786,466(d) 2,763,925
(from inception to September 28, 2006)
- ------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity American Century 506,417 662,396 457,181
--------------------------------------------------------------------------------------------
Jennison 107,599(e) N/A N/A
--------------------------------------------------------------------------------------------
Lord Abbett 583,123 677,462 433,231
--------------------------------------------------------------------------------------------
Former Subadviser: Wellington Management Company, 362,413(f) 650,960* 614,053*
LLP (from Dec. 12, 2003 to Feb. 22, 2008)
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 101
<Table>
<Caption>
SUBADVISORY FEES PAID
---------------------------------------
FUND SUBADVISER 2008 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Value BHMS $ 865,372 $ 970,241 $1,008,072
--------------------------------------------------------------------------------------------
Donald Smith 984,692 1,180,183 1,242,221
--------------------------------------------------------------------------------------------
MDTA N/A(g) N/A N/A
--------------------------------------------------------------------------------------------
MetWest Capital 955,503 1,769,553 225,545(h)
--------------------------------------------------------------------------------------------
Former subadviser: Franklin Portfolio Associates 964,510 1,198,029 1,289,120
(from March 2004 to June 6, 2008)
--------------------------------------------------------------------------------------------
Former subadviser: Royce & Associates, LLC N/A N/A 1,395,487(i)
(from inception to April 24, 2006)
--------------------------------------------------------------------------------------------
Former subadviser: Goldman Sachs Asset Management, N/A 38,601(j) 1,312,424(i)
L.P. (from Aug. 2002 to April 24, 2006)
- ------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ------------------------------------------------------------------------------------------------------------------------------
Partners International Columbia WAM 1,557,963 1,568,158 1,264,808
Select Growth
--------------------------------------------------------------------------------------------
Principal 1,849,485 1,760,150 632,882(k)
--------------------------------------------------------------------------------------------
Former subadviser: American Century Global N/A N/A 821,124(l)
Investment Management** (from Jan. 2005 to April
24, 2006)
- ------------------------------------------------------------------------------------------------------------------------------
Partners International AllianceBernstein 6,268,208 7,962,307 6,022,579
Select Value
--------------------------------------------------------------------------------------------
Mondrian 77,048(m) N/A N/A
--------------------------------------------------------------------------------------------
Tradewinds 129,124(m) N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
Partners International 355,245
Small Cap AIGGIC 425,696 201,650(k)
--------------------------------------------------------------------------------------------
Batterymarch 386,194 439,593 205,659(k)
--------------------------------------------------------------------------------------------
Former subadviser: Templeton Investment Counsel, N/A N/A 226,154(l)
LLC (Franklin Templeton) (from Oct. 3, 2002 to
April 24, 2006)
--------------------------------------------------------------------------------------------
Former subadviser: Wellington Management Company, N/A N/A 243,185(l)
LLP together with its affiliate Wellington
Management International Ltd (from Oct. 3, 2002 to
April 24, 2006)
- ------------------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets Threadneedle 2,801,637 2,728,720 2,170,719
- ------------------------------------------------------------------------------------------------------------------------------
Threadneedle European Equity Threadneedle 443,279 406,594 356,308
- ------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Threadneedle 2,269,177 2,408,387 2,358,731
- ------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Threadneedle 9,057(n) N/A N/A
Income
- ------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Threadneedle 11,750(n) N/A N/A
Alpha
- ------------------------------------------------------------------------------------------------------------------------------
Threadneedle International Threadneedle 1,907,215 1,895,712 1,948,352
Opportunity
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
* 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 Sept. 29, 2006 to May 31, 2007.
(d) For the fiscal period from June 1, 2006 to Sept. 28, 2006.
(e) For the fiscal period from Feb. 22, 2008 to May 31, 2008.
(f) For the fiscal period from June 1, 2007 to Feb. 22, 2008.
(g) The subadviser did not begin managing the fund until after the fund's
fiscal year end.
(h) For the fiscal period from April 24, 2006 to May 31, 2006.
Statement of Additional Information - April 1, 2009 Page 102
(i) For the fiscal period from June 1, 2005 to April 24, 2006.
(j) Payments made to subadviser in accordance with termination agreement.
(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 Aug. 18, 2008 to Oct. 31, 2008.
(n) For the fiscal period from Aug. 1, 2008 to Oct. 31, 2008.
Statement of Additional Information - April 1, 2009 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
- -----------------------------------------------------------------------------------------------------------------------------------
Income Builder Dimitris Bertsimas 32 RICs $9.23 billion 9 RICs ($6.78 B) None
Basic Income 2 PIVs $595.75 million
15 other accounts $948.29 million
---------------------------------------------------------------------------------------
Colin Lundgren 16 RICs $948.29 million None None (9) (27)
- -----------------------------------------------------------------------------------------------------------------------------------
Income Builder Dimitris Bertsimas 32 RICs $9.26 billion 9 RICs ($6.78 B) None
Enhanced Income 2 PIVs $595.75 million
15 other accounts $948.29 million
---------------------------------------------------------------------------------------
Colin Lundgren 16 RICs $981.77 million None None (9) (27)
- -----------------------------------------------------------------------------------------------------------------------------------
Income Builder Dimitris Bertsimas 32 RICs $9.06 billion 9 RICs ($6.78 B) $100,001 -
Moderate Income 2 PIVs $595.75 million $500,000
15 other accounts $948.29 million
---------------------------------------------------------------------------------------
Colin Lundgren 16 RICs $779.16 million None $100,001 - (9) (27)
$500,000
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Kent M. Bergene(b) $10,001 -
Aggressive $50,000
-------------------- ----------
David M. Joy 5 RICs $2.48 billion None None (1) (28)
-------------------- ----------
Michelle M. None
Keeley(c)
-------------------- ----------
William F. None
Truscott(c)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Kent M. Bergene(b) $10,001 -
Conservative $50,000
-------------------- ----------
David M. Joy 5 RICs $2.64 billion None None (1) (28)
-------------------- ----------
Michelle M. None
Keeley(c)
-------------------- ----------
William F. None
Truscott(c)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Kent M. Bergene(b) $50,001 -
Moderate $100,000
-------------------- ----------
David M. Joy 5 RICs $2.0 billion None None (1) (28)
-------------------- ----------
Michelle M. None
Keeley(c)
-------------------- ----------
William F. None
Truscott(c)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Kent M. Bergene(b) $10,001 -
Moderate Aggressive $50,000
-------------------- ----------
David M. Joy None (1) (28)
-------------------- ----------
Michelle M. 5 RICs $2.04 billion None None
Keeley(c)
-------------------- ----------
William F. $50,001 -
Truscott(c) $100,000
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Kent M. Bergene(b) $10,001 -
Moderate $50,000
Conservative
-------------------- ----------
David M. Joy 5 RICs $2.51 billion None None (1) (28)
-------------------- ----------
Michelle M. None
Keeley(c)
-------------------- ----------
William F. None
Truscott(c)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Kent M. Bergene(b) $10,001 -
Total Equity $50,000
-------------------- ----------
David M. Joy 5 RICs $2.54 billion None $100,000 - (1) (28)
$500,000
-------------------- ----------
Michelle M. None
Keeley(c)
-------------------- ----------
William F. None
Truscott(c)
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Dimitris Bertsimas 32 RICs $9.44 billion 9 RICs ($6.78 B) None
2 PIVs $595.75 million
15 other accounts $948.29 million (2) (27)
---------------------------------------------------------------------------------------
Georgios Vetoulis 2 RICs $511.99 million None None
1 PIV $586.92 million
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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 Company Index Dimitris Bertsimas 32 RICs $9.12 billion 9 RICs ($6.78 B) None
2 PIVs $595.75 million
15 other accounts $948.29 million (2) (27)
---------------------------------------------------------------------------------------
Georgios Vetoulis 2 RICs $186.05 million None None
1 PIV $586.92 million
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Value Warren Spitz $10,001 -
$50,000
-------------------- ----------
Steve Schroll 11 RICs $15.57 billion $50,001 - (2) (29)
1 PIV $44.32 million 6 RICs ($15.06 B) $100,000
-------------------- ----------
Laton Spahr 7 other accounts $457.39 million $100,001 -
$500,000
-------------------- ----------
Paul Stocking $100,001 -
$500,000
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Small UBS:
Cap Growth Paul A. Graham 5 RICs $657.0 million
1 PIV $159.0 million
17 other accounts $322.0 million 1 other account
---------------------------------------------------------
David N. Wabnik 5 RICs $657.0 million ($52.5 M) None (4) (30)
1 PIV $159.0 million
26 other accounts $290.0 million
--------------------------------------------------------------------------------------------------------------
TURNER:
William C. McVail 7 RICs $1.1 billion 1 RIC ($37.0 M);
10 PIVs $140.0 million 4 other accounts
50 other accounts $3.6 billion ($346.0 M)
----------------------------------------------------------------------------
Jason D. 15 RICs $3.7 billion 1 RIC ($56.0 M);
Schrotberger 27 PIVs $499.0 million 2 PIVs ($4.0 M);
55 other accounts $2.9 billion 5 other accounts None (5) (31)
($457.0 M)
----------------------------------------------------------------------------
Rick Wetmore 4 RICs $418.0 million 4 other accounts
6 PIVs $43.0 million ($346 M)
41 other accounts $2.1 billion
--------------------------------------------------------------------------------------------------------------
ESSEX:
Nancy B. Prial 3 RICs $108.8 million None None (6) (32)
1 PIV $144.6 million
52 other accounts $567.7 million
--------------------------------------------------------------------------------------------------------------
MDTA:
Daniel J. Mahr(q)
--------------------
Frederick L. Konopka 10 RICs $1.1 billion
4 PIVs $225.1 million None None (7) (33)
-------------------- 48 other accounts $6.85 billion
Brian M. Greenberg
--------------------
Douglas K. Thunen
- -----------------------------------------------------------------------------------------------------------------------------------
Precious Metals Clay Hoes 1 PIV $97.2 million None $10,001 - (2),(3) (29)
and Mining $50,000
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap SELIGMAN:
Advantage Neil T. Eigen(j) 3 RICs $480.10 million None
2 PIVs $173.20 million
1,383 other accounts $4.05 billion
----------------------------------------------------------------------------
Richard S. Rosen(j) 3 RICs $480.10 million None None (2) (34)
2 PIVs $173.20 million
1,383 other accounts $4.01 billion
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- -----------------------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Warren Spitz None
Equity
-------------------- ----------
Steve Schroll 11 RICs $17.52 billion $10,001 -
1 PIV $43.95 million 6 RICs ($17.0 B) $50,000
-------------------- ----------
Laton Spahr 7 other accounts $493.17 million $100,001 - (2) (29)
$500,000
-------------------- ----------
Paul Stocking $100,001 -
$500,000
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 Dimitris Bertsimas 17 RICs $7.85 billion 6 RICs ($6.35 B) None (9) (27)
3 PIVs $57.83 million
14 other accounts $3.53 billion
----------------------------------------------------------------------------
Colin Lundgren 12 RICs $2.05 billion None
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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 Plus 2015 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) None (9) (27)
3 PIVs $57.83 million
14 other accounts $3.53 billion
----------------------------------------------------------------------------
Colin Lundgren 12 RICs $2.04 billion None
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) None (9) (27)
3 PIVs $57.83 million
14 other accounts $3.53 billion
----------------------------------------------------------------------------
Colin Lundgren 12 RICs $2.03 billion None
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) $10,001 - (9) (27)
3 PIVs $57.83 million $50,000
14 other accounts $3.53 billion
---------------------------------------------------------------------------------------
Colin Lundgren 12 RICs $2.03 billion None None
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 Dimitris Bertsimas 17 RICs $7.83 billion 6 RICs ($6.35 B) None (9) (27)
3 PIVs $57.83 million
14 other accounts $3.53 billion
---------------------------------------------------------------------------------------
Colin Lundgren 12 RICs $2.03 billion None $10,001 -
$50,000
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 Dimitris Bertsimas 17 RICs $7.84 billion 6 RICs ($6.35 B) None (9) (27)
3 PIVs $57.83 million
14 other accounts $3.53 billion
----------------------------------------------------------------------------
Colin Lundgren 12 RICs $2.04 billion None
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 Dimitris Bertsimas 17 RICs $7.85 billion 6 RICs ($6.35 B) None (9) (27)
3 PIVs $57.83 million
14 other accounts $3.53 billion
----------------------------------------------------------------------------
Colin Lundgren 12 RICs $2.05 billion None
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 Dimitris Bertsimas 17 RICs $7.85 billion 6 RICs ($6.35 B) None (9) (27)
3 PIVs $57.83 million
14 other accounts $3.53 billion
----------------------------------------------------------------------------
Colin Lundgren 12 RICs $2.05 billion None
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- -----------------------------------------------------------------------------------------------------------------------------------
High Yield Bond Scott Schroepfer 1 RIC $893.98 million None $100,001 - (2) (35)
$500,000
---------------------------------------------------------------------------------------
Jennifer Ponce de 5 RICs $10.57 billion None None
Leon 1 PIV $8.43 million
8 other accounts $2.13 billion
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Aggressive AMERICAN CENTURY: None None (10) (36)
Growth Glenn A. Fogle 6 RICs $3.98 billion
--------------------
Brad Eixmann 2 other accounts $148.74 million
--------------------------------------------------------------------------------------------------------------
TURNER: None (5) (31)
Christopher K. 15 RICs $4.4 billion 3 RICs ($885 M);
McHugh 28 PIVs $586.0 million 3 PIVs ($30 M);
24 other accounts $2.4 billion 2 other accounts
($155 M)
----------------------------------------------------------------------------
Tara Hedlund 10 RICs $3.5 billion 1 RIC ($54 M);
21 PIVs $457.0 million 2 PIVs ($5 M);
14 other accounts $898.0 million 1 other account
($123 M)
----------------------------------------------------------------------------
Jason Schrotberger 15 RICs $4.0 billion 1 RIC ($54 M);
27 PIVs $528.0 million 3 PIVs ($30 M);
55 other accounts $3.2 billion 5 other accounts
($514 M)
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Fundamental DAVIS: None None(f) (13) (37)
Value Christopher C. Davis 27 RICs $81.4 billion
12 PIVs $1.3 billion
128 other $13.9 billion
accounts(e)
---------------------------------------------------------
Kenneth C. Feinberg 27 RICs $81.3 billion
13 PIVs $1.3 billion
128 other $13.9 billion
accounts(e)
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Select SYSTEMATIC:
Value Ron Mushock 8 RIC $1.36 billion
-------------------- 6 PIVs $519.0 million 1 other account None (25) (38)
1,979 other accounts $6.12 billion ($334 M)
Kevin McCreesh
--------------------------------------------------------------------------------------------------------------
WEDGE:
R. Michael James 5 RICs $272.0 million
--------------------
Peter R. Bridge 1 PIV $3.7 million None None (26) (39)
--------------------
Paul M. VeZolles 201 other accounts $3.0 billion
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap AMERICAN CENTURY: None None (10) (36)
Equity Thomas P. Vaiana 9 RICs $5.35 billion
2 PIVs $129.29 million
4 other accounts $244.93 million
---------------------------------------------------------
Wihelmine von Turk 5 RICs $1.34 billion
1 PIV $85.54 million
2 other accounts $229.6 million
---------------------------------------------------------
Brian Ertley 7 RICs $1.55 billion
1 PIV $85.54 million
4 other accounts $232.61 million
---------------------------------------------------------
Melissa Fong 5 RICs $1.34 billion
1 PIV $85.54 million
2 other accounts $229.6 million
--------------------------------------------------------------------------------------------------------------
JENNISON: None (12) (40)
John Mullman 3 RICs $3.06 billion 3 PIVs
8 PIVs $775.81 million ($85.6 M)(h)
11 other accounts(g) $1.26 billion
----------------------------------------------------------------------------
Jason Swiatek 3 PIVs $639.57 million None
11 other accounts $1.28 billion
--------------------------------------------------------------------------------------------------------------
LORD, ABBETT:
Michael T. Smith 2 RICs $1.85 billion None None(i) (14) (41)
14 other accounts $991.3 million
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap DONALD SMITH:
Value Donald G. Smith 2 RICs $1.14 billion
-------------------- 1 PIV $122.0 million None None (15) (42)
37 other accounts $2.23 billion
Richard L. Greenberg
--------------------------------------------------------------------------------------------------------------
MDTA:
Daniel J. Mahr(r)
-------------------- 10 RICs $1.13 billion
4 PIVs $240.5 million None None (7) (33)
Douglas Thunen 51 other accounts $7.61 billion
--------------------
Frederick Konopka
--------------------
Brian M. Greenberg
--------------------------------------------------------------------------------------------------------------
BHMS:
James S. McClure 4 RICs $666.0 million
-------------------- 1 PIV $4.6 million None None (17) (43)
16 other accounts $716.2 million
John P. Harloe
--------------------------------------------------------------------------------------------------------------
METWEST:
Samir Sikka 4 RICs $347.8 million
3 PIVs $61.2 million None None (18) (44)
9 other accounts $54.4 million
- -----------------------------------------------------------------------------------------------------------------------------------
Short Duration U.S. Todd White(n) 10 RICs $9.78 billion 3 RICs ($1.01 B);
Government 5 PIVs $1.66 billion 1 other account None (2) (35)
40 other accounts(d) $16.02 billion $(113.3 M)
---------------------------------------------------------------------------------------
John McColley(n) None N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Todd White(n) N/A N/A N/A N/A (2) (35)
Mortgage
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- -----------------------------------------------------------------------------------------------------------------------------------
Dividend Opportunity Warren Spitz $500,001 -
$1,000,000
-------------------- ----------
Steve Schroll 11 RICs $14.7 billion $100,001 - (2) (29)
1 PIV $26.73 million 6 RICs ($14.24 B) $500,000
-------------------- ----------
Laton Spahr 8 other accounts(d) $380.85 million $100,001 -
$500,000
-------------------- ----------
Paul Stocking $50,001 -
$100,000
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate Julene Melquist None None None $10,001 - (2),(3) (29)
$50,000
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined Equity Dimitris Bertsimas 22 RICs $3.74 billion 5 RICs ($2.32 B) $100,001 -
2 PIVs $22.75 million $500,000
14 other accounts $3.50 million
--------------------------------------------------------------------------------------- (2)
(27)
Gina Mourtzinou 4 RICs $1.58 billion 4 RICs ($1.58 B) $50,001 -
5 other accounts $136.55 million $100,000
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined Small Dimitris Bertsimas 22 RICs $6.68 billion 5 RICs ($5.26 B) $100,001 -
and Mid Cap Equity 2 PIVs $22.75 million $500,000
14 other accounts $3.50 million
---------------------------------------------------------------------------------------
Gina Mourtzinou 4 RICs $4.52 billion 4 RICs ($4.52 B) None (2) (27)
5 other accounts $136.55 million
---------------------------------------------------------------------------------------
Steve Kokkotos 2 RICs $1.33 billion 2 RICs ($1.33 B) $10,001 -
1 other account $10.19 million $50,000
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined Small Dimitris Bertsimas 22 RICs $6.68 billion 5 RICs ($5.27 B) $100,001 -
Cap Value 2 PIVs $22.75 million $500,000
14 other accounts $3.50 million
---------------------------------------------------------------------------------------
Gina Mourtzinou 4 RICs $4.52 billion 4 RICs ($4.52 B) $10,001 - (2) (27)
5 other accounts $136.55 million $50,000
---------------------------------------------------------------------------------------
Steve Kokkotos 2 RICs $1.33 billion 2 RICs ($1.33 B) $10,001 -
1 other account $10.19 million $50,000
- -----------------------------------------------------------------------------------------------------------------------------------
Floating Rate Lynn Hopton 11 PIVs $5.02 billion None
-------------------- ---------------
Yvonne Stevens 3 other accounts $496.12 million None
--------------------------------------------------------- ----------
Steve Staver(l) 10 PIVs $4.65 billion None None (2) (45)
3 other accounts $507.57 million
- -----------------------------------------------------------------------------------------------------------------------------------
Growth SELIGMAN:
Erik J. Voss(l) 8 RICs $2.60 billion None None (2) (34)
20 other accounts $179.40 million
- -----------------------------------------------------------------------------------------------------------------------------------
Income Opportunities Brian Lavin 1 RIC $871.16 million $50,001 -
1 PIV $7.02 million None $100,000 (2) (35)
1 other account $608.42 million
--------------------------------------------------------- ----------
Jennifer Ponce de 5 RICs $11.59 billion $10,001 -
Leon 1 PIV $7.02 million $50,000
8 other accounts $2.05 billion
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Protected Margaret Brandt(n) None N/A N/A None
---------------------------------------------------------------------------------------
Securities Todd White(n) 11 RICs $10.53 billion 3 RICs ($1.01 B); None (2) (35)
5 PIVs $1.66 billion 1 other account
40 other accounts(d) $16.02 billion ($113.3 M)
- -----------------------------------------------------------------------------------------------------------------------------------
Large Cap Equity Dimitris 24 RICs $5.96 billion 7 RICs ($4.62 B) None (2) (27)
Bertsimas(l)
2 PIVs $21.11 million
15 other accounts $3.31 billion
----------------------------------------------------------------------------
Gina Mourtzinou(l) 6 RICs $4.04 billion 6 RICs ($4.04 B)
5 other accounts $118.86 million
- -----------------------------------------------------------------------------------------------------------------------------------
Large Cap Value Warren Spitz(l) 12 RICs $14.57 billion
--------------------
Steve Schroll(l) 2 PIVs $27.55 million 7 RICs ($14.11 B) None (2) (29)
--------------------
Laton Spahr(l)
--------------------
Paul Stocking(l) 8 other accounts $441.14 million
- -----------------------------------------------------------------------------------------------------------------------------------
Limited Duration Tom Murphy 5 RICs $9.93 billion 3 RICs ($1.32 B) $50,001 -
Bond 2 PIVs $885.02 million $100,000
14 other accounts $10.75 billion
---------------------------------------------------------------------------------------
Scott Schroepfer(m) 2 RICs $953.09 million None None (2) (35)
---------------------------------------------------------------------------------------
Todd White(n) 10 RICs $10.37 billion 3 RICs ($1.01 B); None
5 PIVs $1.66 billion 1 other account
40 other accounts(d) $16.02 billion ($113.3 M)
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- -----------------------------------------------------------------------------------------------------------------------------------
California Tax- 5 RICs $3.68 billion
Exempt 11 other accounts $7.38 billion
- -------------------- ------------------------------------
Minnesota Tax-Exempt Catherine Stienstra 5 RICs $3.55 billion None None (2) (35)
11 other accounts $7.38 billion
- -------------------- ------------------------------------
New York Tax-Exempt 5 RICs $3.80 billion
11 other accounts $7.38 billion
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Bond Tom Murphy 5 RICs $6.55 billion 3 RICs ($1.33 B) $50,001 -
2 PIVs $880.06 million $100,000
14 other accounts $10.90 billion
---------------------------------------------------------------------------------------
Scott Schroepfer(m) 2 RICs $953.09 million None None (2) (35)
---------------------------------------------------------------------------------------
Todd White(n) 10 RICs $7.34 billion 3 RICs ($1.01 B); None
5 PIVs $1.66 billion 1 other account
40 other accounts(d) $16.02 billion ($113.3 M)
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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 FUND WITH FISCAL PERIOD ENDING SEPTEMBER 30
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced Warren Spitz(l) None
-------------------- ----------
Steve Schroll(l) 12 RICs $14.57 billion None
-------------------- ----------
Laton Spahr(l) 2 PIVs $27.55 million 7 RICs ($14.11 B) $1 - (2) (29)
$10,000
-------------------- ----------
Paul Stocking(l) 8 other accounts(d) $441.14 million None
--------------------------------------------------------------------------------------------------------------
Tom Murphy 5 RICs $9.77 billion $10,001 -
2 PIVs $870.92 million 2 RICs ($996.38 M) $50,000
14 other accounts $10.19 billion
---------------------------------------------------------------------------------------
Scott Schroepfer(m) 2 RICs $953.09 million None None (2) (35)
---------------------------------------------------------------------------------------
Todd White(n) 10 RICs $10.32 billion 2 RICs ($801.35 None
5 PIVs $1.66 billion M);
40 other accounts(d) $16.02 billion 1 other account
($113.3 M)
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined Dimitris Bertsimas 23 RICs $5.77 million 6 RICs ($4.42 B) None
Large Cap 2 PIVs $21.11 million
Growth 15 other accounts $3.31 billion (2) (27)
---------------------------------------------------------------------------------------
Gina Mourtzinou 5 RICs $3.85 billion 5 RICs ($3.85 B) None
5 other accounts $118.86 million
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined Dimitris Bertsimas 23 RICs $5.95 million 6 RICs ($4.61 B) None
Large Cap 2 PIVs $21.11 million
Value 15 other accounts $3.31 billion (2) (27)
---------------------------------------------------------------------------------------
Gina Mourtzinou 5 RICs $4.03 billion 5 RICs ($4.03 B) None
5 other accounts $118.86 million
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Equity Warren Spitz $50,001 -
Income $100,000
-------------------- ----------
Laton Spahr 11 RICs $8.78 billion $100,001 -
$500,000
-------------------- ----------
Steve Schroll 2 PIVs $27.55 million 6 RICs ($8.32 B) $50,001 - (2) (29)
$100,000
-------------------- ----------
Paul Stocking 8 other accounts(d) $441.14 million $100,001 -
$500,000
- -----------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Warren Spitz $50,001 -
$100,000
-------------------- ----------
Laton Spahr 11 RICs $12.21 billion $100,001 -
$500,000
-------------------- ----------
Steve Schroll 2 PIVs $27.55 million 6 RICs ($11.75 B) $50,001 - (2) (29)
$100,000
-------------------- ----------
Paul Stocking 8 other accounts(d) $441.14 million $100,001 -
$500,000
- -----------------------------------------------------------------------------------------------------------------------------------
Strategic Tom Murphy 5 RICs $9.47 billion 2 RICs ($699.76 M) $100,001 -
Allocation 2 PIVs $870.92 million $500,000
14 other accounts $10.19 billion
---------------------------------------------------------------------------------------
Scott Schroepfer(m) 2 RICs $953.09 million None None (2) (35)
---------------------------------------------------------------------------------------
Todd White(n) 10 RICs $10.07 billion 2 RICs ($549.42 None
5 PIVs $1.66 billion M);
40 other accounts(d) $16.02 billion 1 other account
($113.3 M)
--------------------------------------------------------------------------------------------------------------
Dimitris Bertsimas 23 RICs $4.85 billion 6 RICs ($3.5 B) Over (2) (27)
2 PIVs $21.11 million $500,000
15 other accounts $3.31 billion
---------------------------------------------------------------------------------------
Gina Mourtzinou 5 RICs $2.93 billion 5 RICs ($2.93 B) $100,001 -
5 other accounts $118.86 million $500,000
---------------------------------------------------------------------------------------
Alex Sauer-Budge 1 RIC $573.80 million 1 RIC ($573.8 M) $1 -
$10,000
---------------------------------------------------------------------------------------
Steve E. Kokkotos 2 RICs $69.74 million 2 RICs ($69.74 M) $100,001 -
1 other account $9.26 million $500,000
- -----------------------------------------------------------------------------------------------------------------------------------
Strategic Income Dimitris Bertsimas 23 RICs $5.95 billion 7 RICs ($4.62 B) None
Allocation 2 PIVs $21.11 million
15 other accounts $3.31 billion (2) (27)
---------------------------------------------------------------------------------------
Colin Lundgren 17 RICs $1.76 billion None None
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- -----------------------------------------------------------------------------------------------------------------------------------
Absolute Return Nicholas Pifer 7 RICs $10.79 billion None $50,001 - (2) (35)
Currency and 6 PIVs $284.56 million $100,000
Income 11 other accounts $3.27 billion
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined Dimitris Bertsimas 23 RICs $4.53 billion 6 RICs ($3.35 B) $100,001 -
International 2 PIVs $19.28 million $500,000
Equity 15 other accounts $2.88 billion (2) (27)
---------------------------------------------------------------------------------------
Alex Sauer-Budge 1 RIC $837.35 million 1 RIC ($837.35 M) $1 -
$10,000
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Nicholas Pifer 7 RICs $11.31 billion None $10,001 - (2) (35)
Bond 6 PIVs $284.56 million $50,000
11 other accounts $3.27 billion
--------------------------------------------------------- ----------
Jim Carlene(m) 4 PIVs $312.86 million None
3 other accounts $170.11 million
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond Nicholas Pifer 7 RICs $10.85 billion None $50,001 - (2) (35)
6 PIVs $284.56 million $100,000
11 other accounts $3.27 billion
- -----------------------------------------------------------------------------------------------------------------------------------
Global SELIGMAN:
Technology Richard M. 4 RICs $2.40 billion 2 PIVs ($1.5B); None (2) (46)
Parower(o) 5 PIVs $1.50 billion 2 other accounts
6 other accounts $186.40 ($183.7 M)
million(p)
---------------------------------------------------------
Paul H. Wick(o) 4 RICs $2.40 billion
5 PIVs $1.50 billion
6 other accounts $185.60
million(p)
---------------------------------------------------------
Reema D. Shah(o) 4 RICs $2.40 billion
5 PIVs $1.50 billion
5 other accounts $186.40
million(p)
---------------------------------------------------------
Ajay Diwan(o) 4 RICs $2.40 billion
5 PIVs $1.50 billion
5 other accounts $189.20
million(p)
----------------------------------------------------------------------------
Benjamin Lu(o) 2 RICs $204.50 million None
2 PIVs $31.20 million
1 other account $0.05
million(p)
- -----------------------------------------------------------------------------------------------------------------------------------
Partners COLUMBIA WAM:
International P. Zachary Egan 1 RIC $3.0 billion None None (20) (47)
Select Growth
---------------------------------------------------------
Louis J. Mendes 2 RICs $4.0 billion
--------------------------------------------------------------------------------------------------------------
PRINCIPAL:
John Pihlblad 2 RICs $1.31 billion None None (21) (48)
2 PIVs $95.93 million
9 other accounts $987.26 million
---------------------------------------------------------
Steven Larson 2 RICs $1.32 billion
2 PIVs $93.40 million
9 other accounts $987.26 million
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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
- -----------------------------------------------------------------------------------------------------------------------------------
Partners ALLIANCEBERNSTEIN:
International Select Kevin F. Simms 132 RICs $46.32 billion 3 RICs ($6.66 B);
Value 168 PIVs $24.39 billion 9 PIVs ($1.17 B);
39,323 other $106.60 billion 139 other accounts
accounts ($12.51 B)
----------------------------------------------------------------------------
Henry S. D'Auria 89 RICs $27.28 billion 2 RICs ($2.74 B);
103 PIVs $18.93 billion 7 PIVs ($563 M);
953 other $78.52 billion 131 other accounts
accounts ($11.85 B)
----------------------------------------------------------------------------
Sharon E. Fay 132 RICs $46.32 billion 3 RICs ($6.66 B);
156 PIVs $21.41 billion 8 PIVs ($563 M);
39,323 other $106.60 billion 139 other accounts
accounts ($12.51 B)
----------------------------------------------------------------------------
Marilyn G. Fedak 120 RICs $45.86 billion 3 RICs ($6.66 B); None (22) (49)
140 PIVs $17.32 billion 3 PIVs ($217 M);
39,230 other $89.62 billion 110 other accounts
accounts ($7.76 B)
----------------------------------------------------------------------------
John P. Mahedy 119 RICs $45.62 billion 3 RICs ($6.66 B);
139 PIVs $17.20 billion 3 PIVs ($217 M);
39,211 other $88.11 billion 101 other accounts
accounts ($7.55 B)
----------------------------------------------------------------------------
Giulio Martini 71 RICs $25.49 billion 2 RICs ($2.74 B);
106 PIVs $21.29 billion 8 PIVs ($1.13 B);
811 other $62.13 billion 105 other accounts
accounts ($8.1 B)
--------------------------------------------------------------------------------------------------------------
MONDRIAN:
Ormala Krishnan 1 RIC $265.0 million None None (11) (50)
1 PIV $141.90 million
7 other accounts $528.80 million
--------------------------------------------------------------------------------------------------------------
TRADEWINDS:
Paul J. Hechmer 4 RICs $942.62 million 1 other account None (16) (51)
9 PIVs $560.69 million ($59.17 M)
49,903 other $11.14 billion
accounts
- -----------------------------------------------------------------------------------------------------------------------------------
Partners AIGGIC:
International Small Chantal Brennan 2 RICs $347.0 million 3 other accounts
Cap 4 PIVs $323.0 million ($90 M)
8 other accounts $255.0 million
----------------------------------------------------------------------------
Midori Katsumi 1 RIC $7.0 million 4 other accounts None (23) (52)
1 PIV $58.0 million ($200 M)
7 other accounts $269.0 million
----------------------------------------------------------------------------
Elizabeth Soon 2 RICs $69.0 million 3 other accounts
2 PIVs $53.0 million ($27 M)
7 other accounts $80.0 million
--------------------------------------------------------------------------------------------------------------
BATTERYMARCH:
Adam Petryk 8 RICs $2.36 billion None None (24) (53)
19 PIVs $1.45 billion
34 other accounts $3.66 billion
---------------------------------------------------------
Charles F. Lovejoy 4 RICs $1.22 billion
--------------------
Christopher W. 12 PIVs $669.86 million
Floyd 22 other accounts $2.34 billion
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle THREADNEEDLE:
Emerging Markets Julian A.S. Thompson 1 RIC $695.16 million 1 RIC ($695.16 M) None(k) (19) (54)
Jules Mort 1 PIV $26.09 million
2 other accounts $18.74 million
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle THREADNEEDLE:
European Equity Rob Jones 1 PIV $32.78 million None None(k) (19) (54)
1 other account $184.29 million
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle THREADNEEDLE:
Global Equity Stephen Thornber 1 RIC $9.58 million 1 RIC ($9.58 M) None(k) (19) (54)
1 PIV $7.73 million
3 other accounts $346.56 million
----------------------------------------------------------------------------
Andrew Holliman 1 RIC $6.0 million 1 RIC ($6 M)
2 PIVs $404.78 million
2 other accounts $309.49 million
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 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
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle THREADNEEDLE:
Global Equity Income Stephen Thornber 1 RIC $432.44 million 1 RIC ($432.44 M) None(k) (19) (54)
1 PIV $7.73 million
3 other accounts $346.56 million
----------------------------------------------------------------------------
Jeremy Podger 1 RIC $6.0 million 1 RIC ($6 M)
2 PIVs $10.58 million
2 other accounts $221.36 million
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle THREADNEEDLE:
Global Extended Andrew Holliman 1 RIC $432.44 million 1 RIC ($432.44 M) None(k) (19) (54)
Alpha 2 PIVs $404.78 million
2 other accounts $309.49 million
----------------------------------------------------------------------------
Jeremy Podger 1 RIC $9.58 million 1 RIC ($9.58 M)
2 PIVs $10.58 million
2 other accounts $221.36 million
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle THREADNEEDLE:
International Alex Lyle 1 RIC $9.85 billion 1 RIC ($9.85 B) None(k) (19) (54)
Opportunity 28 PIVs $834.30 million
11 other accounts $415.43 million
---------------------------------------------------------
Esther Perkins 1 RIC $9.85 billion
1 other account $184.29 million
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- -----------------------------------------------------------------------------------------------------------------------------------
Intermediate Catherine Stienstra 5 RICs $3.30 billion None None (2) (35)
Tax-Exempt 11 other accounts $6.33 billion
- -----------------------------------------------------------------------------------------------------------------------------------
Mid Cap John K. Schonberg 2 RICs $256.55 million 2 RICs None (2) (55)
Growth 2 PIVs $15.93 million ($256.55 M)
3 other accounts $2.61 million
--------------------------------------------------------------------------------------------------------------
Sam Murphy 1 RIC $246.40 million 1 RIC ($246.4 M) None (2),(3) (55)
--------------------
Mike Marzolf
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Catherine Stienstra 5 RICs $2.77 billion None None (2) (36)
Bond 11 other accounts $6.33 billion
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Catherine Stienstra 5 RICs $1.18 billion None None (2) (35)
High Income 11 other accounts $6.33 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 the 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) Wrap accounts have been counted at the sponsor level.
(f) Neither Christopher Davis nor Kenneth Feinberg own any shares of
RiverSource Partners Fundamental Value Fund. However, both portfolio
managers have over $1 million invested in the Davis Funds, which are
managed in a similar style.
(g) Other accounts exclude the assets and number of accounts in wrap fee
programs that are managed using model portfolios.
(h) Mr. Mullman only manages a portion of the accounts subject to a
performance fee. The total assets shown reflect the portion of those
accounts managed by Mr. Mullman.
(i) Michael T. Smith does not own any shares of RiverSource Partners Small
Cap Equity Fund. However, he invests in the Lord Abbett Small Cap Blend
Fund, which is managed in a similar style.
(j) The portfolio manager began managing the fund after its last fiscal year
end; therefore reporting information is as of Dec. 31, 2007.
(k) The fund is available for sale only in the U.S. The portfolio manager(s)
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; therefore reporting information is as of Sept. 30, 2008.
(m) The portfolio manager began managing the fund after its last fiscal year
end; reporting information is as of Oct. 31, 2008.
(n) The portfolio manager began managing the fund after its last fiscal year
end; reporting information is provided as of Jan. 31, 2009.
(o) The portfolio manager began managing the fund after its last fiscal year
end; reporting information is provided as of Nov. 17, 2008.
(p) Includes accounts managed in a personal capacity, the amounts for which
are provided as of Nov. 30, 2008.
(q) The portfolio manager began managing the fund as of Jan. 1, 2009;
reporting information is as of March 31, 2008.
(r) The portfolio manager began managing the fund as of Jan. 1, 2009;
reporting information is as of May 31, 2008.
POTENTIAL CONFLICTS OF INTEREST
(1) Management of Funds-of-Funds differs from that of the other funds. The
portfolio management process is set forth generally below and in more
detail in the funds' prospectus.
Statement of Additional Information - April 1, 2009 Page 112
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 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, competing investment decisions
made for different accounts 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.
Statement of Additional Information - April 1, 2009 Page 113
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) Potential conflicts of interest may be presented in connection with the
Portfolio Manager's management of the Fund's investments, on the one
hand, and the investments of other accounts, on the other, such as
conflicts of interest related to the aggregation of trades, the
allocation of investment opportunities, contrary client positions and
employee securities trading. Essex has established written policies and
procedures relating to its investment management and trading practices
that are designed to prevent such conflicts of interest. On occasion,
employees of Essex may purchase or sell, for their own accounts,
securities also invested in by clients or recommended to clients. Essex
maintains a code of ethics that is designed to prevent the conflicts of
interest presented by employees' personal securities transactions.
(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) N/A
(9) Management of the Income Builder and Retirement Plus Funds-of-Funds
differs from that of the other 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.
- 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 funds may
benefit
Statement of Additional Information - April 1, 2009 Page 114
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) Mondrian does not foresee any material conflicts of interest that may
arise in the management of the funds and any other accounts managed with
similar investment guidelines. Mondrian acts solely as an investment
manager and does not engage in any other business activities. The
following is a list of some potential conflicts of interest that can
arise in the course of normal investment management business activities.
Mondrian maintains and operates various policies and procedures which
are designed to prevent or manage any of the conflicts identified below
so that the interests of its clients are always put ahead of Mondrian's
own interests or those of its employees and directors:
Allocation of aggregated trades
Mondrian may from time to time aggregate trades for a number of its
clients.
Mondrian's policy requires that all allocations of aggregated trades
must be fair between clients. Transactions involving commingled orders
are allocated in a manner deemed equitable to each account. When a
combined order is executed in a series of transactions, at different
prices, each account participating in the order may be allocated an
average price obtained from the broker/dealer. When a trade can be
allocated in a cost efficient manner to our clients, it will be prorated
across all participating accounts. Mondrian may randomly allocate
purchases or sales among participating
Statement of Additional Information - April 1, 2009 Page 115
accounts when the amounts involved are too small to be evenly
proportioned in a cost efficient manner. In performing random
allocations, Mondrian will consider consistency of strategy
implementation among participating accounts.
Allocation of investment opportunities
Mondrian is an investment manager of multiple client portfolios. As
such, it has to ensure that investment opportunities are allocated
fairly between clients. There is a potential risk that Mondrian may
favor one client over another client in making allocations of investment
opportunities.
Mondrian makes security selection decisions at committee level. Those
securities identified as investment opportunities are added to a list of
approved securities; portfolios will hold only such approved securities.
All portfolios governed by the same or a similar mandate will be
structured similarly (that is, will hold the same or comparable stocks),
and will exhibit similar characteristics. Sale and purchase
opportunities identified at regular investment meetings will be applied
to portfolios across the board, subject to the requirements of
individual client mandates.
See also "Side-by-side management of hedge funds" below.
Allocation of IPO opportunities
Initial Public Offerings ("IPO's") present a potential conflict of
interest when they are priced at a discount to the anticipated secondary
market price and the issuer has restricted or scaled back its allocation
due to market demand. In such instances, the IPO allocation could be
divided among a small select group of clients with others not receiving
the allocation they would otherwise be entitled to.
Mondrian clients with relevant mandates are given an equal opportunity,
proportionate to the size of their portfolio, to participate in IPO
trades. All IPO purchases are allocated on a strict pro-rata basis.
Dealing in investments as principal in connections with the provision of
seed capital
A conflict of interest exists when a portfolio management firm manages
its own money alongside client money.
Mondrian generally does not trade for its own account. However, Mondrian
and its affiliates have provided the seed capital to certain investment
vehicles that have been established by Mondrian group entities. Mondrian
serves as the investment manager to these investment vehicles.
Mondrian operates dealing policies designed to ensure the fair and equal
treatment of all clients e.g. the allocation of aggregated trades among
clients. These policies ensure that any portfolios in which Mondrian has
an investment interest do not receive favorable treatment relative to
other client portfolios.
Directorships and external arrangements
Certain Mondrian staff may hold positions in external organizations.
There is a potential risk that Mondrian personnel may place their own
interests (resulting from outside employment/directorships) ahead of the
interests of Mondrian clients.
Before accepting an executive or non-executive directorship or any other
appointment in another company, employees, including executive
directors, must obtain the prior approval of the Chief Executive
Officer. The Chief Compliance Officer must also be informed of all such
appointments and changes.
The CEO and CCO will only permit appointments that would not present a
conflict of interest with the individual's responsibilities to Mondrian
clients.
Dual agency
Dual Agency (also known as Cross Trading) concerns those transactions
where Mondrian may act as agent for both the buyer and seller. In such
circumstances there is a potential conflict of interest as it may be
possible to favor one client over another when establishing the
execution price and/or commission rate.
Although it rarely does so, Mondrian may act as agent for both buying
and selling parties with respect to transactions in investments. If
Mondrian proposes to act in such capacity, the Portfolio Manager will
first obtain approval from the Chief Compliance Officer. The CCO has an
obligation to ensure that both parties are treated fairly in any such
trade.
Employee personal account dealing
There are a number of potential conflicts when staff of an investment
firm engage in buying and selling securities for their personal account.
Mondrian has arrangements in place to ensure that none of its directors,
officers or employees (or persons connected to them by way of a business
or domestic relationship) effects any transaction on their own account
which conflicts with client interests.
Mondrian's rules which govern personal account dealing and general
ethical standards are set out in the Mondrian Investment Partners Code
of Ethics.
Statement of Additional Information - April 1, 2009 Page 116
Gifts and entertainment (received)
In the normal course of business Mondrian employees may receive gifts
and entertainment from third parties e.g. brokers and other service
providers. This results in a potential conflict of interest when
selecting third parties to provide services to Mondrian and its clients.
Mondrian has a policy which requires that gifts and entertainment
received are reported to the Chief Compliance Officer (any items in
excess of L100 require pre-approval).
All gifts and entertainment are reviewed to ensure that they are not
inappropriate and that staff have not been unduly influenced by them.
Gifts and entertainment (given)
In the normal course of business, Mondrian employees may provide gifts
and entertainment to third parties. Excessively lavish gifts and
entertainment would be inappropriate.
Mondrian has a policy which requires that any gifts and entertainment
provided are reported to the Chief Compliance Officer (any items in
excess of L200 require pre-approval).
All gifts and entertainment are reviewed to ensure that they are not
inappropriate and that staff have not attempted to obtain undue
influence from them.
Performance fees
Where an investment firm has clients with a performance fee arrangement
there is a risk that those clients could be favored over clients without
performance fees.
Mondrian charges fees as a proportion of assets under management. In a
very limited number of situations, in addition to this fee basis,
certain accounts also include a performance fee basis.
The potential conflict of interest arising from these fee arrangements
is addressed by Mondrian's procedures for the allocation of aggregated
trades among clients. Investment opportunities are allocated totally
independently of fee arrangements.
Side-by-side management of hedge funds (Mondrian Alpha Funds)
Where an investment manager has responsibility for managing long only
portfolios alongside portfolios that can take short positions there is
potential for a conflict of interest to arise between the two types of
portfolio.
Mondrian acts as investment manager for two Fixed Income Alpha and one
Equity Alpha fund. The Alpha Funds are permitted to take short positions
and are also permitted to invest in some or all of the same securities
that Mondrian manages for other clients.
Mondrian is satisfied that the investment styles of these different
products significantly reduce the likelihood of a conflict of interest
arising. However, Mondrian has a number of policies and procedures in
place that are designed to ensure that any potential conflicts are
correctly managed and monitored so that all clients are treated fairly.
Soft dollar arrangements
Where an investment manager has soft dollar arrangements in place with a
broker/dealer there is a potential conflict of interest as trading
volumes through that broker/dealer are usually important in ensuring
that soft dollar targets are met.
As is typical in the investment management industry, Mondrian client
funds are used to pay brokerage commissions for the execution of
transactions in the client's portfolio. As part of that execution
service, brokers generally provide proprietary research to their clients
as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing of analyses and reports
concerning issuers, securities or industries; and providing information
on economic factors and trends.
Proprietary research may be used by Mondrian in connection with its
investment decision-making process with respect to one or more accounts
managed by it, and it may or may not be used, or used exclusively, with
respect to the account generating the brokerage.
With the exception of the receipt of proprietary research, Mondrian has
no other soft dollar or commission sharing arrangements in place with
brokers.
(12) In managing other portfolios (including affiliated accounts), certain
potential conflicts of interest may arise. Potential conflicts include,
for example, conflicts among investment strategies, conflicts in the
allocation of investment opportunities, or conflicts due to different
fees. As part of its compliance program, Jennison has adopted policies
and procedures that seek to address and minimize the effects of these
conflicts.
Jennison's portfolio managers typically manage multiple accounts. These
accounts may include, among others, mutual funds, separately managed
advisory accounts (assets managed on behalf of institutions such as
pension funds, colleges and universities, foundations), commingled trust
accounts, other types of unregistered commingled accounts, affiliated
single client and commingled insurance separate accounts, model
nondiscretionary portfolios, and model portfolios used for wrap fee
programs. Portfolio managers make investment decisions for each
portfolio based on the investment
Statement of Additional Information - April 1, 2009 Page 117
objectives, policies, practices and other relevant investment
considerations that the managers believe are applicable to that
portfolio. Consequently, portfolio managers may recommend the purchase
(or sale) of certain securities for one portfolio and not another
portfolio. Securities purchased in one portfolio may perform better than
the securities purchased for another portfolio. Similarly, securities
sold from one portfolio may result in better performance if the value of
that security declines. Generally, however, portfolios in a particular
product strategy (e.g., large cap growth equity) with similar objectives
are managed similarly. Accordingly, portfolio holdings and industry and
sector exposure tend to be similar across a group of accounts in a
strategy that have similar objectives, which tends to minimize the
potential for conflicts of interest. While these accounts have many
similarities, the investment performance of each account will be
different primarily due to differences in guidelines, timing of
investments, fees, expenses and cash flows.
Furthermore, certain accounts (including affiliated accounts) in certain
investment strategies may buy or sell securities while accounts in other
strategies may take the same or differing, including potentially
opposite, position. For example, certain strategies may short securities
that may be held long in other strategies. The strategies that sell a
security short held long by another strategy could lower the price for
the security held long. Similarly, if a strategy is purchasing a
security that is held short in other strategies, the strategies
purchasing the security could increase the price of the security held
short. Jennison has policies and procedures that seek to mitigate,
monitor and manage this conflict.
In addition, Jennison has adopted trade aggregation and allocation
procedures that seek to treat all clients (including affiliated
accounts) fairly and equitably. These policies and procedures address
the allocation of limited investment opportunities, such as IPOs and the
allocation of transactions across multiple accounts. Some accounts have
higher fees, including performance fees, than others. These differences
may give rise to a potential conflict that a portfolio manager may favor
the higher fee-paying account over the other or allocate more time to
the management of one account over another. While Jennison does not
monitor the specific amount of time that a portfolio manager spends on a
single portfolio, senior Jennison personnel periodically review the
performance of Jennison's portfolio managers as well as periodically
assess whether the portfolio manager has adequate resources to
effectively manage the accounts assigned to that portfolio manager.
Jennison also believes that its compensation structure tends to mitigate
this conflict.
(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 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
Statement of Additional Information - April 1, 2009 Page 118
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) Tradewinds recognizes that actual or apparent conflicts of interest may
arise when a portfolio manager has day-to-day management
responsibilities with respect to more than one account. More
specifically, Tradewinds, because it manages multiple accounts is
presented with several potential conflicts and it seeks to manage these
conflicts as follows:
- The management of multiple accounts may result in a portfolio manager
devoting unequal time and attention to the management of each account.
Tradewinds 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 accounts managed by a
portfolio manager in a particular investment strategy are managed
using the same investment models.
- If a portfolio manager identifies a limited investment opportunity
which may be suitable for more than one account, an account may not be
able to take full advantage of that opportunity due to an allocation
of filled purchase or sale orders across all eligible accounts. To
deal with these situations, Tradewinds has adopted procedures for
fairly allocating portfolio transactions across multiple accounts.
- With respect to many of its clients' accounts, Tradewinds determines
which broker to use to execute transaction orders, consistent with its
duty to seek best execution of the transaction. However, with respect
to certain other accounts, Tradewinds 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, Tradewinds
may place separate, non-simultaneous, transactions for a Fund and
other accounts which may temporarily affect the market price of the
security or the execution of the transaction, or both, to the
detriment of the Fund or the other accounts.
- Some clients are subject to different regulations. As a consequence of
this difference in regulatory requirements, some clients may not be
permitted to engage in all the investment techniques or transactions
(e.g., short selling) or to engage in these transactions to the same
extent as the other accounts managed by the portfolio manager.
Finally, the appearance of a conflict of interest may arise where
Tradewinds has an incentive, such as a performance-based management
fee, which relates to the management of some accounts, with respect to
which a portfolio manager has day-to-day management responsibilities.
Tradewinds has adopted certain compliance procedures which are designed
to address these types of conflicts common among investment managers.
However, there is no guarantee that such procedures will detect each and
every situation in which a conflict arises.
(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 - April 1, 2009 Page 119
(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. A committee,
comprised of the Chief Investment Officer and portfolio/relationship
managers, reviews 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 Fund's
portfolio manager(s) may face certain potential conflicts of interest in
connection with managing both the Fund and other accounts at the same
time. The Advisor and the Funds have adopted compliance policies and
procedures that attempt to address certain of the potential conflicts
that portfolio managers face in this regard. Certain of these conflicts
of interest are summarized below.
The management of accounts with different advisory fee rates and/or fee
structures, including accounts that pay advisory fees based on account
performance (performance fee accounts), if any, may raise potential
conflicts of interest for a portfolio manager by creating an incentive
to favor higher fee accounts.
Potential conflicts of interest also may arise when a portfolio manager
has personal investments in other accounts that may create an incentive
to favor those accounts. As a general matter and subject to the
Advisor's Code of Ethics and certain limited exceptions, the Advisor's
investment professionals do not have the opportunity to invest in client
accounts, other than the Funds.
A 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. The effects of this potential conflict
may be more pronounced where funds and/or accounts managed by a
particular portfolio manager have different investment strategies.
Statement of Additional Information - April 1, 2009 Page 120
A portfolio manager may be able to select or influence the selection of
the broker/dealers that are used to execute securities transactions for
the Funds. A portfolio manager's decision as to the selection of
broker/dealers could produce disproportionate costs and benefits among
the Funds and the other accounts the portfolio manager manages.
A potential conflict of interest may arise when a portfolio manager buys
or sells the same securities for a Fund and other accounts. 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, the
Advisor's trading desk may, to the extent consistent with applicable
laws and regulations, aggregate the securities to be sold or bought in
order to obtain the best execution and lower brokerage commissions, if
any. Aggregation of trades may create the potential for unfairness to a
Fund or another account if a portfolio manager favors one account over
another in allocating the securities bought or sold.
"Cross trades," in which a portfolio manager sells a particular security
held by a Fund to another account (potentially saving transaction costs
for both accounts), could involve a potential conflict of interest if,
for example, a portfolio manager is permitted to sell a security from
one account to another account at a higher price than an independent
third party would pay. The Advisor and the Funds have adopted compliance
procedures that provide that any transactions between the Fund and
another account managed by the Advisor are to be made at an independent
current market price, consistent with applicable laws and regulation.
Another potential conflict of interest may arise based on the different
investment objectives and strategies of a Fund and other accounts
managed by its portfolio manager(s). Depending on another account's
objectives and other factors, a portfolio manager may give advice to and
make decisions for a Fund that may differ from advice given, or the
timing or nature of decisions made, with respect to another account. A
portfolio manager's investment decisions are the product of many factors
in addition to basic suitability for the particular account involved.
Thus, a portfolio manager may buy or sell a particular security for
certain accounts, and not for a Fund, even though it could have been
bought or sold for the Fund at the same time. A portfolio manager also
may buy a particular security for one or more accounts when one or more
other accounts are selling the security (including short sales). There
may be circumstances when a portfolio manager's purchases or sales of
portfolio securities for one or more accounts may have an adverse effect
on other accounts, including the Funds.
A Fund's portfolio manager(s) also may have other potential conflicts of
interest in managing the Fund, and the description above is not a
complete description of every conflict that could be deemed to exist in
managing both the Fund and other accounts. Many of the potential
conflicts of interest to which the Advisor's portfolio managers are
subject are essentially the same as or similar to the potential
conflicts of interest related to the investment management activities of
the Advisor and its affiliates.
(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 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) 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 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.
Statement of Additional Information - April 1, 2009 Page 121
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 justifications for any
decisions to make investments only for select accounts or in a manner
disproportionate to the size of the account.
(23) 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
Statement of Additional Information - April 1, 2009 Page 122
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.
(24) Batterymarch recognizes that 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.
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
Statement of Additional Information - April 1, 2009 Page 123
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.
Performance-Based Fee Arrangements
Batterymarch manages some accounts under performance-based fee
arrangements. Batterymarch recognizes that this type of incentive
compensation creates the risk for potential conflicts of interest. This
structure may create an incentive to allocate investments having a
greater potential for higher returns to accounts of those clients paying
the higher performance fee. To prevent conflicts of interest,
Batterymarch generally requires portfolio decisions to be made on a
product specific basis. Additionally, Batterymarch requires average
pricing of all aggregated orders. Lastly, the investment performance on
specific accounts is not a factor in determining the portfolio managers'
compensation; performance analysis is reviewed on an aggregate product
basis.
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.
Batterymarch's CCO conducts a review of the firm's potential conflicts
of interest and a risk assessment on an annual basis.
(25) Systematic Financial Management, L.P. is an affiliated firm of
Affiliated Managers Group, Inc. (AMG) a publicly traded asset management
company, which invests in mid-sized asset management firms. Neither AMG
nor any of their affiliates 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 vehicles and separate accounts for
individuals and institutions. Investment decisions are generally applied
to all accounts utilizing that particular strategy taking into
consideration client restrictions, instructions and individual needs. A
portfolio manager may manage an account whose fees may be higher or
lower than the basic fee schedule to provide for varying client
circumstances. Management of multiple funds and accounts may create
potential conflicts of interest relating to the allocation of investment
opportunities, and the aggregation and allocation of client trades.
However, Systematic has a variety of internal controls in place that are
reasonably designed to detect such conflicts and protect the interests
of its clients.
Conflicts of interest, including employee personal securities trading,
security selection, proxy voting and security allocation, may arise as a
result of providing advisory services to a diverse group of clients
invested in various strategies. To mitigate 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. These policies and procedures are subject to periodic testing
and reviews, which are reasonably designed to detect such conflicts and
protect the interests of its clients. A portfolio manager may also face
other potential conflicts of interest in managing the Partners Select
Value Fund. The description above is not a complete
Statement of Additional Information - April 1, 2009 Page 124
description of every conflict of interest that could be deemed to exist
in managing this Fund and other accounts listed above.
(26) 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 enhancing its relationship with a broker 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
(27) Portfolio manager compensation is typically comprised of (i) a base
salary, (ii) an annual cash bonus, and (iii) an equity incentive award
in the form of stock options and/or restricted stock. The annual cash
bonus and equity incentive awards are paid from a team bonus pool that
is based on the performance of the accounts managed by the portfolio
management team, which might include mutual funds, wrap accounts,
institutional portfolios and hedge funds. Funding for the bonus pool is
determined by a percentage of the aggregate assets under management in
the accounts managed by the portfolio managers, including the fund, and
by the short term (typically one-year) and long-term (typically three-
year, five-year and ten-year) performance of those accounts in relation
to the relevant peer group universe. Funding for the bonus pool would
also include a percentage of any performance fees earned on long/short
mutual funds managed by the Team. With respect to hedge funds and
separately managed accounts that follow a hedge fund mandate, funding
for the bonus pool is a percentage of performance fees earned on the
hedge funds or accounts managed by the portfolio managers. Senior
management of RiverSource Investments has the discretion to increase or
decrease the size of the part of the bonus pool and to determine the
exact amount of each portfolio manager's bonus paid from this portion of
the bonus pool based on his/her performance as an employee. In addition,
where portfolio managers invest in a hedge fund managed by the
investment manager, they receive a cash reimbursement for the investment
management fees charged on their hedge fund investments. RiverSource
Investments portfolio managers are provided with a benefits package,
including life insurance, health insurance, and participation in a
company 401(k) plan, comparable to that received by other RiverSource
Investments employees. Certain investment personnel are also eligible to
defer a portion of their compensation. An individual making this type of
election can allocate the deferral to the returns associated with one or
more products they manage or support or to certain other products
managed by their investment team. Depending upon their job level,
RiverSource Investments portfolio managers may also be eligible for
other benefits or perquisites that are available to all RiverSource
Investments employees at the same job level.
(28) 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 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. This program is being discontinued and the final award under
this plan covers the three-year period that started in January 2007 and
ends in December 2009. 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.
(29) 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
cash bonus is paid from a team bonus pool that is based on the
Statement of Additional Information - April 1, 2009 Page 125
performance of the accounts managed by the portfolio management team,
which might include mutual funds, wrap accounts, institutional
portfolios and hedge funds. With the exception of Mr. Spitz, the bonus
pool is determined by a percentage of the aggregate assets under
management in the accounts managed by the portfolio managers, including
the fund, plus, 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 and five-year)
performance of those accounts in relation to the relevant peer group
universe. Mr. Spitz receives a bonus based on management fees on one
product and asset retention efforts associated with other products
managed by the team. Funding for the bonus pool may also include a
percentage of any performance fees earned on long/short mutual funds
managed by the Team. 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. 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. Certain investment personnel
are also eligible to defer a portion of their compensation. An
individual making this type of election can allocate the deferral to the
returns associated with one or more products they manage or support or
to certain other products managed by their investment team. Depending
upon their job level, RiverSource Investments portfolio managers may
also be eligible for other benefits or perquisites that are available to
all RiverSource Investments employees at the same job level.
(30) 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 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.
(31) 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
Statement of Additional Information - April 1, 2009 Page 126
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 awards. Turner believes this compensation provides
incentive to attract and retain highly qualified people.
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, Robert E. Turner, CFA, is responsible for setting
base salaries, bonus targets, and making all subjective judgments
related to an investment professionals' compensation.
(32) 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 their personal performance and Essex's composite
performance relative to our peers and benchmark. Third, Essex offers a
competitive benefits package including comprehensive family health
coverage.
Essex's yearly investment performance drives the portfolio managers'
incentive portion ("bonus") of their compensation package. The portfolio
managers' bonus is based on their respective portfolios' absolute,
relative, and risk-adjusted performance. Eighty percent of the
evaluation is based on the performance of the portfolios and twenty
percent is based on teamwork, communication, and other subjective
criteria. We also incent them on their one, two and three-year
performance track record.
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.
Finally, Essex is committed to using a fundamental team approach and
culture that encourages continuity among its investment professionals
and makes a conscious effort to reward its team members accordingly.
(33) The portfolio managers are paid a fixed base salary and a variable
annual incentive. Base salary is determined within a market competitive
position-specific salary range, based on experience and performance. For
purposes of calculating the annual incentive amount, each mutual fund
and institutional account managed by MDTA 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).
The portfolio managers are also part of investment teams 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, the portfolio managers may receive additional
consideration based on the achievement of specified revenue targets.
(34) Portfolio manager compensation is typically comprised of (i) a base
salary, (ii) an annual cash bonus and (iii) an equity incentive award in
the form of stock options and/or restricted stock. The annual cash bonus
and equity incentive awards are paid from a team bonus pool that is
based on the performance of the accounts managed by the portfolio
management team, which might include mutual funds, wrap accounts,
institutional portfolios and hedge funds. Funding for the bonus pool is
determined by a percentage of the aggregate assets under management in
the accounts managed by the portfolio managers, including the fund, and
by the short term (typically one-year) and long-term (typically three-
year and five-year) performance of those accounts in relation to the
relevant peer group universe. 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. 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. Certain
investment personnel are also eligible to defer a portion of their
compensation. An individual making this type of election can allocate
the deferral to the returns associated with one or more products they
manage or support or to certain other products managed by their
investment team. Depending upon
Statement of Additional Information - April 1, 2009 Page 127
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.
(35) 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
cash bonus is paid from a team bonus pool that is based on the
performance of the accounts managed by the portfolio management team,
which might include mutual funds, wrap accounts, institutional
portfolios and hedge funds. 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 those accounts in
relation to applicable benchmarks or the relevant peer group universe.
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. 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. Certain investment personnel
are also eligible to defer a portion of their compensation. An
individual making this type of election can allocate the deferral to the
returns associated with one or more products they manage or support or
to certain other products managed by their investment team. Depending
upon their job level, RiverSource Investments portfolio managers may
also be eligible for other benefits or perquisites that are available to
all RiverSource Investments employees at the same job level.
(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. For the fiscal year ended May 31,
2008, it included the components described below, each of which is
determined with reference to a number of factors, such as overall
performance, market competition, and internal equity. Compensation is
not directly tied to the value of assets held in client portfolios.
Base Salary
Portfolio managers receive base pay in the form of a fixed annual
salary.
Bonus
A significant portion of portfolio manager compensation takes the form
of an annual incentive bonus tied to performance. Bonus payments are
determined by a combination of factors. One factor is fund investment
performance. For most American Century mutual funds, investment
performance is measured by a combination of one- and three- year pre-tax
performance relative to various benchmarks and/or internally-customized
peer groups. The performance comparison periods may be adjusted based on
a fund's inception date or a portfolio manager's tenure on the fund.
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 that is both more stable over the long-
term (i.e., has less peer turnover) and that more closely represents the
fund's true peers based on internal investment mandates.
Portfolio managers may have responsibility for multiple American Century
mutual funds. In such cases, the performance of each is assigned a
percentage weight appropriate for the portfolio manager's relative
levels of responsibility.
Portfolio managers also may have responsibility for portfolios that are
managed in a fashion similar to that of other American Century mutual
funds. This is the case for the Partners Small Cap Equity and Partners
Aggressive Growth Funds. If the performance of a similarly managed
account is considered for purposes of compensation, it is either
measured in the same way as a comparable American Century mutual fund
(i.e., relative to the performance of a benchmark and/or peer group) or
relative to the performance of such mutual fund. Performance of Partners
Small Cap Equity Fund is measured relative to the performance of a
comparable American Century mutual fund. Performance of Partners
Aggressive Growth Fund is not separately considered in determining
portfolio manager compensation.
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.
Statement of Additional Information - April 1, 2009 Page 128
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) Kenneth Feinberg's compensation as a Davis Advisors employee consists of
(i) a base salary, (ii) an annual bonus equal to a percentage of growth
in Davis Advisors' profits, (iii) awards of equity ("Units") in Davis
Advisors including Units, options on Units, and/or phantom Units, and
(iv) an incentive plan whereby Davis Advisors purchases shares in
selected funds managed by Davis Advisors. At the end of specified
periods, generally five years following the date of purchase, some, all,
or none of the fund shares will be registered in the employee's name
based on fund performance after expenses on a pre-tax basis versus the
S&P 500 Index and versus peer groups as defined by Morningstar or
Lipper. Davis Advisors' portfolio managers are provided benefits
packages including life insurance, health insurance, and participation
in company 401(k) plan comparable to that received by other company
employees.
Christopher Davis's annual compensation as an employee 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.
(38) Ron Mushock and Kevin McCreesh are partners of the firm and co-Portfolio
managers for the strategy. Employee-owners receive a fixed base salary
and income distributions scaled to the company's profit margins and
their respective individual ownership interests. Other investment
professionals are compensated with both a competitive salary and an
annual performance bonus determined by their contribution to our
investment process and its results. Total compensation is influenced by
Systematic's overall profitability and therefore is based in part on the
aggregate performance of all of Systematic's portfolios, including the
Partners Select Value Fund. 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. The co-Portfolio managers are not
compensated based solely on the performance of, or the value of assets
held in the Partners Select Value Fund or any other individual fund
managed by Systematic.
(39) WEDGE's incentive compensation has been structured to reward all
professionals for their contribution to the growth and profitability of
the firm. Compensation is not directly tied to fund performance or
growth in assets for any fund or other account managed by a portfolio
manager. 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 receive a competitive
salary and bonus based on the firm's investment and business success and
their specific contribution to that record.
(40) Jennison seeks to maintain a highly competitive compensation program
designed to attract and retain outstanding investment professionals,
which includes portfolio managers and research analysts, and to align
the interests of its investment professionals with those of its clients
and overall firm results. Overall firm profitability determines the
total amount of incentive compensation pool that is available for
investment professionals. Investment professionals are compensated with
a combination of base salary and discretionary cash bonus. In general,
the cash bonus comprises the majority of the compensation for investment
professionals. Additionally, senior investment professionals, including
portfolio managers and senior research analysts, are eligible to
participate in a voluntary deferred compensation program where all or a
portion of the discretionary cash bonus can be deferred. Participants in
the deferred compensation plan are permitted to allocate the deferred
amounts among various options that track the gross of fee pre-tax
performance of various mutual funds, of which nearly all of the equity
options are managed by Jennison, and composites of accounts managed by
Jennison, which may include accounts managed for unregistered products.
Investment professionals' total compensation is determined through a
subjective process that evaluates numerous qualitative and quantitative
factors. There is no particular weighting or formula for considering the
factors. Some portfolio managers or analysts may manage or contribute
ideas to more than one product strategy and are evaluated accordingly.
The factors considered for an investment professional whose primary role
is portfolio management will differ from an investment professional who
is a portfolio manager with research analyst responsibilities.
Statement of Additional Information - April 1, 2009 Page 129
The following factors, listed in order of importance, will be reviewed
for each portfolio manager:
- One and three year pre-tax investment performance of groupings of
accounts (a "Composite") relative to market conditions, pre-determined
passive indices, such as the Russell 2000 Index, and industry peer
group data for the product strategy (e.g., large cap growth, large cap
value) for which the portfolio manager is responsible;
- Historical and long-term business potential of the product strategies;
- Qualitative factors such as teamwork and responsiveness; and
Other factors such as experience and other responsibilities such as
being a team leader or supervisor may also affect an investment
professional's total compensation.
(41) 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.
(42) 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.
(43) In addition to base salary, all portfolio managers and analysts at BHMS
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 - April 1, 2009 Page 130
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 four 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) Portfolio manager compensation is typically comprised of (i) a base
salary, (ii) an annual cash bonus and may include (iii) an equity
incentive award in the form of stock options and/or restricted stock.
The annual cash bonus is paid from a team bonus pool that is based on
the performance of the accounts managed by the portfolio management
team, which might include mutual funds, wrap accounts, institutional
portfolios and hedge funds. Funding for the bonus pool 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. Senior management of RiverSource Investments has the
discretion to increase or decrease the size of the bonus pool related to
mutual funds 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. Senior management of RiverSource
Investments does not have discretion over the size of the bonus pool
related to institutional portfolios. 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. Certain
investment personnel are also eligible to defer a portion of their
compensation. An individual making this type of election can allocate
the deferral to the returns associated with one or more products they
manage or support or to certain other products managed by their
investment team. Depending upon their job level, RiverSource Investments
portfolio managers may also be eligible for other benefits or
perquisites that are available to all RiverSource Investments employees
at the same job level.
(46) Portfolio manager compensation is typically comprised of (i) a base
salary, (ii) an annual cash bonus, and may include (iii) an equity
incentive award in the form of stock options and/or restricted stock.
The annual cash bonus, and in some instances the base salary, are paid
from a team bonus pool that is based on the performance of the accounts
managed by the portfolio management team, which might include mutual
funds, wrap accounts, institutional portfolios and hedge funds. The
bonus pool is determined by a percentage of the management fees on the
accounts managed by the portfolio managers, including the fund. The
percentage of management fees that fund the bonus pool is based on the
short term (typically one-year) and long-term (typically three-year and
five-year) performance of those accounts in relation to the relevant
peer group universe. Funding for the bonus pool may also include a
percentage of any performance fees earned on long/short mutual funds
managed by the Team. 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. 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.
(47) As of December 31, 2007, the portfolio managers received all of their
compensation from the Advisor and its parent company, Columbia
Management. P. Zachary Egan and Louis J. Mendes each received
compensation in the form of salary and bonus. Typically, a high
proportion of an analyst's or portfolio manager's bonus is paid in cash
with a smaller proportion going into two separate incentive plans. The
first plan is a notional investment based on the performance of certain
Columbia Funds, including the Columbia Acorn Funds. The second plan
consists of Bank of America restricted stock and/or options. Both plans
vest over three years from the date of issuance. The CWAM total bonus
pool, including cash and the two incentive plans, is based on a formula,
with firm wide investment performance as the primary driver.
Analysts and portfolio managers are positioned in a number of
compensation tiers based on cumulative performance. Excellent
performance results in advancement to a higher tier 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 bonus
levels. 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 performing analysts and
portfolio managers.
In addition, Mr. Egan received a final distribution on September 30,
2007 in connection with his association with the Advisor prior to its
acquisition in September 2000 and the Advisor's performance through
September 30, 2005. Mr. Mendes received a final distribution on
September 30, 2007 from a supplemental pool for the Advisor's employees
Statement of Additional Information - April 1, 2009 Page 131
that was established in connection with the acquisition of CWAM and was
based on the Advisor's performance through September 30, 2005.
(48) 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
incentive bonus for equity portfolio managers ranges from 150% to 300%
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 54th percentile and
reaches 100% at the 25th percentile for the 1, 2, and 3-year periods.
3.33% of incentive payout is achieved at 54th percentile. No payout is
realized if performance is at or below 55th percentile.
As a wholly owned subsidiary of Principal Financial Group, all Principal
Global employees are eligible to participate in our Employee Stock
Purchase Plan that allows them to purchase company stock at a 15%
discount each quarter. In addition, through our 401(k) plan, employees
are able to contribute to an Employee Stock Ownership Plan (ESOP)
through which they can buy additional company stock.
(49) 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 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).
Statement of Additional Information - April 1, 2009 Page 132
(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.
(50) Mondrian has the following programs in place to retain key investment
staff:
1. Competitive Salary -- All investment professionals are remunerated
with a competitive base salary.
2. Profit Sharing Bonus Pool -- All Mondrian staff, including portfolio
managers and senior officers, qualify for participation in an annual
profit sharing pool determined by the company's profitability
(approximately 30% of profits).
3. Equity Ownership -- Mondrian is ultimately controlled by a
partnership of senior management and private equity funds sponsored
by Hellman & Friedman LLC, an independent private equity firm.
Mondrian is currently 61% owned by approximately 70 of its senior
employees, including the majority of investment professionals, senior
client service officers, and senior operations personnel, and 39%
owned by private equity funds sponsored by Hellman & Friedman, LLC.
The private equity funds sponsored by Hellman & Friedman LLC are
passive, non-controlling minority investors in Mondrian and do not
have day-to-day involvement in the management of Mondrian.
Incentives (Bonus and Equity Programs) focus on the key areas of
research quality, long-term and short-term stock performance, teamwork,
client service and marketing. As an individual's ability to influence
these factors depends on that individual's position and seniority within
the firm, so the allocation of participation in these programs will
reflect this.
At Mondrian, the investment management of particular portfolios is not
"star manager" based but uses a team system. This means that Mondrian's
investment professionals are primarily assessed on their contribution to
the team's effort and results, though with an important element of their
assessment being focused on the quality of their individual research
contribution.
Compensation Committee
In determining the amount of bonuses and equity awarded, Mondrian's
Board of Directors consults with the company's Compensation Committee,
who will make recommendations based on a number of factors including
investment research, organization management, team work, client
servicing and marketing.
Defined Contribution Pension Plan
All portfolio managers are members of the Mondrian defined contribution
pension plan where Mondrian pays a regular monthly contribution and the
member may pay additional voluntary contributions if they wish. The Plan
is governed by Trustees who have responsibility for the trust fund and
payments of benefits to members. In addition, the Plan provides death
benefits for death in service and a spouse's or dependant's pension may
also be payable.
Mondrian believes that this compensation structure, coupled with the
opportunities that exist within a successful and growing business, are
adequate to attract and retain high caliber employees.
(51) Tradewinds offers a highly competitive compensation structure with the
purpose of attracting and retaining the most talented investment
professionals. These professionals are rewarded through a combination of
cash and long-term incentive compensation as determined by the firm's
executive committee. Total cash compensation (TCC) consists of both a
base salary and an annual bonus that can be a multiple of the base
salary. The firm annually benchmarks TCC to prevailing industry norms
with the objective of achieving competitive levels for all contributing
professionals.
Available bonus pool compensation is primarily a function of the firm's
overall annual profitability. Individual bonuses are based primarily on
the following:
- Overall performance of client portfolios;
- Objective review of stock recommendations and the quality of primary
research;
- Subjective review of the professional's contributions to portfolio
strategy, teamwork, collaboration and work ethic.
To further strengthen our incentive compensation package and to create
an even stronger alignment to the long-term success of the firm,
Tradewinds has made available to most investment professionals equity
participation opportunities, the values of which are determined by the
increase in profitability of Tradewinds over time.
Finally, some of our investment professionals have received additional
remuneration as consideration for signing employment agreements. These
agreements range from retention agreements to long-term employment
contracts with significant non-solicitation and, in some cases, non-
compete clauses.
(52) 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.
Statement of Additional Information - April 1, 2009 Page 133
(53) In addition to customary employee benefits (e.g., medical coverage),
Batterymarch's compensation for investment professionals 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. Specifically,
the package includes:
- competitive base salaries;
- individual performance-based bonuses based on the investment
professionals' added value to the portfolios for which they are
responsible measured on a one-, three- and five-year basis versus
benchmarks and peer universes as well as their contributions to
research, client service and new business development;
- corporate profit-sharing; and
- annual contribution to a non-qualified deferred compensation plan that
has a cliff-vesting requirement (i.e., they must remain employed with
the firm for at least 31 months to receive payment).
Performance is evaluated on an aggregate product basis that the
portfolio manager is responsible for and is generally not analyzed by
any individual client portfolios. Portfolio manager compensation is not
tied to, nor increased or decreased as the result of, any performance
fees that may be earned by Batterymarch. Lastly, portfolio managers do
not receive a percentage of the revenue earned on any of Batterymarch's
client portfolios.
(54) 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. The annual bonus is paid from a 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 generally by the 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 subject to the total
fund managers' bonus pool being within the overall Corporate bonus pool
which is based on the profitability of Threadneedle. 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
employees.
(55) 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
cash bonus is paid from a team bonus pool that is based on the
performance of the accounts managed by the portfolio management team,
which might include mutual funds, wrap accounts, institutional
portfolios and hedge funds. The bonus pool is determined by a percentage
of the aggregate assets under management in the accounts managed by the
portfolio managers, including the fund, plus, 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 may also include a
percentage of any performance fees earned on long/short mutual funds
managed by the Team. 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. 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. Certain investment personnel
are also eligible to defer a portion of their compensation. An
individual making this type of election can allocate the deferral to the
returns associated with one or more products they manage or support or
to certain other products managed by their investment team. Depending
upon their job level, RiverSource Investments portfolio managers may
also be eligible for other benefits or perquisites that are available to
all RiverSource Investments employees at the same job level.
Statement of Additional Information - April 1, 2009 Page 134
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 +
- ------------------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity 0.080% 0.075% 0.070% 0.060% 0.050%
Absolute Return Currency and
Income
Disciplined International Equity
Disciplined Small Cap Value
Emerging Markets Bond
Global Bond
Partners International Select
Growth
Partners International Select
Value
Partners International Small Cap
Partners Small Cap Equity
Partners Small Cap Growth
Partners Small Cap Value
Small Cap Advantage
Small Company Index
Strategic Allocation
Threadneedle Emerging Markets
Threadneedle European Equity
Threadneedle Global Equity
Threadneedle Global Equity Income
Threadneedle Global Extended Alpha
Threadneedle International
Opportunity
- ------------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt 0.070% 0.065% 0.060% 0.050% 0.040%
Diversified Bond
Floating Rate
High Yield Bond
Income Opportunities
Inflation Protected
Intermediate Tax-Exempt
Limited Duration Bond
Minnesota Tax-Exempt
New York 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 - April 1, 2009 Page 135
<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 +
- ------------------------------------------------------------------------------------------------------------------------------
Balanced 0.060% 0.055% 0.050% 0.040% 0.030%
Cash Management
Disciplined Equity
Disciplined Large Cap Growth
Disciplined Large Cap Value
Disciplined Small and Mid Cap
Equity
Diversified Equity Income
Dividend Opportunity
Equity Value
Global Technology
Growth
Large Cap Equity
Large Cap Value
Mid Cap Growth
Mid Cap Value
Partners Aggressive Growth
Partners Fundamental Value
Partners Select Value
Precious Metals and Mining
Real Estate
S&P 500 Index
Tax-Exempt Money Market
- ------------------------------------------------------------------------------------------------------------------------------
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 - April 1, 2009 Page 136
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 2009 2008 2007 FUND ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ------------------------------------------------------------------------------------------------------------
Income Builder Basic Income $ 56,956 $ 38,041(a) $ 25,671 0.020%
- ------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 54,275 45,848(a) 37,153 0.020
- ------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income 108,149 82,229(a) 58,560 0.020
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 96,644 110,897 86,301 0.020
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 36,929 26,665 24,051 0.020
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 193,553 183,783 138,034 0.020
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive 205,250 223,400 172,602 0.020
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative 72,830 62,617 50,763 0.020
- ------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 84,413 101,924 76,312 0.020
- ------------------------------------------------------------------------------------------------------------
S&P 500 Index 101,230 158,059 153,231 0.060
- ------------------------------------------------------------------------------------------------------------
Small Company Index 446,427 738,676 867,030 0.080
- ------------------------------------------------------------------------------------------------------------
2008 2007 2006
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ------------------------------------------------------------------------------------------------------------
Equity Value 680,124 674,042 558,514 0.057
- ------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth 159,051 173,239 180,537 0.080
- ------------------------------------------------------------------------------------------------------------
Precious Metals and Mining 77,686 67,215 50,123 0.060
- ------------------------------------------------------------------------------------------------------------
Small Cap Advantage 363,599 534,163 568,712 0.080
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity 13,416(b) N/A N/A 0.080
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 3,623 1,779(c) N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 5,483 1,861(c) N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 7,572 2,961(c) N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 7,280 2,293(c) N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 7,160 2,579(c) N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 4,249 1,548(c) N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 4,915 2,928(c) N/A 0.020
- ------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 1,670 586(c) N/A 0.020
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- ------------------------------------------------------------------------------------------------------------
High Yield Bond 1,069,014 1,259,292 1,328,295 0.065
- ------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth 350,088 334,364 130,418 0.059
- ------------------------------------------------------------------------------------------------------------
Partners Fundamental Value 594,407 645,012 658,982 0.057
- ------------------------------------------------------------------------------------------------------------
Partners Select Value 300,721 355,085 443,873 0.060
- ------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity 208,114 267,622 205,335 0.080
- ------------------------------------------------------------------------------------------------------------
Partners Small Cap Value 565,329 754,675 858,118 0.080
- ------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government 541,748 623,283 821,082 0.068
- ------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 285,601 196,713 172,175 0.070
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ------------------------------------------------------------------------------------------------------------
Dividend Opportunity 1,033,158 884,333 658,242 0.055
- ------------------------------------------------------------------------------------------------------------
Real Estate 132,646 153,117 91,341 0.060
- ------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 137
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE
- --------------------------------------------------------------------------------------------------- APPLIED TO
FUND 2008 2007 2006 FUND ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ------------------------------------------------------------------------------------------------------------
Cash Management $2,507,729 $2,141,669 $1,741,492 0.048%
- ------------------------------------------------------------------------------------------------------------
Disciplined Equity 1,701,542 1,224,572 496,810 0.053
- ------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity 38,114 24,904 1,143(d) 0.060
- ------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 30,592 20,681 4,615(e) 0.080
- ------------------------------------------------------------------------------------------------------------
Floating Rate 398,924 378,190 46,916(e) 0.070
- ------------------------------------------------------------------------------------------------------------
Growth 1,477,804 1,763,087 1,791,547 0.053
- ------------------------------------------------------------------------------------------------------------
Income Opportunities 202,872 242,883 253,936 0.070
- ------------------------------------------------------------------------------------------------------------
Inflation Protected Securities 399,972 209,028 169,778 0.068
- ------------------------------------------------------------------------------------------------------------
Large Cap Equity 2,524,199 3,245,953 2,119,930 0.049
- ------------------------------------------------------------------------------------------------------------
Large Cap Value 45,929 60,574 78,248 0.060
- ------------------------------------------------------------------------------------------------------------
Limited Duration Bond 115,529 105,993 133,102 0.070
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ------------------------------------------------------------------------------------------------------------
California Tax-Exempt(f) 122,235 122,586 149,235 0.070
- ------------------------------------------------------------------------------------------------------------
Diversified Bond 2,012,548 1,752,212 1,698,244 0.060
- ------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt(f) 215,249 234,353 286,050 0.070
- ------------------------------------------------------------------------------------------------------------
New York Tax-Exempt(f) 41,455 47,710 57,973 0.070
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ------------------------------------------------------------------------------------------------------------
Balanced 519,542 623,784 697,753 0.059
- ------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 101,276 11,405(g) N/A 0.060
- ------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value 662(h) N/A N/A 0.060
- ------------------------------------------------------------------------------------------------------------
Diversified Equity Income 3,272,256 3,449,519 2,960,505 0.047
- ------------------------------------------------------------------------------------------------------------
Mid Cap Value 1,335,281 1,196,773 854,082 0.053
- ------------------------------------------------------------------------------------------------------------
Strategic Allocation 1,505,894 1,340,234 948,662 0.074
- ------------------------------------------------------------------------------------------------------------
Strategic Income Allocation 115,139 21,493(g) N/A 0.070
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ------------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income 373,454 79,761 15,823(i) 0.079
- ------------------------------------------------------------------------------------------------------------
Disciplined International Equity 549,173 209,295 14,739(j) 0.080
- ------------------------------------------------------------------------------------------------------------
Emerging Markets Bond 131,334 78,549 21,248(k) 0.080
- ------------------------------------------------------------------------------------------------------------
Global Bond 572,976 388,646 412,783 0.079
- ------------------------------------------------------------------------------------------------------------
Global Technology 83,820 103,335 101,197 0.060
- ------------------------------------------------------------------------------------------------------------
Partners International Select Growth 511,522 490,174 347,819 0.080
- ------------------------------------------------------------------------------------------------------------
Partners International Select Value 1,395,090 1,759,221 1,306,775 0.078
- ------------------------------------------------------------------------------------------------------------
Partners International Small Cap 79,183 92,062 83,383 0.080
- ------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 498,019 503,279 406,991 0.080
- ------------------------------------------------------------------------------------------------------------
Threadneedle European Equity 96,107 105,886 89,350 0.080
- ------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 549,601 611,621 532,772 0.080
- ------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Income 1,528(l) N/A N/A 0.080
- ------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha 1,256(l) N/A N/A 0.080
- ------------------------------------------------------------------------------------------------------------
Threadneedle International Opportunity 460,205 540,718 470,847 0.080
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 52,367 57,618 74,912 0.070
- ------------------------------------------------------------------------------------------------------------
Mid Cap Growth 471,791 652,889 946,943 0.060
- ------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 463,150 525,515 544,894 0.069
- ------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 1,603,416 1,823,812 2,064,819 0.063
- ------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 138
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES FEES PAID IN: DAILY RATE
- --------------------------------------------------------------------------------------------------- APPLIED TO
FUND 2008 2007 2006 FUND ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- ------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market $ 84,396 $ 73,957 $ 69,922 0.060%
- ------------------------------------------------------------------------------------------------------------
</Table>
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31
to Jan. 31. For 2008, the information shown is for the period from June
1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal period
ended on May 31.
(b) For the period from Oct. 18, 2007 (when shares became publicly available)
to April 30, 2008.
(c) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(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 Aug. 1, 2008 (when shares became publicly available)
to Sept. 30, 2008.
(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) For the period from Aug. 1, 2008 (when shares became publicly available)
to Oct. 31, 2008.
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 - April 1, 2009 Page 139
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.
* Currently, tax-exempt and state tax-exempt funds do not have classes of shares
that are subject to this fee.
DISTRIBUTION SERVICES
RiverSource Distributors, Inc., a wholly-owned subsidiary of Ameriprise
Financial, Inc., and RiverSource Fund Distributors, Inc., an indirect wholly-
owned subsidiary of RiverSource Investments, LLC (collectively the
"distributor") each at 50611 Ameriprise Financial Center, Minneapolis, MN 55474,
serve as the funds' principal underwriters. Prior to Oct. 1, 2007, Ameriprise
Financial Services, Inc. also served as 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 2009 2008 2007 2009 2008 2007
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- -----------------------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income $ 466,216 $ 688,587(a)$ 1,155,448 $ (21,562) $ (56,086)(a)$ 6,089
- -----------------------------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 296,977 831,981(a) 1,678,918 (533) 176,661(a) 287,006
- -----------------------------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income 654,937 1,279,681(a) 2,955,938 77,641 34,001(a) 435,561
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 2,081,242 2,848,037 3,260,693 552,795 799,417 1,029,231
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 528,590 384,348 455,765 16,829 4,989 94,296
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 3,277,766 3,944,827 4,127,743 661,689 702,939 1,084,978
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 4,181,445 5,635,597 6,845,238 1,125,393 1,613,677 2,326,266
Aggressive
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 982,012 1,088,559 1,084,727 153,386 140,630 252,979
Conservative
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 1,561,130 2,257,735 2,414,356 319,114 471,536 594,766
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 140
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT RETAINED AFTER PAYING
SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------------
FUND 2009 2008 2007 2009 2008 2007
- -----------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Small Company Index $ 365,094 $ 563,878 $ 973,579 $ 317,088 $ 117,897 $ 220,620
- -----------------------------------------------------------------------------------------------------------------------------------
2008 2007 2006 2008 2007 2006
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Value 496,313 928,630 645,442 16,594 86,064 116,536
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth 174,193 265,315 401,382 25,734 52,127 127,479
- -----------------------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining 192,503 178,460 104,779 50,572 33,944 21,277
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage 285,044 569,430 986,996 30,185 100,405 276,857
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- -----------------------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity 149,480(b) N/A N/A 46,196(b) N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 32,694 2,283(c) N/A 11,266 (6,048)(c) N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 70,298 35,493(c) N/A 50,360 27,942(c) N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 41,850 35,121(c) N/A 21,519 23,828(c) N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 49,187 38,880(c) N/A 25,003 25,335(c) N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 51,530 29,205(c) N/A 28,063 15,221(c) N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 31,469 21,303(c) N/A 19,162 13,718(c) N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 39,332 14,822(c) N/A 21,208 7,670(c) N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 23,890 10,606(c) N/A 12,087 5,832(c) N/A
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MAY 31
- -----------------------------------------------------------------------------------------------------------------------------------
High Yield Bond 882,107 1,787,813 2,479,319 41,174 139,630 682,596
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth 390,356 359,329 217,559 83,271 63,452 44,653
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Fundamental Value 766,263 1,266,023 1,915,417 58,252 158,689 406,545
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Select Value 314,511 518,110 945,839 25,291 61,797 213,839
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity 184,740 309,112 604,021 48,448 95,646 190,699
- -----------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Value 607,350 1,147,620 1,616,642 117,005 249,915 478,093
- -----------------------------------------------------------------------------------------------------------------------------------
Short Duration U.S. Government 660,354 962,025 1,908,960 (152,827) (85,482) 482,228
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 136,891 252,402 442,638 (116,397) (67,241) 61,137
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- -----------------------------------------------------------------------------------------------------------------------------------
Dividend Opportunity 1,648,530 2,653,148 1,665,096 206,622 266,495 207,486
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate 211,915 813,437 598,431 63,306 218,298 180,632
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Management 339,219 437,392 718,247 339,111 423,832 714,638
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined Equity 412,821 661,751 322,731 85,890 140,529 67,609
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap 26,228 55,865 1,760(d) 7,923 9,445 852(d)
Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 6,647 15,644 6,304(e) 1,943 1,960 1,708(e)
- -----------------------------------------------------------------------------------------------------------------------------------
Floating Rate 380,143 1,282,342 364,914(e) (174,369) (554,729) (118,354)(e)
- -----------------------------------------------------------------------------------------------------------------------------------
Growth 2,003,496 3,028,179 4,553,722 372,658 548,978 955,528
- -----------------------------------------------------------------------------------------------------------------------------------
Income Opportunities 135,655 320,351 486,593 (11,090) (6,952) 108,764
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Protected Securities 407,706 105,703 326,780 51,044 18,732 47,098
- -----------------------------------------------------------------------------------------------------------------------------------
Large Cap Equity 3,342,608 4,596,427 3,400,059 610,479 641,330 629,348
- -----------------------------------------------------------------------------------------------------------------------------------
Large Cap Value 64,134 102,472 123,212 20,999 26,452 37,908
- -----------------------------------------------------------------------------------------------------------------------------------
Limited Duration Bond 92,255 136,687 220,446 9,475 28,890 28,711
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 141
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT RETAINED AFTER PAYING
SALES CHARGES PAID TO DISTRIBUTOR COMMISSIONS AND OTHER EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------------
FUND 2008 2007 2006 2008 2007 2006
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- -----------------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt $ 91,928 $ 150,760 $ 212,157(f) $ 5,945 $ 46,117 $ 77,373(f)
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Bond 1,992,222 2,340,251 2,757,988 176,513 419,415 788,192
- -----------------------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt 463,447 338,160 480,402(f) 37,217 12,594 102,088(f)
- -----------------------------------------------------------------------------------------------------------------------------------
New York Tax-Exempt 29,401 43,518 89,560(f) 8,217 6,984 19,641(f)
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced 287,586 474,702 400,884 36,359 32,524 59,347
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 87,685 20,834(g) N/A 30,621 5,197(g) N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value 0(h) N/A N/A 0(h) N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Equity Income 6,331,545 9,553,810 12,904,884 1,204,186 1,407,616 2,114,315
- -----------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value 2,444,490 3,538,910 4,477,119 898,395 862,120 1,010,224
- -----------------------------------------------------------------------------------------------------------------------------------
Strategic Allocation 5,371,458 8,570,846 3,667,041 1,321,113 1,738,063 739,852
- -----------------------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation 400,285 267,319(g) N/A 28,302 26,129(g) N/A
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- -----------------------------------------------------------------------------------------------------------------------------------
Absolute Return Currency and 288,047 10,519 0(i) 52,383 3,448 0(i)
Income
- -----------------------------------------------------------------------------------------------------------------------------------
Disciplined International 168,692 130,761 4,700(j) 36,899 14,894 434(j)
Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond 41,906 25,743 11,348(k) 10,486 1,421 2,036(k)
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond 391,577 314,002 447,007 118,930 215,442 320,724
- -----------------------------------------------------------------------------------------------------------------------------------
Global Technology 190,722 212,774 242,177 39,408 16,670 29,861
- -----------------------------------------------------------------------------------------------------------------------------------
Partners International Select 560,302 885,940 810,514 118,125 226,007 234,619
Growth
- -----------------------------------------------------------------------------------------------------------------------------------
Partners International Select 1,584,444 4,085,674 3,895,267 235,164 641,699 815,331
Value
- -----------------------------------------------------------------------------------------------------------------------------------
Partners International Small 88,479 164,026 173,659 20,053 19,649 37,954
Cap
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 780,872 886,062 1,075,586 (4,109,358) (7,004,024) (9,848,080)
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle European Equity 124,828 226,464 107,816 35,391 90,745 29,463
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 800,774 896,578 1,272,084 114,011 99,098 218,974
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 18,558(l) N/A N/A 4,340(l) N/A N/A
Income
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended 1,795(l) N/A N/A 307(l) N/A N/A
Alpha
- -----------------------------------------------------------------------------------------------------------------------------------
Threadneedle International 319,850 501,090 563,174 49,744 56,669 107,305
Opportunity
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- -----------------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 59,348 62,985 115,280 (792) (10,183) 29,590
- -----------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth 360,393 608,683 1,388,577 59,123 115,052 346,497
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 319,831 313,115 346,932 64,831 (19,725) 79,024
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 1,042,555 1,182,244 1,485,792 151,444 181,059 389,650
- -----------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) The fund changed its fiscal year end effective Jan. 31, 2008 from May 31
to Jan. 31. For 2008, the information shown is for the period from June
1, 2007 through Jan. 31, 2008. For years prior to 2008, the fiscal
period ended on May 31.
(b) For the period from Oct. 18, 2007 (when shares became publicly
available) to April 30, 2008.
(c) For the period from May 18, 2006 (when shares became publicly available)
to April 30, 2007.
(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 Aug. 1, 2008 (when shares became publicly available)
to Sept. 30, 2008.
(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) For the period from Aug. 1, 2008 (when shares became publicly available)
to Oct. 31, 2008.
Statement of Additional Information - April 1, 2009 Page 142
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 (the "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 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.
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
Statement of Additional Information - April 1, 2009 Page 143
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
- -------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income $ 593,211 $ 362,603 $ 112,193 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Income Builder Enhanced 580,823 278,815 110,421 N/A N/A N/A N/A
Income
- -------------------------------------------------------------------------------------------------------------------
Income Builder Moderate 1,158,585 587,094 185,812 N/A N/A N/A N/A
Income
- -------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 969,765 809,179 142,465 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Portfolio Builder 328,254 434,092 99,134 N/A N/A N/A N/A
Conservative
- -------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 1,870,904 1,818,537 374,530 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 2,048,240 1,742,740 319,656 N/A N/A N/A N/A
Aggressive
- -------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 687,072 724,001 168,921 N/A N/A N/A N/A
Conservative
- -------------------------------------------------------------------------------------------------------------------
Portfolio Builder Total 850,481 691,958 125,500 N/A N/A N/A N/A
Equity
- -------------------------------------------------------------------------------------------------------------------
S&P 500 Index N/A N/A N/A 91,928 N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Small Company Index 1,166,038 914,171 N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- -------------------------------------------------------------------------------------------------------------------
Equity Value 2,578,435 1,585,388 63,308 N/A $ 26 $ 13 $ 13
- -------------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth 262,998 382,183 44,120 N/A 24 12 N/A
- -------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining 273,178 179,634 21,128 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Small Cap Advantage 891,269 920,220 70,397 N/A 19 10 N/A
- -------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- -------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity(a) 27,941 6,806 2,020 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 4,890 N/A N/A N/A 24 12 N/A
- -------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 8,361 N/A N/A N/A 24 13 N/A
- -------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 7,167 N/A N/A N/A 24 13 N/A
- -------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 5,406 N/A N/A N/A 25 13 N/A
- -------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 5,279 N/A N/A N/A 25 15 N/A
- -------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 2,921 N/A N/A N/A 24 13 N/A
- -------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 2,156 N/A N/A N/A 24 13 N/A
- -------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 2,037 N/A N/A N/A 25 13 N/A
- -------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 144
<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
- -------------------------------------------------------------------------------------------------------------------
High Yield Bond $ 3,139,852 $2,195,630 $ 211,821 N/A $ 27 $ 11 $ 140,313
- -------------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth 989,015 834,358 23,191 N/A 190 15 N/A
- -------------------------------------------------------------------------------------------------------------------
Partners Fundamental Value 1,820,164 1,938,445 170,196 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Partners Select Value 944,904 936,623 75,555 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity 557,309 310,825 26,458 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Partners Small Cap Value 1,256,997 1,776,490 136,505 N/A 802 10 N/A
- -------------------------------------------------------------------------------------------------------------------
Short Duration U.S. 1,342,344 1,762,259 97,004 N/A N/A N/A 12
Government
- -------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 260,643 373,486 45,007 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- -------------------------------------------------------------------------------------------------------------------
Dividend Opportunity 3,563,045 2,220,149 257,746 N/A N/A N/A 13
- -------------------------------------------------------------------------------------------------------------------
Real Estate 276,727 189,408 17,500 N/A N/A N/A 9
- -------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- -------------------------------------------------------------------------------------------------------------------
Cash Management 4,969,177 714,712 45,638 N/A N/A N/A 154,441
- -------------------------------------------------------------------------------------------------------------------
Disciplined Equity 3,199,228 550,860 31,395 N/A 22 11 3,483,017
- -------------------------------------------------------------------------------------------------------------------
Disciplined Small and Mid 44,049 12,319 1,632 N/A N/A N/A 54,372
Cap Equity
- -------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 31,837 4,226 546 N/A 20 11 N/A
- -------------------------------------------------------------------------------------------------------------------
Floating Rate 795,373 357,536 206,462 N/A N/A N/A 11
- -------------------------------------------------------------------------------------------------------------------
Growth 5,186,203 3,166,050 179,547 N/A 24 12 12
- -------------------------------------------------------------------------------------------------------------------
Income Opportunities 389,032 363,715 41,252 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Inflation Protected 319,398 259,775 51,658 N/A N/A N/A 205,664
Securities
- -------------------------------------------------------------------------------------------------------------------
Large Cap Equity 10,775,702 7,098,566 270,367 N/A 22 11 N/A
- -------------------------------------------------------------------------------------------------------------------
Large Cap Value 123,733 118,887 8,842 N/A 19 9 N/A
- -------------------------------------------------------------------------------------------------------------------
Limited Duration Bond 155,586 94,180 16,366 N/A N/A N/A 14
- -------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- -------------------------------------------------------------------------------------------------------------------
California Tax-Exempt 417,044 57,189 20,845 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Diversified Bond 4,896,633 3,027,276 237,190 N/A 36 18 1,101,584
- -------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt 705,661 176,620 75,716 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
New York Tax-Exempt 135,961 41,064 7,302 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- -------------------------------------------------------------------------------------------------------------------
Balanced 1,987,290 415,034 46,083 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 35,017 16,268 10,920 N/A 47 24 2
- -------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap 32 29 16 N/A 8 4 4
Value(b)
- -------------------------------------------------------------------------------------------------------------------
Diversified Equity Income 14,226,095 9,229,184 1,111,495 N/A 25,252 280,029 11
- -------------------------------------------------------------------------------------------------------------------
Mid Cap Value 4,837,635 2,497,777 514,655 N/A 27,209 40,679 11
- -------------------------------------------------------------------------------------------------------------------
Strategic Allocation 4,342,136 2,269,489 693,509 N/A 24 12 N/A
- -------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation 362,627 149,282 45,011 N/A 5 2 N/A
- -------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 145
<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 and $ 268,339 $ 11,267 $ 58,825 N/A N/A N/A $ 368,846
Income
- -------------------------------------------------------------------------------------------------------------------
Disciplined International 188,884 135,656 14,024 N/A $ 6 $ 3 1,073,689
Equity
- -------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond 21,289 14,432 2,267 N/A N/A N/A 125,465
- -------------------------------------------------------------------------------------------------------------------
Global Bond 704,343 522,781 40,466 N/A N/A N/A 442,005
- -------------------------------------------------------------------------------------------------------------------
Global Technology 266,728 297,356 31,112 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Partners International 850,640 586,365 55,865 N/A N/A N/A N/A
Select
Growth
- -------------------------------------------------------------------------------------------------------------------
Partners International 3,573,831 2,701,274 272,384 N/A N/A N/A N/A
Select Value
- -------------------------------------------------------------------------------------------------------------------
Partners International Small 157,129 124,919 9,633 N/A N/A N/A N/A
Cap
- -------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging 1,283,814 701,567 62,513 N/A N/A N/A N/A
Markets
- -------------------------------------------------------------------------------------------------------------------
Threadneedle European Equity 239,284 225,941 17,814 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 1,507,084 814,247 73,244 N/A 25 13 13
- -------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 1,812 818 157 N/A 11 6 N/A
Income(c)
- -------------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended 1,067 508 207 N/A 11 5 N/A
Alpha(c)
- -------------------------------------------------------------------------------------------------------------------
Threadneedle International 1,036,236 541,184 30,802 N/A 25 12 N/A
Opportunity
- -------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- -------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 166,850 57,473 23,235 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Mid Cap Growth 1,589,639 958,780 48,434 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 1,613,863 236,766 50,563 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 6,157,145 713,646 137,909 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market 140,660 N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
</Table>
(a) For the period from Oct. 18, 2007 (when shares became publicly available)
to April 30, 2008.
(b) For the period from Aug. 1, 2008 (when shares became publicly available)
to Sept. 30, 2008.
(c) For the period from Aug. 1, 2008 (when shares became publicly available)
to Oct. 31, 2008.
Statement of Additional Information - April 1, 2009 Page 146
FOR FUNDS WITH CLASS B AND CLASS C SHARES:
The following table provides the amount of distribution expenses, as a dollar
amount and as a percentage of net assets, incurred by the distributor and not
yet reimbursed ("unreimbursed expense") for Class B and Class C shares. These
amounts are based on the most recent information available as of Jan. 31, 2009
and may be recovered from future payments under the distribution plan or CDSC.
To the extent the unreimbursed expense has been fully recovered, the
distribution fee is reduced.
TABLE 24. UNREIMBURSED DISTRIBUTION EXPENSES
<Table>
<Caption>
PERCENTAGE OF PERCENTAGE OF
CLASS B CLASS C
FUND CLASS B NET ASSETS CLASS C NET ASSETS
- -------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity $ 77,000 5.34% $ 16,000 1.54%
- -------------------------------------------------------------------------------------------------------
Absolute Return Currency and Income 190,000 4.22% 46,000 0.43%
- -------------------------------------------------------------------------------------------------------
Balanced 831,000 4.44% 29,000 1.04%
- -------------------------------------------------------------------------------------------------------
California Tax-Exempt 97,000 2.46% 18,000 0.76%
- -------------------------------------------------------------------------------------------------------
Cash Management 7,314,000 5.65% 82,000 0.68%
- -------------------------------------------------------------------------------------------------------
Disciplined Equity 794,000 3.99% 24,000 1.32%
- -------------------------------------------------------------------------------------------------------
Disciplined International Equity 438,000 5.77% 13,000 1.44%
- -------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth 170,000 5.92% 13,000 0.85%
- -------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value 6,000 8.50% -- 0.00%
- -------------------------------------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity 55,000 6.56% 3,000 1.18%
- -------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value 17,000 5.57% 1,000 1.64%
- -------------------------------------------------------------------------------------------------------
Diversified Bond 7,196,000 3.17% 230,000 0.69%
- -------------------------------------------------------------------------------------------------------
Diversified Equity Income 19,234,000 4.88% 677,000 1.12%
- -------------------------------------------------------------------------------------------------------
Dividend Opportunity 3,686,000 4.32% 147,000 1.15%
- -------------------------------------------------------------------------------------------------------
Emerging Markets Bond 60,000 4.84% 19,000 9.28%
- -------------------------------------------------------------------------------------------------------
Equity Value 1,765,000 3.34% 46,000 1.42%
- -------------------------------------------------------------------------------------------------------
Floating Rate 992,000 7.26% 89,000 0.71%
- -------------------------------------------------------------------------------------------------------
Global Bond 1,310,000 3.22% 37,000 0.87%
- -------------------------------------------------------------------------------------------------------
Global Technology 461,000 3.55% 25,000 1.46%
- -------------------------------------------------------------------------------------------------------
Growth 4,680,000 4.79% 113,000 1.76%
- -------------------------------------------------------------------------------------------------------
High Yield Bond 3,532,000 3.78% 142,000 1.03%
- -------------------------------------------------------------------------------------------------------
Income Builder Basic Income 1,855,000 6.63% 56,000 0.61%
- -------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income 1,327,000 6.98% 50,000 0.63%
- -------------------------------------------------------------------------------------------------------
Income Builder Moderate Income 2,675,000 6.53% 74,000 0.53%
- -------------------------------------------------------------------------------------------------------
Income Opportunities 852,000 4.27% 62,000 1.02%
- -------------------------------------------------------------------------------------------------------
Inflation Protected Securities 1,325,000 3.79% 72,000 0.67%
- -------------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt 134,000 2.56% 26,000 0.91%
- -------------------------------------------------------------------------------------------------------
Large Cap Equity 11,663,000 5.04% 169,000 1.50%
- -------------------------------------------------------------------------------------------------------
Large Cap Value 204,000 4.89% 5,000 1.17%
- -------------------------------------------------------------------------------------------------------
Limited Duration Bond 289,000 4.01% 14,000 0.81%
- -------------------------------------------------------------------------------------------------------
Mid Cap Growth 1,789,000 4.07% 30,000 1.13%
- -------------------------------------------------------------------------------------------------------
Mid Cap Value 5,299,000 5.33% 329,000 1.00%
- -------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt 266,000 2.06% 66,000 0.79%
- -------------------------------------------------------------------------------------------------------
New York Tax-Exempt 65,000 1.97% 6,000 0.85%
- -------------------------------------------------------------------------------------------------------
Partners Aggressive Growth 985,000 3.46% 21,000 1.25%
- -------------------------------------------------------------------------------------------------------
Partners Fundamental Value 2,943,000 4.53% 101,000 1.37%
- -------------------------------------------------------------------------------------------------------
Partners International Select Growth 1,142,000 4.59% 36,000 1.36%
- -------------------------------------------------------------------------------------------------------
Partners International Select Value 4,671,000 5.19% 147,000 1.45%
- -------------------------------------------------------------------------------------------------------
Partners International Small Cap 250,000 5.81% 5,000 1.28%
- -------------------------------------------------------------------------------------------------------
Partners Select Value 1,489,000 4.49% 39,000 1.13%
- -------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 147
<Table>
<Caption>
PERCENTAGE OF PERCENTAGE OF
CLASS B CLASS C
FUND CLASS B NET ASSETS CLASS C NET ASSETS
- -------------------------------------------------------------------------------------------------------
Partners Small Cap Equity 531,000 4.56% 18,000 1.51%
- -------------------------------------------------------------------------------------------------------
Partners Small Cap Growth 505,000 3.91% 24,000 1.38%
- -------------------------------------------------------------------------------------------------------
Partners Small Cap Value 2,191,000 3.87% 72,000 1.40%
- -------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive 3,348,000 5.88% 118,000 1.04%
- -------------------------------------------------------------------------------------------------------
Portfolio Builder Conservative 2,103,000 5.04% 101,000 0.95%
- -------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate 7,972,000 5.51% 317,000 0.95%
- -------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive 7,254,000 5.58% 258,000 0.98%
- -------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative 3,262,000 5.36% 140,000 0.89%
- -------------------------------------------------------------------------------------------------------
Portfolio Builder Total Equity 2,857,000 6.28% 107,000 1.15%
- -------------------------------------------------------------------------------------------------------
Precious Metals and Mining 391,000 3.30% 15,000 0.72%
- -------------------------------------------------------------------------------------------------------
Real Estate 472,000 7.56% 11,000 1.47%
- -------------------------------------------------------------------------------------------------------
Short Duration U.S. Government 4,363,000 3.53% 106,000 0.90%
- -------------------------------------------------------------------------------------------------------
Small Cap Advantage 868,000 4.23% 29,000 1.20%
- -------------------------------------------------------------------------------------------------------
Small Company Index 1,820,000 3.58% N/A N/A
- -------------------------------------------------------------------------------------------------------
Strategic Allocation 7,451,000 5.92% 347,000 0.79%
- -------------------------------------------------------------------------------------------------------
Strategic Income Allocation 749,000 4.62% 35,000 0.66%
- -------------------------------------------------------------------------------------------------------
Tax-Exempt Bond 449,000 2.17% 49,000 0.75%
- -------------------------------------------------------------------------------------------------------
Tax-Exempt High Income 1,208,000 2.23% 117,000 0.90%
- -------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 1,010,000 4.25% 40,000 1.33%
- -------------------------------------------------------------------------------------------------------
Threadneedle European Equity 208,000 2.41% 11,000 1.30%
- -------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 1,638,000 4.51% 60,000 1.44%
- -------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Income 79,000 6.04% 3,000 1.57%
- -------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha 27,000 10.46% 2,000 1.97%
- -------------------------------------------------------------------------------------------------------
Threadneedle International Opportunity 933,000 4.06% 28,000 1.53%
- -------------------------------------------------------------------------------------------------------
U.S. Government Mortgage 970,000 3.91% 34,000 0.87%
- -------------------------------------------------------------------------------------------------------
</Table>
PAYMENTS TO FINANCIAL INTERMEDIARIES
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 intermediaries, including inter-company allocation of
resources or payment to affiliated broker-dealers, in connection with agreements
between the distributor and financial intermediaries pursuant to which these
financial intermediaries 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 intermediaries 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
intermediaries for supporting shareholder account maintenance, sub-accounting,
plan recordkeeping or other services provided directly by the financial
intermediary 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 intermediary, 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 intermediary and/or as a
percentage of fund sales attributable to the financial intermediary. Certain
financial intermediaries 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 intermediary charges its
representatives for effecting transactions in the funds. The amount of payment
varies by financial intermediary, and 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.
Statement of Additional Information - April 1, 2009 Page 148
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 intermediary 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
intermediary'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 intermediary's
organization, including placement of the fund on the financial intermediary's
preferred or recommended list. The distributor may also obtain greater access to
sales meetings, sales representatives, and management representatives of the
financial intermediary, 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 intermediary.
PROGRAM AND SHAREHOLDER SERVICING
Payments may be made in support of recordkeeping, reporting, transaction
processing, and other plan administration services provided by a financial
intermediary 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 intermediary 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 intermediaries
in order to participate in and/or present at conferences or seminars, sales or
training programs for invited registered representatives and other financial
intermediary employees, client and investor events and other financial
intermediary-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 intermediaries 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
intermediaries and their representatives are subject. To the extent these are
made as payments instead of reimbursement, they may provide profit to the
financial intermediary to the extent the cost of such services was less than the
actual expense of the service.
FINANCIAL INTERMEDIARY ARRANGEMENTS
The financial intermediary 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 intermediary may receive from the distributor or its affiliates
related to your purchase or ownership of funds, please contact your financial
intermediary.
CUSTODIAN SERVICES
The funds' securities and cash are held pursuant to a custodian agreement with
JPMorgan Chase Bank, N.A. (JPMorgan), 1 Chase Manhattan Plaza, 19th Floor, New
York, NY 10005. The custodian is permitted to deposit some or all of their
securities in central depository systems as allowed by federal law. For its
services, each fund pays its custodian a maintenance charge and a charge per
transaction in addition to reimbursing the custodian's out-of-pocket expenses.
As part of this arrangement, securities purchased outside the United States are
maintained in the custody of various foreign branches of JPMorgan or in other
financial institutions as permitted by law and by the fund's custodian
agreement.
Statement of Additional Information - April 1, 2009 Page 149
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 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
Statement of Additional Information - April 1, 2009 Page 150
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 25. FUND HISTORY TABLE FOR RIVERSOURCE FAMILY OF FUNDS
<Table>
<Caption>
FISCAL
DATE OF DATE BEGAN FORM OF STATE OF YEAR
FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED**
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE BOND SERIES, 4/29/81, 6/13/86(1) Corporation NV/MN 7/31
INC.(2)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Floating Rate 2/16/06 Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Income 6/19/03 Yes
Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Inflation 3/4/04 No
Protected Securities Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Limited Duration 6/19/03 Yes
Bond Fund
- -----------------------------------------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT TRUST 4/7/86 Business Trust MA 8/31(10)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource California Tax- 8/18/86 No
Exempt Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE DIMENSIONS SERIES, 2/20/68, 6/13/86(1) Corporation NV/MN 7/31
INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Disciplined Small 5/18/06 Yes
and Mid Cap Equity Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Disciplined Small 2/16/06 Yes
Cap Value Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED INCOME 6/27/74, 6/31/86(1) Corporation NV/MN 8/31
SERIES, INC.(2)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Diversified Bond 10/3/74 Yes
Fund(3)
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE EQUITY SERIES, 3/18/57, 6/13/86(1) Corporation NV/MN 11/30
INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Mid Cap Growth 6/4/57 Yes
Fund(4)
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE GLOBAL SERIES, 10/28/88 Corporation MN 10/31
INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Absolute Return 6/15/06 No
Currency and Income Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Emerging Markets 2/16/06 No
Bond Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Global Bond Fund 3/20/89 No
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Global Technology 11/13/96 Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets 11/13/96 Yes
Fund(4),(5),(11)
- -----------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 5/29/90 Yes
Fund(5),(6),(11)
- -----------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity 8/1/08 Yes
Income Fund
- -----------------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended 8/1/08 Yes
Alpha Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE GOVERNMENT INCOME 3/12/85 Corporation MN 5/31
SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Short Duration 8/19/85 Yes
U.S. Government Fund(3)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource U.S. Government 2/14/02 Yes
Mortgage Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE HIGH YIELD INCOME 8/17/83 Corporation MN 5/31
SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource High Yield Bond 12/8/83 Yes
Fund(3)
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE INCOME SERIES, 2/10/45; 6/13/86(1) Corporation NV/MN 1/31
INC.(7)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Income Builder 2/16/06 No
Basic Income Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Income Builder 2/16/06 No
Enhanced Income Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Income Builder 2/16/06 No
Moderate Income Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE INTERNATIONAL 5/9/01 Corporation MN 10/31
MANAGERS SERIES, INC.(2)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners 9/28/01 Yes
International Select Growth
Fund(11)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners 9/28/01 Yes
International Select Value
Fund(11)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners 10/3/02 Yes
International Small Cap
Fund(11)
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE INTERNATIONAL 7/18/84 Corporation MN 10/31
SERIES, INC.(2)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Disciplined 5/18/06 Yes
International Equity Fund
- -----------------------------------------------------------------------------------------------------------------------
Threadneedle European Equity 6/26/00 Yes
Fund(5),(11)
- -----------------------------------------------------------------------------------------------------------------------
Threadneedle International 11/15/84 Yes
Opportunity Fund(4),(5),(11)
- -----------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 151
<Table>
<Caption>
FISCAL
DATE OF DATE BEGAN FORM OF STATE OF YEAR
FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED**
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE INVESTMENT SERIES, 1/18/40; 6/13/86(1) Corporation NV/MN 9/30
INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Balanced Fund(4) 4/16/40 Yes
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Disciplined Large 5/17/07 Yes
Cap Growth Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Disciplined Large 8/1/08 Yes
Cap Value Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Diversified 10/15/90 Yes
Equity Income Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Mid Cap Value 2/14/02 Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE LARGE CAP SERIES, 5/21/70, 6/13/86(1) Corporation NV/MN 7/31
INC.(2)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Disciplined 4/24/03 Yes
Equity Fund(4)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Growth Fund 3/1/72 Yes
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Large Cap Equity 3/28/02 Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Large Cap Value 6/27/02 Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE MANAGERS SERIES, 3/20/01 Corporation MN 5/31
INC.(2)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners 4/24/03 Yes
Aggressive Growth Fund(11)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners 6/18/01 Yes
Fundamental Value Fund(11)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners Select 3/8/02 Yes
Value Fund(11)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners Small 3/8/02 Yes
Cap Equity Fund(4),(11)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners Small 6/18/01 Yes
Cap Value Fund(11)
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE MARKET ADVANTAGE 8/25/89 Corporation MN 1/31
SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder 3/4/04 Yes
Conservative Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder 3/4/04 Yes
Moderate Conservative Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder 3/4/04 Yes
Moderate Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder 3/4/04 Yes
Moderate Aggressive Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder 3/4/04 Yes
Aggressive Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Portfolio Builder 3/4/04 Yes
Total Equity Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource S&P 500 Index 10/25/99 Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Small Company 8/19/96 Yes
Index Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE MONEY MARKET 8/22/75; 6/13/86(1) Corporation NV/MN 7/31
SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Cash Management 10/6/75 Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE SECTOR SERIES, 3/25/88 Corporation MN 6/30
INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Dividend 8/1/88 Yes
Opportunity Fund(8)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Real Estate Fund 3/4/04 Yes
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE SELECTED SERIES, 10/5/84 Corporation MN 3/31
INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Precious Metals 4/22/85 No
and Mining Fund(9)
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE SERIES TRUST(14) 1/27/06 Business Trust MA 4/30
- -----------------------------------------------------------------------------------------------------------------------
RiverSource 120/20 Contrarian 10/18/07 Yes
Equity Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Recovery and 2/19/09 No
Infrastructure Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 5/18/06 No
2010 Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 5/18/06 No
2015 Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 5/18/06 No
2020 Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 5/18/06 No
2025 Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 5/18/06 No
2030 Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 5/18/06 No
2035 Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 5/18/06 No
2040 Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Retirement Plus 5/18/06 No
2045 Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE SHORT TERM 4/23/68, 6/13/86(1) Corporation NV/MN 7/31
INVESTMENTS SERIES, INC.(15)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Short-Term Cash 9/26/06 Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE SPECIAL TAX-EXEMPT 4/7/86 Business Trust MA 8/31(10)
SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 152
<Table>
<Caption>
FISCAL
DATE OF DATE BEGAN FORM OF STATE OF YEAR
FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED**
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Minnesota Tax- 8/18/86 No
Exempt Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource New York Tax- 8/18/86 No
Exempt Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE STRATEGIC 10/9/84 Corporation MN 9/30
ALLOCATION SERIES, INC.(2)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Strategic 1/23/85 Yes
Allocation Fund(4)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Strategic Income 5/17/07 Yes
Allocation Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE STRATEGY SERIES, 1/24/84 Corporation MN 3/31
INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Equity Value Fund 5/14/84 Yes
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners Small 1/24/01 Yes
Cap Growth Fund(11)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Small Cap 5/4/99 Yes
Advantage Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT INCOME 12/21/78; 6/13/86(1) Corporation NV/MN 11/30
SERIES, INC.(2)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Tax-Exempt High 5/7/79 Yes
Income Fund(4)
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT MONEY 2/29/80, 6/13/86(1) Corporation NV/MN 12/31
MARKET SERIES, INC.(2)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Tax-Exempt Money 8/5/80 Yes
Market Fund(4)
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE TAX-EXEMPT SERIES, 9/30/76, 6/13/86(1) Corporation NV/MN 11/30
INC.
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Intermediate Tax- 11/13/96 Yes
Exempt Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Tax-Exempt Bond 11/24/76 Yes
Fund
- -----------------------------------------------------------------------------------------------------------------------
RIVERSOURCE VARIABLE SERIES 9/07 Business Trust MA 12/31
TRUST(12)
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Asset Allocation 5/1/08 Yes
Portfolios - Aggressive
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Asset Allocation 5/1/08 Yes
Portfolios - Conservative
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Asset Allocation 5/1/08 Yes
Portfolios - Moderate
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Asset Allocation 5/1/08 Yes
Portfolios - Moderately
Aggressive
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Asset Allocation 5/1/08 Yes
Portfolios - Moderately
Conservative
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners Variable 5/1/06 Yes
Portfolio - Fundamental
Value Fund(11)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners Variable 2/4/04 Yes
Portfolio - Select Value
Fund(11)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Partners Variable 8/14/01 Yes
Portfolio - Small Cap Value
Fund(11)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 4/30/86 Yes
Portfolio - Balanced Fund(4)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 10/31/81 Yes
Portfolio - Cash Management
Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 9/10/04 Yes
Portfolio - Core Equity Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 10/13/81 Yes
Portfolio - Diversified Bond
Fund(3)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 9/15/99 Yes
Portfolio - Diversified
Equity Income Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 5/1/96 No
Portfolio - Global Bond Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 9/13/04 No
Portfolio - Global Inflation
Protected Securities
Fund(13)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 9/15/99 Yes
Portfolio - Growth Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 5/1/96 Yes
Portfolio - High Yield Bond
Fund(3)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 6/1/04 Yes
Portfolio - Income
Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 10/13/81 Yes
Portfolio - Large Cap Equity
Fund(5)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 02/4/04 Yes
Portfolio - Large Cap Value
Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 5/1/01 Yes
Portfolio - Mid Cap Growth
Fund(4)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 5/2/05 Yes
Portfolio - Mid Cap Value
Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 5/1/00 Yes
Portfolio - S&P 500 Index
Fund
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 9/15/99 Yes
Portfolio - Short Duration
U.S. Government Fund(3)
- -----------------------------------------------------------------------------------------------------------------------
RiverSource Variable 9/15/99 Yes
Portfolio - Small Cap
Advantage Fund
- -----------------------------------------------------------------------------------------------------------------------
Threadneedle Variable 5/1/00 Yes
Portfolio - Emerging Markets
Fund(4),(5),(11)
- -----------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 153
<Table>
<Caption>
FISCAL
DATE OF DATE BEGAN FORM OF STATE OF YEAR
FUND* ORGANIZATION OPERATIONS ORGANIZATION ORGANIZATION END DIVERSIFIED**
- -----------------------------------------------------------------------------------------------------------------------
Threadneedle Variable 1/13/92 Yes
Portfolio - International
Opportunity Fund(4),(5),(11)
- -----------------------------------------------------------------------------------------------------------------------
</Table>
* Effective Oct. 1, 2005 American Express Funds changed its name to
RiverSource funds and the names Threadneedle and Partners were removed
from fund names.
** If a Non-diversified fund is managed as if it were a diversified fund
for a period of three years, its status under the 1940 Act will convert
automatically from Non-diversified to diversified. A diversified fund
may convert to Non-diversified status only with shareholder approval.
(1) Date merged into a Minnesota corporation incorporated on April 7, 1986.
(2) Effective April 21, 2006, AXP Discovery Series, Inc. changed its name
to RiverSource Bond Series, Inc.; AXP Fixed Income Series, Inc. changed
its name to RiverSource Diversified Income Series, Inc.; AXP Growth
Series, Inc. changed its name to RiverSource Large Cap Series, Inc.;
AXP High Yield Tax-Exempt Series, Inc. changed its name to RiverSource
Tax-Exempt Income Series, Inc.; AXP Managed Series, Inc. changed its
name to RiverSource Strategic Allocation Series, Inc.; AXP Partners
International Series, Inc. changed its name to RiverSource
International Managers Series, Inc.; AXP Partners Series, Inc. changed
its name to RiverSource Managers Series, Inc.; AXP Tax-Free Money
Series, Inc. changed its name to RiverSource Tax-Exempt Money Market
Series, Inc.; and for all other corporations and business trusts, AXP
was replaced with RiverSource in the registrant name.
(3) Effective June 27, 2003, Bond Fund changed its name to Diversified Bond
Fund, Federal Income Fund changed its name to Short Duration U.S.
Government Fund and Extra Income Fund changed its name to High Yield
Bond Fund, Variable Portfolio - Bond Fund changed its name to Variable
Portfolio - Diversified Bond Fund, Variable Portfolio - Extra Income
Fund changed its name to Variable Portfolio - High Yield Bond Fund and
Variable Portfolio - Federal Income Fund changed its name to Variable
Portfolio - Short Duration U.S. Government Fund.
(4) Effective Oct. 1, 2005, Equity Select Fund changed its name to Mid Cap
Growth Fund, High Yield Tax-Exempt Fund changed its name to Tax-Exempt
High Income Fund, Managed Allocation Fund changed its name to Strategic
Allocation Fund, Mutual changed its name to Balanced Fund, Partners
Growth Fund changed its name to Fundamental Growth Fund, Partners
International Core Fund changed its name to International Equity Fund,
Partners Small Cap Core Fund changed its name to Small Cap Equity Fund,
Quantitative Large Cap Equity Fund changed its name to Disciplined
Equity Fund, Tax-Free Money Fund changed its name to Tax-Exempt Money
Market Fund, and Threadneedle International Fund changed its name to
International Opportunity Fund. Variable Portfolio - Equity Select Fund
changed its name to Variable Portfolio - Mid Cap Growth Fund, Variable
Portfolio - Threadneedle Emerging Markets Fund changed its name to
Variable Portfolio - Emerging Markets Fund, Variable
Portfolio - Threadneedle International Fund changed its name to
Variable Portfolio - International Opportunity Fund, and Variable
Portfolio - Managed Fund changed its name to Variable
Portfolio - Balanced Fund.
(5) Effective July 9, 2004, Emerging Markets Fund changed its name to
Threadneedle Emerging Markets Fund, European Equity Fund changed its
name to Threadneedle European Equity Fund, Global Equity Fund changed
its name to Threadneedle Global Equity Fund, and International Fund
changed its name to Threadneedle International Fund, Variable
Portfolio - Capital Resource Fund changed its name to Variable
Portfolio - Large Cap Equity Fund, Variable Portfolio - Emerging
Markets Fund changed its name to Variable Portfolio - Threadneedle
Emerging Markets Fund and Variable Portfolio - International Fund
changed its name to Variable Portfolio - Threadneedle International
Fund.
(6) Effective Oct. 20, 2003, Global Growth Fund changed its name to Global
Equity Fund.
(7) Effective Jan. 31, 2008, the fiscal year end was changed from May 31 to
Jan. 31.
(8) Effective Feb. 18, 2004, Utilities Fund changed its name to Dividend
Opportunity Fund.
(9) Effective Nov. 1, 2006, Precious Metals Fund changed its name to
Precious Metals and Mining Fund.
(10) Effective April 13, 2006, the fiscal year end was changed from June 30
to Aug. 31.
(11) Effective March 31, 2008, RiverSource Emerging Markets Fund changed its
name to Threadneedle Emerging Markets Fund; RiverSource Global Equity
Fund changed its name to Threadneedle Global Equity Fund; RiverSource
European Equity Fund changed its name to Threadneedle European Equity
Fund; RiverSource International Opportunity Fund changed its name to
Threadneedle International Opportunity Fund; RiverSource International
Aggressive Growth Fund changed its name to RiverSource Partners
International Select Growth Fund; RiverSource International Select
Value Fund changed its name to RiverSource Partners International
Select Value Fund; RiverSource International Small Cap Fund changed its
name to RiverSource Partners International Small Cap Fund; RiverSource
Aggressive Growth Fund changed its name to RiverSource Partners
Aggressive Growth Fund; RiverSource Fundamental Value Fund changed its
name to RiverSource Partners Fundamental Value Fund; RiverSource Select
Value Fund changed its name to RiverSource Partners Select Value Fund;
RiverSource Small Cap Equity Fund changed its name to RiverSource
Partners Small Cap Equity Fund; RiverSource Small Cap Value Fund
changed its name to RiverSource Partners Small Cap Value Fund;
RiverSource Small Cap Growth Fund changed its name to RiverSource
Partners Small Cap Growth Fund; RiverSource Variable
Portfolio - Fundamental Value Fund changed its name to RiverSource
Partners Variable Portfolio - Fundamental Value Fund; RiverSource
Variable Portfolio - Select Value Fund changed its name to RiverSource
Partners Variable Portfolio - Select Value Fund; and RiverSource
Variable Portfolio - Small Cap Value Fund changed its name to
RiverSource Partners Variable Portfolio - Small Cap Value Fund.
(12) Prior to January 2008, the assets of the funds in RiverSource Variable
Series Trust were held by funds organized under six separate Minnesota
Corporations.
(13) Effective June 8, 2005, Variable Portfolio - Inflation Protected
Securities Fund changed its name to Variable Portfolio - Global
Inflation Protected Securities Fund.
(14) Prior to September 11, 2007, RiverSource Series Trust was known as
RiverSource Retirement Series Trust.
(15) Prior to April 21, 2006, RiverSource Short Term Investments Series,
Inc. was known as AXP Stock Series, Inc.
Statement of Additional Information - April 1, 2009 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. The
RiverSource Family of Funds each member oversees consists of 162 funds, which
includes 104 RiverSource funds and 58 Seligman funds. Board members serve until
the next regular shareholders' meeting or until he or she reaches the mandatory
retirement age established by the Board. Under the current Board policy, members
may serve until the end of the meeting following their 75th birthday, or the
fifteenth anniversary of the first Board meeting they attended as members of the
Board, whichever occurs first. This policy does not apply to Ms. Jones who may
retire after her 75th birthday.
TABLE 26. BOARD MEMBERS
INDEPENDENT BOARD MEMBERS
<Table>
<Caption>
POSITION HELD
WITH FUNDS AND
LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE
NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS
- ----------------------------------------------------------------------------------------------------------------------
Kathleen Blatz 901 S. Board member Chief Justice, Minnesota None Board Governance,
Marquette Ave. since 2006 Supreme Court, 1998-2006; Compliance,
Minneapolis, MN 55402 Attorney Investment Review,
Age 54 Joint Audit
- ----------------------------------------------------------------------------------------------------------------------
Arne H. Carlson 901 S. Board member Chair, RiverSource Family of None Board Governance,
Marquette Ave. since 1999 Funds, 1999-2006; former Compliance,
Minneapolis, MN 55402 Governor of Minnesota Contracts,
Age 74 Executive,
Investment Review
- ----------------------------------------------------------------------------------------------------------------------
Pamela G. Carlton 901 Board member President, Springboard-Partners None Distribution,
S. Marquette Ave. since 2007 in Cross Cultural Leadership Investment Review,
Minneapolis, MN 55402 (consulting company) Joint Audit
Age 54
- ----------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn 901 Board member Trustee Professor of Economics None Board Governance,
S. Marquette Ave. since 2004 and Management, Bentley Contracts,
Minneapolis, MN 55402 College; former Dean, McCallum Investment Review
Age 58 Graduate School of Business,
Bentley College
- ----------------------------------------------------------------------------------------------------------------------
Anne P. Jones 901 S. Board member Attorney and Consultant None Board Governance,
Marquette Ave. since 1985 Compliance,
Minneapolis, MN 55402 Executive,
Age 74 Investment Review,
Joint Audit
- ----------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member Former Managing Director, American Progressive Distribution,
901 S. Marquette Ave. since 2005 Shikiar Asset Management Insurance Executive,
Minneapolis, MN 55402 Investment Review,
Age 73 Joint Audit
- ----------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Chair of the President Emeritus and Valmont Industries, Board Governance,
901 S. Marquette Ave. Board since Professor of Economics, Inc. (manufactures Compliance,
Minneapolis, MN 55402 2007, Board Carleton College irrigation systems) Contracts,
Age 70 member since Executive,
2002 Investment Review
- ----------------------------------------------------------------------------------------------------------------------
John F. Maher Board member Retired President and Chief None Distribution,
901 S. Marquette Ave. since 2008 Executive Officer and former Investment Review,
Minneapolis, MN 55402 Director, Great Western Joint Audit
Age 64 Financial Corporation
(financial services), 1986-1997
- ----------------------------------------------------------------------------------------------------------------------
Catherine James Paglia Board member Director, Enterprise Asset None Board Governance,
901 S. Marquette Ave. since 2004 Management, Inc. (private real Compliance,
Minneapolis, MN 55402 estate and asset management Contracts,
Age 56 company) Executive,
Investment Review
- ----------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 155
<Table>
<Caption>
POSITION HELD
WITH FUNDS AND
LENGTH OF PRINCIPAL OCCUPATION OTHER COMMITTEE
NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS MEMBERSHIPS
- ----------------------------------------------------------------------------------------------------------------------
Leroy C. Richie Board member Counsel, Lewis & Munday, P.C. Digital Ally, Inc. Contracts,
901 S. Marquette Ave. since 2008 since 1987; Vice President and (digital imaging); Distribution,
Minneapolis, MN 55402 General Counsel, Automotive Infinity, Inc. (oil Investment Review
Age 66 Legal Affairs, Chrysler and gas exploration
Corporation, 1990-1997 and production); OGE
Energy Corp. (energy
and energy services)
- ----------------------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member Chief Executive Officer and Idera Pharmaceuticals, Contracts,
901 S. Marquette Ave. since 2002 Director, RiboNovix, Inc. since Inc. (biotechnology); Distribution,
Minneapolis, MN 55402 2003 (biotechnology); former Healthways, Inc. Executive,
Age 64 President, Forester Biotech (health management Investment Review
programs)
- ----------------------------------------------------------------------------------------------------------------------
</Table>
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
POSITION HELD
WITH FUNDS AND
LENGTH OF PRINCIPAL OCCUPATION COMMITTEE
NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS OTHER DIRECTORSHIPS MEMBERSHIPS
- --------------------------------------------------------------------------------------------------------------------------------
William F. Truscott Board member President - U.S. Asset Management and None None
53600 Ameriprise Financial since 2001, Vice Chief Investment Officer, Ameriprise
Center President since Financial, Inc. since 2005; President,
Minneapolis, MN 55474 2002 Chairman of the Board and Chief
Age 48 Investment Officer, RiverSource
Investments, LLC since 2001; Director,
President and Chief Executive Officer,
Ameriprise Certificate Company since
2006; Chairman of the Board and Chief
Executive Officer, RiverSource
Distributors, Inc. since 2006 and of
RiverSource Fund Distributors, Inc.
since 2008; and Senior Vice
President - Chief Investment Officer,
Ameriprise Financial, Inc., 2001-2005
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security
holder and/or employee of RiverSource Investments or Ameriprise
Financial.
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
fund's other officers are:
TABLE 27. FUND OFFICERS
<Table>
<Caption>
POSITION HELD
WITH FUNDS AND
LENGTH OF PRINCIPAL OCCUPATION
NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------
Patrick T. Bannigan President since Director and Senior Vice President - Asset
172 Ameriprise Financial Center 2006 Management, Products and Marketing,
Minneapolis, MN 55474 RiverSource Investments, LLC and Director and
Age 43 Vice President - Asset Management, Products
and Marketing, RiverSource Distributors, Inc.
since 2006 and of RiverSource Fund
Distributors, Inc. since 2008; Managing
Director and Global Head of Product, Morgan
Stanley Investment Management, 2004-2006;
President, Touchstone Investments, 2002-2004
- --------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed
172 Ameriprise Financial Center since 2004 Income, Ameriprise Financial, Inc. and
Minneapolis, MN 55474 RiverSource Investments, LLC since 2006; Vice
Age 44 President - Investments, Ameriprise
Certificate Company since 2003; Senior Vice
President - Fixed Income, Ameriprise
Financial, Inc., 2002-2006 and RiverSource
Investments, LLC, 2004-2006
- --------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 156
<Table>
<Caption>
POSITION HELD
WITH FUNDS AND
LENGTH OF PRINCIPAL OCCUPATION
NAME, ADDRESS, AGE SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------
Amy K. Johnson Vice President Vice President - Asset Management and Trust
5228 Ameriprise Financial Center since 2006 Company Services, RiverSource Investments, LLC
Minneapolis, MN 55474 since 2006; Vice President - Operations and
Age 43 Compliance, RiverSource Investments, LLC,
2004-2006; Director of Product
Development - Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
- --------------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since Vice President - Investment Accounting,
105 Ameriprise Financial Center 2002 Ameriprise Financial, Inc. since 2002; Chief
Minneapolis, MN 55474 Financial Officer, RiverSource Distributors,
Age 53 Inc. since 2006
- --------------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel - Asset
5228 Ameriprise Financial Center General Counsel Management, Ameriprise Financial, Inc. since
Minneapolis, MN 55474 and Secretary 2005; Chief Counsel, RiverSource Distributors,
Age 49 since 2006 Inc. and Chief Legal Officer and Assistant
Secretary, RiverSource Investments, LLC since
2006; Chief Counsel, RiverSource Fund
Distributors, Inc. since 2008; Vice President,
General Counsel and Secretary, Ameriprise
Certificate Company since 2005; Vice
President - Asset Management Compliance,
Ameriprise Financial, Inc., 2004-2005; Senior
Vice President and Chief Compliance Officer,
USBancorp Asset Management, 2002-2004
- --------------------------------------------------------------------------------------------------
Eleanor T.M. Hoagland Chief Compliance Chief Compliance Officer, RiverSource
100 Park Avenue Officer since Investments, LLC, Kenwood Capital Management
New York, NY 10010 2009 LLC, Ameriprise Certificate Company,
Age 57 RiverSource Service Corporation and Seligman
Data Corp. since 2009; Chief Compliance
Officer for each of the Seligman funds since
2004 and all funds in the RiverSource Family
of Funds since 2009; Anti Money Laundering
Prevention Officer and Identity Theft
Prevention Officer for each of the Seligman
funds since 2008; Managing Director, J. & W.
Seligman & Co. Incorporated and Vice-President
for each of the Seligman funds, 2004-2008.
- --------------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering
2934 Ameriprise Financial Center Prevention Officer, Ameriprise Financial, Inc. since
Minneapolis, MN 55474 Officer since 2004; Manager Anti-Money Laundering,
Age 45 2004 Ameriprise Financial, Inc., 2003-2004;
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 Family
of 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.
Statement of Additional Information - April 1, 2009 Page 157
COMPLIANCE COMMITTEE -- Supports the Funds' maintenance of a strong compliance
program by providing a forum for independent Board members to consider
compliance matters impacting the Funds or their key service providers;
developing and implementing, in coordination with the Funds' Chief Compliance
Officer (CCO), a process for the review and consideration of compliance reports
that are provided to the Boards; and providing a designated forum for the Funds'
CCO to meet with independent Board members on a regular basis to discuss
compliance matters.
CONTRACTS COMMITTEE -- Reviews and oversees the contractual relationships with
service providers. Receives and analyzes reports covering the level and quality
of services provided under contracts with the fund and advises the Board
regarding actions taken on these contracts during the annual review process.
DISTRIBUTION COMMITTEE -- Reviews and supports product development, marketing,
sales activity and practices related to the funds and will report to the Board
as appropriate.
EXECUTIVE COMMITTEE -- Acts for the Board between meetings of the Board.
INVESTMENT REVIEW COMMITTEE -- Reviews and oversees the management of the Funds'
assets. Considers investment management policies and strategies; investment
performance; risk management techniques; and securities trading practices and
reports areas of concern to the Board.
JOINT AUDIT COMMITTEE -- Oversees the accounting and financial reporting
processes of the Funds and internal controls over financial reporting. Oversees
the quality and integrity of the Funds' financial statements and independent
audits as well as the Funds' compliance with legal and regulatory requirements
relating to the Funds' accounting and financial reporting, internal controls
over financial reporting and independent audits. The committee also makes
recommendations regarding the selection of the Funds' independent auditor and
reviews and evaluates the qualifications, independence and performance of the
auditor.
This table shows the number of times the committees met during each fund's most
recent fiscal period. The table is organized by fiscal year end. You can find
your fund's fiscal year end in Table 1.
TABLE 28. COMMITTEE MEETINGS
<Table>
<Caption>
BOARD INVESTMENT JOINT
GOVERNANCE COMPLIANCE CONTRACTS DISTRIBUTION EXECUTIVE REVIEW AUDIT
FISCAL PERIOD COMMITTEE COMMITTEE COMMITTEE COMMITTEE* COMMITTEE COMMITTEE COMMITTEE
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 5 6 3 3 5 5
January 31
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 1 6 N/A 2 5 6
March 31
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending 6 5 6 N/A 1 5 6
April 30
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending 6 5 6 0 1 5 5
May 31
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending 7 6 7 1 1 6 6
June 30
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending 6 5 6 1 1 5 5
July 31
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending 6 5 6 1 1 5 5
August 31
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending 6 5 6 2 1 5 5
September 30
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending 6 5 6 2 2 5 5
October 31
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending 6 5 6 3 2 5 5
November 30
- -----------------------------------------------------------------------------------------------------------------------
For funds with fiscal period ending 5 5 6 3 3 5 5
December 31
- -----------------------------------------------------------------------------------------------------------------------
</Table>
* Committee established April 2008.
Statement of Additional Information - April 1, 2009 Page 158
BOARD MEMBER HOLDINGS
The following table shows the Board members' dollar range of equity securities
beneficially owned on Dec. 31, 2008 of each individual fund owned by a Board
member, and the aggregate dollar range of equity securities of all funds
overseen by the Board members.
TABLE 29. BOARD MEMBER HOLDINGS
Based on net asset values as of Dec. 31, 2008:
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES OF ALL
DOLLAR RANGE OF EQUITY FUNDS OVERSEEN
BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER
- ---------------------------------------------------------------------------------------------------------------------------------
Kathleen Blatz Absolute Return Currency and Income $10,001-$50,000 Over $100,000
------------------------------------------------------------------------
Dividend Opportunity Over $100,000
------------------------------------------------------------------------
Partners Small Cap Growth $10,001-$50,000
------------------------------------------------------------------------
Partners Small Cap Value $10,001-$50,000
------------------------------------------------------------------------
Precious Metals and Mining $10,001-$50,000
------------------------------------------------------------------------
Real Estate $10,001-$50,000
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $0-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $0-$10,000
------------------------------------------------------------------------
Strategic Allocation Over $100,000
------------------------------------------------------------------------
Threadneedle Emerging Markets $10,001-$50,000
------------------------------------------------------------------------
Threadneedle International Opportunity $50,001-$100,000
------------------------------------------------------------------------
Tri-Continental Corporation $0-$10,000
- ---------------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Cash Management $10,001-$50,000 Over $100, 000
------------------------------------------------------------------------
Disciplined Equity $10,001-$50,000
------------------------------------------------------------------------
Disciplined International Equity $10,001-$50,000
------------------------------------------------------------------------
Dividend Opportunity $10,001-$50,000
------------------------------------------------------------------------
Partners International Select Value $0-$10,000
------------------------------------------------------------------------
Portfolio Builder Moderate $50,001-$100,000
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $0-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $0-$10,000
------------------------------------------------------------------------
Strategic Allocation $10,001-$50,000
------------------------------------------------------------------------
Tri-Continental Corporation $0-$10,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pamela G. Carlton Absolute Return Currency and Income $0-$10,000 $50,001-$100,000
------------------------------------------------------------------------
Diversified Equity Income $10,001-$50,000
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $0-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $0-$10,000
------------------------------------------------------------------------
Short Duration U.S. Government $50,001-$100,000
------------------------------------------------------------------------
Threadneedle Emerging Markets $0-$10,000
------------------------------------------------------------------------
Threadneedle Global Equity $0-$10,000
------------------------------------------------------------------------
Tri-Continental Corporation $0-$10,000
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 159
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES OF ALL
DOLLAR RANGE OF EQUITY FUNDS OVERSEEN
BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER
- ---------------------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn Growth* $10,001-$50,000 Over $100,000**
------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive* $50,001-$100,000
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $0-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $0-$10,000
------------------------------------------------------------------------
Strategic Allocation* Over $100,000
------------------------------------------------------------------------
Tri-Continental Corporation $10,001-$50,000
- ---------------------------------------------------------------------------------------------------------------------------------
Anne P. Jones Disciplined Equity $10,001-$50,000 Over $100,000
------------------------------------------------------------------------
Diversified Bond $10,001-$50,000
------------------------------------------------------------------------
Diversified Equity Income $10,001-$50,000
------------------------------------------------------------------------
Global Bond Over $100,000
------------------------------------------------------------------------
Growth $0-$10,000
------------------------------------------------------------------------
High Yield Bond Over $100,000
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $0-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $0-$10,000
------------------------------------------------------------------------
Short Duration U.S. Government Over $100,000
------------------------------------------------------------------------
Small Company Index Over $100,000
------------------------------------------------------------------------
Strategic Allocation $50,001-$100,000
------------------------------------------------------------------------
Threadneedle Global Equity $10,001-$50,000
------------------------------------------------------------------------
Tri-Continental Corporation $0-$10,000
- ---------------------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind Cash Management Over $100,000 Over $100,000
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $0-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $0-$10,000
------------------------------------------------------------------------
Tri-Continental Corporation $0-$10,000
- ---------------------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. 120/20 Contrarian Equity $10,001-$50,000 Over $100,000**
------------------------------------------------------------------------
Absolute Return Currency and Income $10,001-$50,000
------------------------------------------------------------------------
Disciplined Large Cap Growth $10,001-$50,000
------------------------------------------------------------------------
Diversified Equity Income Over $100,000
------------------------------------------------------------------------
Dividend Opportunity $10,001-$50,000
------------------------------------------------------------------------
Mid Cap Growth $0-$10,000
------------------------------------------------------------------------
Portfolio Builder Total Equity $10,001-$50,000
------------------------------------------------------------------------
Seligman Communications and Information $10,001-$50,000
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $0-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $0-$10,000
------------------------------------------------------------------------
Strategic Allocation $10,001-$50,000
------------------------------------------------------------------------
Threadneedle Emerging Markets $10,001-$50,000
------------------------------------------------------------------------
Threadneedle Global Equity Income $10,001-$50,000
------------------------------------------------------------------------
Threadneedle International Opportunity $50,001-$100,000
------------------------------------------------------------------------
Tri-Continental Corporation $0-$10,000
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 160
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES OF ALL
DOLLAR RANGE OF EQUITY FUNDS OVERSEEN
BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER
- ---------------------------------------------------------------------------------------------------------------------------------
John F. Maher Equity Value $0-$10,000 Over $100,000**
------------------------------------------------------------------------
Seligman Capital $10,001-$50,000
------------------------------------------------------------------------
Seligman Common Stock $0-$10,000
------------------------------------------------------------------------
Seligman Communications and Information $10,001-$50,000
------------------------------------------------------------------------
Seligman Core Fixed Income $0-$10,000
------------------------------------------------------------------------
Seligman Emerging Markets $0-$10,000
------------------------------------------------------------------------
Seligman Frontier $10,001-$50,000
------------------------------------------------------------------------
Seligman Global Growth $0-$10,000
------------------------------------------------------------------------
Seligman Global Smaller Companies $0-$10,000
------------------------------------------------------------------------
Seligman Global Technology $0-$10,000
------------------------------------------------------------------------
Seligman Growth $0-$10,000
------------------------------------------------------------------------
Seligman High-Yield $0-$10,000
------------------------------------------------------------------------
Seligman Income and Growth $0-$10,000
------------------------------------------------------------------------
Seligman International Growth $10,001-$50,000
------------------------------------------------------------------------
Seligman Large-Cap Value $10,001-$50,000
------------------------------------------------------------------------
Seligman LaSalle Global Real Estate $10,001-$50,000
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $0-$10,000
------------------------------------------------------------------------
Seligman LaSalle Monthly Dividend Real $0-$10,000
Estate
------------------------------------------------------------------------
Seligman National Municipal $0-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $0-$10,000
------------------------------------------------------------------------
Seligman Smaller-Cap Value $0-$10,000
------------------------------------------------------------------------
Seligman U.S. Government Securities $0-$10,000
------------------------------------------------------------------------
Tri-Continental Corporation $50,001-$100,000
- ---------------------------------------------------------------------------------------------------------------------------------
Catherine James Paglia Cash Management Over $100,000 Over $100,000**
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $0-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $0-$10,000
------------------------------------------------------------------------
Threadneedle Global Equity Over $100,000
------------------------------------------------------------------------
Tri-Continental Corporation $0-$10,000
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 161
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES OF ALL
DOLLAR RANGE OF EQUITY FUNDS OVERSEEN
BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER
- ---------------------------------------------------------------------------------------------------------------------------------
Leroy C. Richie Seligman Capital $0-$10,000 Over $100,000
------------------------------------------------------------------------
Seligman Common Stock $0-$10,000
------------------------------------------------------------------------
Seligman Communications and Information $0-$10,000
------------------------------------------------------------------------
Seligman Core Fixed Income $0-$10,000
------------------------------------------------------------------------
Seligman Emerging Markets $0-$10,000
------------------------------------------------------------------------
Seligman Frontier $0-$10,000
------------------------------------------------------------------------
Seligman Global Growth $0-$10,000
------------------------------------------------------------------------
Seligman Global Smaller Companies $0-$10,000
------------------------------------------------------------------------
Seligman Global Technology $0-$10,000
------------------------------------------------------------------------
Seligman Growth $0-$10,000
------------------------------------------------------------------------
Seligman High-Yield $0-$10,000
------------------------------------------------------------------------
Seligman Income and Growth $0-$10,000
------------------------------------------------------------------------
Seligman International Growth $0-$10,000
------------------------------------------------------------------------
Seligman Large-Cap Value $0-$10,000
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $0-$10,000
------------------------------------------------------------------------
Seligman Michigan Municipal $0-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $0-$10,000
------------------------------------------------------------------------
Seligman Smaller-Cap Value $0-$10,000
------------------------------------------------------------------------
Seligman U.S. Government Securities $0-$10,000
------------------------------------------------------------------------
Tri-Continental Corporation Over $100,000
- ---------------------------------------------------------------------------------------------------------------------------------
Alison Taunton Rigby 120/20 Contrarian Equity $10,001-$50,000 Over $100,000
------------------------------------------------------------------------
Absolute Return Currency and Income $50,001-$100,000
------------------------------------------------------------------------
Cash Management Over $100,000
------------------------------------------------------------------------
Diversified Equity Income $10,001-$50,000
------------------------------------------------------------------------
Growth $50,001-$100,000
------------------------------------------------------------------------
Income Builder Enhanced Income Over 100,000
------------------------------------------------------------------------
Mid Cap Value $10,001-$50,000
------------------------------------------------------------------------
Partners International Select Growth $50,001-$100,000
------------------------------------------------------------------------
Partners Small Cap Value $10,001-$50,000
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $1-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $1-$10,000
------------------------------------------------------------------------
Strategic Allocation $50,001-$100,000
------------------------------------------------------------------------
Threadneedle Emerging Markets $50,001-$100,000
------------------------------------------------------------------------
Tri Continental Corporation $1-$10,000
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 162
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES OF ALL
DOLLAR RANGE OF EQUITY FUNDS OVERSEEN
BOARD MEMBER(A) FUND SECURITIES IN THE FUND BY BOARD MEMBER
- ---------------------------------------------------------------------------------------------------------------------------------
William F. Truscott 120/20 Contrarian Equity $10,001-$50,000 Over $100,000
------------------------------------------------------------------------
Absolute Return Currency and Income $50,001-$100,000
------------------------------------------------------------------------
Cash Management $0-$10,000
------------------------------------------------------------------------
Disciplined Equity Over $100,000
------------------------------------------------------------------------
Disciplined International Equity Over $100,000
------------------------------------------------------------------------
Disciplined Small and Mid Cap Equity $10,001-$50,000
------------------------------------------------------------------------
Diversified Bond Over $100,000
------------------------------------------------------------------------
Dividend Opportunity Over $100,000
------------------------------------------------------------------------
Emerging Markets Bond $10,001-$50,000
------------------------------------------------------------------------
Floating Rate Over $100,000
------------------------------------------------------------------------
Global Bond Over $100,000
------------------------------------------------------------------------
Global Technology $10,001-$50,000
------------------------------------------------------------------------
Growth $50,001- $100,000
------------------------------------------------------------------------
High Yield Bond $10,001-$50,000
------------------------------------------------------------------------
Income Opportunities $50,001- $100,000
------------------------------------------------------------------------
Inflation Protected Securities $10,001-$50,000
------------------------------------------------------------------------
Mid Cap Value $50,001-$100,000
------------------------------------------------------------------------
Partners International Select Growth Over $100,000
------------------------------------------------------------------------
Partners International Select Value $10,001-$50,000
------------------------------------------------------------------------
Partners Small Cap Equity Over $100,000
------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive $50,001-$100,000
------------------------------------------------------------------------
Retirement Plus 2035 $10,001-$50,000
------------------------------------------------------------------------
Seligman LaSalle International Real Estate $0-$10,000
------------------------------------------------------------------------
Seligman Select Municipal $0-$10,000
------------------------------------------------------------------------
Strategic Allocation Over $100,000
------------------------------------------------------------------------
Strategic Income Allocation Over $100,000
------------------------------------------------------------------------
Threadneedle Emerging Markets $0-$10,000
------------------------------------------------------------------------
Threadneedle Global Equity Over $100,000
------------------------------------------------------------------------
Tri-Continental Corporation $0-$10,000
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
* Deferred compensation invested in share equivalents:
<Table>
A. Flynn Growth............................... $10,001-$50,000
Portfolio Builder Moderate $50,001-$100,000
Aggressive...........................
Strategic Allocation................. Over $100,000
B. Lewis Absolute Return Currency and Income.. $10,001-$50,000
Disciplined Large Cap Growth......... $10,001-$50,000
Diversified Equity Income............ $50,001-$100,000
Portfolio Builder Total Equity....... $10,001-$50,000
Threadneedle Emerging Markets........ $10,001-$50,000
Threadneedle International $50,001-$100,000
Opportunity..........................
</Table>
Statement of Additional Information - April 1, 2009 Page 163
<Table>
C. Maher Equity Value......................... $0-$10,000
Seligman Capital..................... $0-$10,000
Seligman Communications & $10,001-$50,000
Information..........................
Seligman Frontier.................... $10,001-$50,000
Seligman International Growth........ $0-$10,000
Seligman Large-Cap Value............. $10,001-$50,000
Seligman LaSalle Global Real Estate.. $0-$10,000
Tri-Continental Corporation.......... $10,001-$50,000
D. Paglia Threadneedle Global Equity........... Over $100,000
</Table>
** Total includes deferred compensation invested in share equivalents.
As of 30 days prior to the date of this SAI, the Board members and officers as a
group owned 1.54% of RiverSource Retirement Plus 2035 Fund Class A. The Board
members and officers as a group owned less than 1% of the outstanding shares of
any class of any other fund in the RiverSource Family of Funds.
Statement of Additional Information - April 1, 2009 Page 164
COMPENSATION OF BOARD MEMBERS
TOTAL COMPENSATION. The following table shows the total compensation paid to
independent Board members from all the funds in the last fiscal period.
TABLE 30. BOARD MEMBER COMPENSATION - ALL FUNDS
<Table>
<Caption>
TOTAL CASH COMPENSATION FROM
BOARD MEMBER(a) FUNDS PAID TO BOARD MEMBER
- ----------------------------------------------------------------------------------------------
Kathleen Blatz $177,500
- ----------------------------------------------------------------------------------------------
Arne H. Carlson 180,000
- ----------------------------------------------------------------------------------------------
Pamela G. Carlton 165,000(b)
- ----------------------------------------------------------------------------------------------
Patricia M. Flynn 167,500(b)
- ----------------------------------------------------------------------------------------------
Anne P. Jones 177,500
- ----------------------------------------------------------------------------------------------
Jeffrey Laikind 165,000
- ----------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. 400,000(b)
- ----------------------------------------------------------------------------------------------
John F. Maher 30,833(c)
- ----------------------------------------------------------------------------------------------
Catherine James Paglia 170,000(b)
- ----------------------------------------------------------------------------------------------
Leroy Richie 48,750
- ----------------------------------------------------------------------------------------------
Alison Taunton-Rigby 167,500
- ----------------------------------------------------------------------------------------------
</Table>
(a) Board member compensation is a combination of a base fee and meeting
fees, with the exception of the Chair of the Board, who receives a base
annual compensation. Payment of compensation is administered by a
company providing limited administrative services to the funds and to
the Board.
(b) Ms. Carlson, 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 $7,167, $78,625, $60,000, and $146,250 respectively. Amount
deferred by fund is set forth in Table 31. Additional information
regarding the deferred compensation plan is described below.
(c) The total compensation shown for Mr. Maher through Jan. 31, 2009 is for
both RiverSource and Seligman funds, however the portion he elected to
defer, in the amount of $19,208 was for Seligman funds only.
The independent Board members determine the amount of compensation that they
receive, including the amount paid to the Chair of the Board. In determining
compensation for the independent Board members, the independent Board members
take into account a variety of factors including, among other things, their
collective significant work experience (e.g., in business and finance,
government or academia). The independent Board members also recognize that these
individuals' advice and counsel are in demand by other organizations, that these
individuals may reject other opportunities because the time demands of their
duties as independent Board members, and that they undertake significant legal
responsibilities. The independent Board members also consider the compensation
paid to independent board members of other mutual fund complexes of comparable
size. In determining the compensation paid to the Chair, the independent Board
members take into account, among other things, the Chair's significant
additional responsibilities (e.g., setting the agenda for Board meetings,
communicating or meeting regularly with the Funds' Chief Compliance Officer,
Counsel to the independent Board members, and the Funds' service providers)
which result in a significantly greater time commitment required of the Board
Chair. The Chair's compensation, therefore, has generally been set at a level
between 2.5 and 3 times the level of compensation paid to other independent
Board members.
Effective Jan. 1, 2008, independent Board members will be paid an annual
retainer of $95,000. Committee and 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 2008, the Board's Chair will receive total annual cash
compensation of $400,000.
The independent Board members may elect to defer payment of up to 100% of the
compensation they receive in accordance with a Deferred Compensation Plan (the
Deferred Plan). Under the Deferred Plan, a Board member may elect to have his or
her deferred compensation treated as if they had been invested in shares of one
or more funds in the RiverSource Family of 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.
Statement of Additional Information - April 1, 2009 Page 165
COMPENSATION FROM EACH FUND. The following table shows the compensation paid to
independent Board members from each fund during its last fiscal period.
TABLE 31. BOARD MEMBER(A) COMPENSATION -- INDIVIDUAL FUNDS
<Table>
<Caption>
AGGREGATE COMPENSATION FROM FUND
--------------------------------------------------------------
FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND
- ---------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ---------------------------------------------------------------------------------------
Income Builder Basic * * * * * *
Income
- ---------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------
S&P 500 Index -- total $ 391 $ 398 $ 366 $ 375 $ 391 $ 364
Amount deferred 0 0 14 180 0 0
- ---------------------------------------------------------------------------------------
Small Company 1,310 1,331 1,225 1,254 1,310 1,220
Index -- total
Amount deferred 0 0 44 604 0 0
- ---------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ---------------------------------------------------------------------------------------
Equity Value -- total 2,226 2,074 1,485 2,150 2,118 2,085
Amount deferred 0 0 0 906 0 0
- ---------------------------------------------------------------------------------------
Partners Small Cap 365 340 244 352 347 341
Growth -- total
Amount deferred 0 0 0 149 0 0
- ---------------------------------------------------------------------------------------
Precious Metals and 238 225 167 231 228 223
Mining -- total
Amount deferred 0 0 0 99 0 0
- ---------------------------------------------------------------------------------------
Small Cap 826 760 515 793 783 773
Advantage -- total
Amount deferred 0 0 0 331 0 0
- ---------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ---------------------------------------------------------------------------------------
120/20 Contrarian 38 39 35 37 38 35
Equity -- total
Amount deferred 0 0 0 17 0 0
- ---------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------
High Yield 3,058 2,945 2,563 2,957 2,957 2,867
Bond -- total
Amount deferred 0 0 0 1,292 0 0
- ---------------------------------------------------------------------------------------
Partners Aggressive 1,110 1,075 944 1,075 1,075 1,040
Growth -- total
Amount deferred 0 0 0 474 0 0
- ---------------------------------------------------------------------------------------
Partners Fundamental 1,939 1,870 1,629 1,875 1,876 1,817
Value -- total
Amount deferred 0 0 0 822 0 0
- ---------------------------------------------------------------------------------------
Partners Select 929 893 776 898 898 871
Value -- total
Amount deferred 0 0 0 392 0 0
- ---------------------------------------------------------------------------------------
<Caption>
AGGREGATE COMPENSATION FROM FUND
--------------------------------------------------------
TAUNTON-
FUND LEWIS MAHER PAGLIA RICHIE RIGBY
- ---------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- ---------------------------------------------------------------------------------
Income Builder Basic * * * * *
Income
- ---------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------
S&P 500 Index -- total $ 903 $ 58 $ 380 $ 90 $ 371
Amount deferred 138 36 337 0 0
- ---------------------------------------------------------------------------------
Small Company 3,024 181 1,273 287 1,241
Index -- total
Amount deferred 462 111 1,140 0 0
- ---------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- ---------------------------------------------------------------------------------
Equity Value -- total 5,423 N/A 2,182 N/A 2,042
Amount deferred 1,436 N/A 2,182 N/A 0
- ---------------------------------------------------------------------------------
Partners Small Cap 891 N/A 358 N/A 335
Growth -- total
Amount deferred 235 N/A 358 N/A 0
- ---------------------------------------------------------------------------------
Precious Metals and 590 N/A 235 N/A 221
Mining -- total
Amount deferred 151 N/A 235 N/A 0
- ---------------------------------------------------------------------------------
Small Cap 1,992 N/A 802 N/A 750
Advantage -- total
Amount deferred 541 N/A 802 N/A 0
- ---------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- ---------------------------------------------------------------------------------
120/20 Contrarian 91 N/A 39 N/A 36
Equity -- total
Amount deferred 17 N/A 39 N/A 0
- ---------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------
High Yield 7,494 N/A 3,047 N/A 2,856
Bond -- total
Amount deferred 1,811 N/A 3,047 N/A 0
- ---------------------------------------------------------------------------------
Partners Aggressive 2,740 N/A 1,110 N/A 1,040
Growth -- total
Amount deferred 645 N/A 1,110 N/A 0
- ---------------------------------------------------------------------------------
Partners Fundamental 4,759 N/A 1,933 N/A 1,811
Value -- total
Amount deferred 1,139 N/A 1,933 N/A 0
- ---------------------------------------------------------------------------------
Partners Select 2,278 N/A 925 N/A 867
Value -- total
Amount deferred 554 N/A 925 N/A 0
- ---------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 166
<Table>
<Caption>
AGGREGATE COMPENSATION FROM FUND
--------------------------------------------------------------
FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND
- ---------------------------------------------------------------------------------------
Partners Small Cap $ 479 $ 460 $ 399 $ 462 $ 462 $ 449
Equity -- total
Amount deferred 0 0 0 202 0 0
- ---------------------------------------------------------------------------------------
Partners Small Cap 1,311 1,254 1,079 1,267 1,265 1,231
Value -- total
Amount deferred 0 0 0 548 0 0
- ---------------------------------------------------------------------------------------
Short Duration U.S.
Government -- total 1,483 1,441 1,262 1,437 1,438 1,389
Amount deferred 0 0 0 637 0 0
- ---------------------------------------------------------------------------------------
U.S. Government
Mortgage -- total 764 740 647 740 739 715
Amount deferred 0 0 0 326 0 0
- ---------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ---------------------------------------------------------------------------------------
Dividend
Opportunity -- total 3,796 3,733 3,404 3,690 3,679 3,520
Amount deferred 0 0 0 1,647 0 0
- ---------------------------------------------------------------------------------------
Real Estate -- total 441 433 394 428 428 409
Amount deferred 0 0 0 191 0 0
- ---------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ---------------------------------------------------------------------------------------
Cash 9,805 9,820 9,158 9,484 9,649 9,158
Management -- total
Amount deferred 0 0 0 4,371 0 0
- ---------------------------------------------------------------------------------------
Disciplined 6,153 6,157 5,746 5,947 6,054 5,746
Equity -- total
Amount deferred 0 0 0 2,740 0 0
- ---------------------------------------------------------------------------------------
Disciplined Small and
Mid Cap Equity -- total 105 104 99 103 103 99
Amount deferred 0 0 0 45 0 0
- ---------------------------------------------------------------------------------------
Disciplined Small Cap 70 70 65 68 69 65
Value -- total
Amount deferred 0 0 0 31 0 0
- ---------------------------------------------------------------------------------------
Floating Rate -- total 1,044 1,041 976 1,009 1,025 976
Amount deferred 0 0 0 461 0 0
- ---------------------------------------------------------------------------------------
Growth -- total 5,085 5,077 4,763 4,936 4,995 4,763
Amount deferred 0 0 0 2,246 0 0
- ---------------------------------------------------------------------------------------
Income 528 529 494 511 520 494
Opportunities -- total
Amount deferred 0 0 0 234 0 0
- ---------------------------------------------------------------------------------------
Inflation Protected 1,126 1,138 1,049 1,085 1,114 1,049
Securities -- total
Amount deferred 0 0 0 515 0 0
- ---------------------------------------------------------------------------------------
Large Cap 9,660 9,637 9,051 9,370 9,489 9,050
Equity -- total
Amount deferred 0 0 0 4,259 0 0
- ---------------------------------------------------------------------------------------
Large Cap 136 136 128 132 134 128
Value -- total
Amount deferred 0 0 0 60 0 0
- ---------------------------------------------------------------------------------------
Limited Duration 307 308 286 296 302 287
Bond -- total
Amount deferred 0 0 0 137 0 0
- ---------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ---------------------------------------------------------------------------------------
California Tax-
Exempt -- total 339 340 318 329 335 318
Amount deferred 0 0 0 154 0 0
- ---------------------------------------------------------------------------------------
Diversified
Bond -- total 6,444 6,465 6,040 6,237 6,356 6,040
Amount deferred 0 0 0 2,931 0 0
- ---------------------------------------------------------------------------------------
Minnesota Tax-
Exempt -- total 595 596 558 577 586 558
Amount deferred 0 0 0 269 0 0
- ---------------------------------------------------------------------------------------
<Caption>
AGGREGATE COMPENSATION FROM FUND
--------------------------------------------------------
TAUNTON-
FUND LEWIS MAHER PAGLIA RICHIE RIGBY
- ---------------------------------------------------------------------------------
Partners Small Cap $ 1,175 N/A $ 476 N/A $ 447
Equity -- total
Amount deferred 286 N/A 476 N/A 0
- ---------------------------------------------------------------------------------
Partners Small Cap 3,207 N/A 1,301 N/A 1,220
Value -- total
Amount deferred 796 N/A 1,301 N/A 0
- ---------------------------------------------------------------------------------
Short Duration U.S.
Government -- total 3,670 N/A 1,486 N/A 1,392
Amount deferred 851 N/A 1,486 N/A 0
- ---------------------------------------------------------------------------------
U.S. Government
Mortgage -- total 1,879 N/A 764 N/A 716
Amount deferred 442 N/A 764 N/A 0
- ---------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- ---------------------------------------------------------------------------------
Dividend
Opportunity -- total 8,773 N/A 3,652 N/A 3,573
Amount deferred 1,990 N/A 3,652 N/A 0
- ---------------------------------------------------------------------------------
Real Estate -- total 1,011 N/A 420 N/A 414
Amount deferred 230 N/A 420 N/A 0
- ---------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- ---------------------------------------------------------------------------------
Cash 25,060 N/A 9,340 N/A 9,328
Management -- total
Amount deferred 5,222 N/A 9,340 N/A 0
- ---------------------------------------------------------------------------------
Disciplined 15,698 N/A 5,862 N/A 5,849
Equity -- total
Amount deferred 3,272 N/A 5,862 N/A 0
- ---------------------------------------------------------------------------------
Disciplined Small and
Mid Cap Equity -- total 275 N/A 101 N/A 100
Amount deferred 65 N/A 101 N/A 0
- ---------------------------------------------------------------------------------
Disciplined Small Cap 180 N/A 67 N/A 66
Value -- total
Amount deferred 38 N/A 67 N/A 0
- ---------------------------------------------------------------------------------
Floating Rate -- total 2,660 N/A 988 N/A 991
Amount deferred 572 N/A 988 N/A 0
- ---------------------------------------------------------------------------------
Growth -- total 13,062 N/A 4,879 N/A 4,846
Amount deferred 2,836 N/A 4,879 N/A 0
- ---------------------------------------------------------------------------------
Income 1,349 N/A 502 N/A 503
Opportunities -- total
Amount deferred 286 N/A 502 N/A 0
- ---------------------------------------------------------------------------------
Inflation Protected 2,926 N/A 1,043 N/A 1,073
Securities -- total
Amount deferred 549 N/A 1,043 N/A 0
- ---------------------------------------------------------------------------------
Large Cap 24,802 N/A 9,269 N/A 9,199
Equity -- total
Amount deferred 5,411 N/A 9,269 N/A 0
- ---------------------------------------------------------------------------------
Large Cap 351 N/A 131 N/A 130
Value -- total
Amount deferred 78 N/A 131 N/A 0
- ---------------------------------------------------------------------------------
Limited Duration 787 N/A 290 N/A 292
Bond -- total
Amount deferred 161 N/A 290 N/A 0
- ---------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- ---------------------------------------------------------------------------------
California Tax-
Exempt -- total 839 N/A 322 N/A 324
Amount deferred 163 N/A 322 N/A 0
- ---------------------------------------------------------------------------------
Diversified
Bond -- total 16,009 N/A 6,093 N/A 6,149
Amount deferred 3,064 N/A 6,093 N/A 0
- ---------------------------------------------------------------------------------
Minnesota Tax-
Exempt -- total 1,470 N/A 566 N/A 568
Amount deferred 289 N/A 566 N/A 0
- ---------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 167
<Table>
<Caption>
AGGREGATE COMPENSATION FROM FUND
--------------------------------------------------------------
FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND
- ---------------------------------------------------------------------------------------
New York Tax- $ 114 $ 114 $ 107 $ 110 $ 112 $ 107
Exempt -- total
Amount deferred 0 0 0 51 0 0
- ---------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ---------------------------------------------------------------------------------------
Balanced -- total 1,763 1,761 1,628 1,684 1,734 1,628
Amount deferred 0 0 0 799 0 0
- ---------------------------------------------------------------------------------------
Disciplined Large Cap 354 356 327 335 350 327
Growth -- total
Amount deferred 0 0 0 162 0 0
- ---------------------------------------------------------------------------------------
Disciplined Large Cap 4 3 3 3 4 3
Value -- total
Amount deferred 0 0 0 2 0 0
- ---------------------------------------------------------------------------------------
Diversified Equity 14,237 14,230 13,153 13,595 14,013 13,153
Income -- total
Amount deferred 0 0 0 6,460 0 0
- ---------------------------------------------------------------------------------------
Mid Cap Value -- total 5,051 5,051 4,667 4,811 4,979 4,666
Amount deferred 0 0 0 2,296 0 0
- ---------------------------------------------------------------------------------------
Strategic 4,049 4,048 3,740 3,865 3,986 3,740
Allocation -- total
Amount deferred 0 0 0 1,838 0 0
- ---------------------------------------------------------------------------------------
Strategic Income 340 342 314 324 336 314
Allocation -- total
Amount deferred 0 0 0 156 0 0
- ---------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ---------------------------------------------------------------------------------------
Absolute Return
Currency and
Income -- total 1,151 1,164 1,080 1,102 1,147 1,080
Amount deferred 0 0 0 544 0 0
- ---------------------------------------------------------------------------------------
Disciplined
International
Equity -- total 1,523 1,530 1,413 1,457 1,504 1,413
Amount deferred 0 0 0 705 0 0
- ---------------------------------------------------------------------------------------
Emerging Markets 386 385 360 369 381 360
Bond -- total
Amount deferred 0 0 0 178 0 0
- ---------------------------------------------------------------------------------------
Global Bond -- total 1,646 1,654 1,532 1,571 1,630 1,531
Amount deferred 0 0 0 765 0 0
- ---------------------------------------------------------------------------------------
Global 299 299 278 287 294 278
Technology -- total
Amount deferred 0 0 0 137 0 0
- ---------------------------------------------------------------------------------------
Partners International
Select Growth -- total 1,405 1,405 1,303 1,344 1,384 1,303
Amount deferred 0 0 0 646 0 0
- ---------------------------------------------------------------------------------------
Partners International
Select Value -- total 3,980 3,969 3,683 3,815 3,909 3,683
Amount deferred 0 0 0 1,821 0 0
- ---------------------------------------------------------------------------------------
Partners International
Small Cap -- total 210 209 194 201 206 194
Amount deferred 0 0 0 96 0 0
- ---------------------------------------------------------------------------------------
Threadneedle Emerging
Markets -- total 1,338 1,337 1,239 1,280 1,317 1,238
Amount deferred 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------
Threadneedle European
Equity -- total 258 258 239 248 254 239
Amount deferred 0 0 0 119 0 0
- ---------------------------------------------------------------------------------------
Threadneedle Global 1,514 1,514 1,404 1,450 1,491 1,404
Equity -- total
Amount deferred 0 0 0 696 0 0
- ---------------------------------------------------------------------------------------
<Caption>
AGGREGATE COMPENSATION FROM FUND
--------------------------------------------------------
TAUNTON-
FUND LEWIS MAHER PAGLIA RICHIE RIGBY
- ---------------------------------------------------------------------------------
New York Tax- $ 281 N/A $ 109 N/A $ 109
Exempt -- total
Amount deferred 56 N/A 109 N/A 0
- ---------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- ---------------------------------------------------------------------------------
Balanced -- total 4,277 N/A 1,688 N/A 1,656
Amount deferred 806 N/A 1,688 N/A 0
- ---------------------------------------------------------------------------------
Disciplined Large Cap 848 N/A 334 N/A 332
Growth -- total
Amount deferred 147 N/A 334 N/A 0
- ---------------------------------------------------------------------------------
Disciplined Large Cap 7 N/A 3 N/A 3
Value -- total
Amount deferred 1 N/A 3 N/A 0
- ---------------------------------------------------------------------------------
Diversified Equity 34,529 N/A 13,599 N/A 13,370
Income -- total
Amount deferred 6,484 N/A 13,599 N/A 0
- ---------------------------------------------------------------------------------
Mid Cap Value -- total 12,194 N/A 4,804 N/A 4,739
Amount deferred 2,251 N/A 4,804 N/A 0
- ---------------------------------------------------------------------------------
Strategic 9,812 N/A 3,866 N/A 3,802
Allocation -- total
Amount deferred 1,836 N/A 3,866 N/A 0
- ---------------------------------------------------------------------------------
Strategic Income 817 N/A 324 N/A 320
Allocation -- total
Amount deferred 147 N/A 324 N/A 0
- ---------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- ---------------------------------------------------------------------------------
Absolute Return
Currency and
Income -- total 2,634 N/A 1,104 N/A 1,097
Amount deferred 417 N/A 1,104 N/A 0
- ---------------------------------------------------------------------------------
Disciplined
International
Equity -- total 3,511 N/A 1,447 N/A 1,439
Amount deferred 599 N/A 1,447 N/A 0
- ---------------------------------------------------------------------------------
Emerging Markets 856 N/A 374 N/A 364
Bond -- total
Amount deferred 149 N/A 374 N/A 0
- ---------------------------------------------------------------------------------
Global Bond -- total 3,754 N/A 1,563 N/A 1,555
Amount deferred 626 N/A 1,563 N/A 0
- ---------------------------------------------------------------------------------
Global 682 N/A 286 N/A 282
Technology -- total
Amount deferred 121 N/A 286 N/A 0
- ---------------------------------------------------------------------------------
Partners International
Select Growth -- total 3,222 N/A 1,338 N/A 1,323
Amount deferred 564 N/A 1,338 N/A 0
- ---------------------------------------------------------------------------------
Partners International
Select Value -- total 9,121 N/A 3,815 N/A 3,744
Amount deferred 1,637 N/A 3,815 N/A 0
- ---------------------------------------------------------------------------------
Partners International
Small Cap -- total 482 N/A 201 N/A 198
Amount deferred 86 N/A 201 N/A 0
- ---------------------------------------------------------------------------------
Threadneedle Emerging
Markets -- total 3,080 N/A 1,271 N/A 1,259
Amount deferred 545 N/A 1,271 N/A 0
- ---------------------------------------------------------------------------------
Threadneedle European
Equity -- total 592 N/A 247 N/A 243
Amount deferred 104 N/A 247 N/A 0
- ---------------------------------------------------------------------------------
Threadneedle Global 3,461 N/A 1,448 N/A 1,427
Equity -- total
Amount deferred 608 N/A 1,448 N/A 0
- ---------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 168
<Table>
<Caption>
AGGREGATE COMPENSATION FROM FUND
--------------------------------------------------------------
FUND BLATZ CARLSON CARLTON FLYNN JONES LAIKIND
- ---------------------------------------------------------------------------------------
Threadneedle Global
Equity Income -- total $ 7 $ 7 $ 7 $ 6 $ 7 $ 6
Amount deferred 0 0 0 3 0 0
- ---------------------------------------------------------------------------------------
Threadneedle Global
Extended Alpha -- total 5 5 5 5 5 5
Amount deferred 0 0 0 2 0 0
- ---------------------------------------------------------------------------------------
Threadneedle
International
Opportunity -- total 1,258 1,256 1,166 1,204 1,238 1,166
Amount deferred 0 0 0 578 0 0
- ---------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ---------------------------------------------------------------------------------------
Intermediate Tax- 176 179 164 166 176 164
Exempt -- total
Amount deferred 0 0 0 81 0 0
- ---------------------------------------------------------------------------------------
Mid Cap Growth -- total 1,781 1,807 1,657 1,683 1,781 1,657
Amount deferred 0 0 0 822 0 0
- ---------------------------------------------------------------------------------------
Tax-Exempt 1,561 1,582 1,451 1,472 1,561 1,451
Bond -- total
Amount deferred 0 0 0 718 0 0
- ---------------------------------------------------------------------------------------
Tax-Exempt High 5,855 5,939 5,442 5,525 5,855 5,442
Income -- total
Amount deferred 0 0 0 2,696 0 0
- ---------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- ---------------------------------------------------------------------------------------
Tax-Exempt Money 340 344 317 325 340 317
Market -- total
Amount deferred 0 0 0 161 0 0
- ---------------------------------------------------------------------------------------
<Caption>
AGGREGATE COMPENSATION FROM FUND
--------------------------------------------------------
TAUNTON-
FUND LEWIS MAHER PAGLIA RICHIE RIGBY
- ---------------------------------------------------------------------------------
Threadneedle Global
Equity Income -- total $ 13 N/A $ 7 N/A $ 6
Amount deferred 2 N/A 7 N/A 0
- ---------------------------------------------------------------------------------
Threadneedle Global
Extended Alpha -- total 10 N/A 5 N/A 4
Amount deferred 1 N/A 5 N/A 0
- ---------------------------------------------------------------------------------
Threadneedle
International
Opportunity -- total 2,874 N/A 1,202 N/A 1,184
Amount deferred 507 N/A 1,202 N/A 0
- ---------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- ---------------------------------------------------------------------------------
Intermediate Tax- 393 N/A 169 $ 21 166
Exempt -- total
Amount deferred 63 N/A 167 0 0
- ---------------------------------------------------------------------------------
Mid Cap Growth -- total 4,103 N/A 1,702 128 1,683
Amount deferred 672 N/A 1,687 0 0
- ---------------------------------------------------------------------------------
Tax-Exempt 3,497 N/A 1,497 172 1,472
Bond -- total
Amount deferred 564 N/A 1,477 0 0
- ---------------------------------------------------------------------------------
Tax-Exempt High 13,163 N/A 5,610 623 5,525
Income -- total
Amount deferred 2,121 N/A 5,539 0 0
- ---------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- ---------------------------------------------------------------------------------
Tax-Exempt Money 757 25 333 69 321
Market -- total
Amount deferred 116 0 326 0 0
- ---------------------------------------------------------------------------------
</Table>
(a) Mr. Richie and Mr. Maher were not Board members as of the last fiscal
period, and therefore are not included in the table.
* 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.
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 32. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of 30 days after the end of the fund's fiscal period:
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING JANUARY 31
- --------------------------------------------------------------------------------------------------------------------------------
Income Builder Basic Income Charles Schwab & Co., Inc. (Charles Class A 29.57% --
Schwab) a brokerage firm in San
Francisco, CA
------------------------------------------------------------------------------------------
RiverSource Investments, LLC Class R4 100.00% --
(RiverSource Investments), Minneapolis,
MN
- --------------------------------------------------------------------------------------------------------------------------------
Income Builder Enhanced Income Charles Schwab Class A 34.70% 29.83%
Class R4 92.71%
------------------------------------------------------------------------------------------
RiverSource Investments Class R4 7.29% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 169
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
Income Builder Moderate Income Charles Schwab Class A 35.06% 30.11%
Class R4 47.05%
------------------------------------------------------------------------------------------
RiverSource Investments Class R4 52.95% --
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Charles Schwab Class R4 90.68% --
------------------------------------------------------------------------------------------
RiverSource Investments Class R4 9.32% --
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Charles Schwab Class A 6.23% --
Conservative Class R4 59.37%
------------------------------------------------------------------------------------------
RiverSource Investments Class R4 40.63% --
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Moderate Charles Schwab Class R4 90.34% --
------------------------------------------------------------------------------------------
RiverSource Investments Class R4 9.66% --
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Charles Schwab Class R4 84.07% --
Moderate Aggressive
------------------------------------------------------------------------------------------
Fifth Third Bank TTEE, Cincinnati, OH Class R4 14.67% --
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Charles Schwab Class R4 64.94% --
Moderate Conservative
------------------------------------------------------------------------------------------
RiverSource Investments Class R4 35.06% --
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Builder Charles Schwab Class R4 91.86% --
Total Equity
------------------------------------------------------------------------------------------
RiverSource Investments Class R4 8.14% --
- --------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Charles Schwab Class D 100.00% --
Class E 19.56%
------------------------------------------------------------------------------------------
Wachovia Bank NA (Wachovia Bank), Class E 80.41% 65.12%
Charlotte, NC
- --------------------------------------------------------------------------------------------------------------------------------
Small Company Index Charles Schwab Class A 6.62% --
Class R4 6.67%
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 90.66% --
- --------------------------------------------------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING MARCH 31
- --------------------------------------------------------------------------------------------------------------------------------
Equity Value Charles Schwab Class A 8.14% --
------------------------------------------------------------------------------------------
John C. Mullarkey, Willowbrook, IL Class C 5.00% --
------------------------------------------------------------------------------------------
RiverSource Investments Class I 100.00% --
Class R2 100.00%
Class R5 100.00%
Class W 100.00%
------------------------------------------------------------------------------------------
Wachovia Bank Class R3 96.77% --
Class R4 98.43%
- --------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Growth Charles Schwab Class A 9.73% --
Class R4 98.42%
------------------------------------------------------------------------------------------
RiverSource Investments Class R2 100.00% 30.92%(a)
Class R3 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.83% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 21.96% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.92% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.78% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.96% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 170
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
Precious Metals and Mining Charles Schwab Class A 14.27% --
Class R4 98.39%
------------------------------------------------------------------------------------------
RiverSource Investments Class I 100.00% --
------------------------------------------------------------------------------------------
John E. Bridgman, Minneapolis, MN Class C 6.51% --
------------------------------------------------------------------------------------------
Richard L. Venable and Susan Angela Class C 7.76% --
Venable, Argyle, TX
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Charles Schwab Class A 9.73% --
Class R4 97.75%
------------------------------------------------------------------------------------------
RiverSource Investments Class I 100.00% --
Class R2 100.00%
Class R3 100.00%
Class R5 100.00%
- --------------------------------------------------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING APRIL 30
- --------------------------------------------------------------------------------------------------------------------------------
120/20 Contrarian Equity Charles Schwab Class A 52.74% --
------------------------------------------------------------------------------------------
Donald W. and Donna M. Hardeman, Miami, Class B 4.51% --
FL
------------------------------------------------------------------------------------------
Jeffrey and Karen E. Leopardi, Boca Class C 6.00% --
Raton, FL
------------------------------------------------------------------------------------------
RiverSource Investments Class I 100.00% --
Class R5 100.00%
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2010 RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Charles Schwab Class A 13.40% --
------------------------------------------------------------------------------------------
Wachovia Bank Class Y 98.55% --
------------------------------------------------------------------------------------------
In-Core, Decatur, GA Class A 12.42% --
------------------------------------------------------------------------------------------
Jagdish N. and Madhuri J. Sheth, Class A 12.19% --
Atlanta, GA
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2015 RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
In-Core, Decatur, GA Class A 7.58% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 7.31% --
------------------------------------------------------------------------------------------
Wachovia Bank Class Y 99.20% --
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2020 RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Wachovia Bank Class Y 99.37% --
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2025 RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Wachovia Bank Class Y 99.43% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 171
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2030 RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Wachovia Bank Class Y 99.37% --
------------------------------------------------------------------------------------------
John C. Bukowski, Suffern, NY Class A 17.47% --
------------------------------------------------------------------------------------------
Stephen T. and Teresa T. Bockian, Class A 5.27% --
Orlando, FL
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2035 RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Wachovia Bank Class Y 98.51% --
------------------------------------------------------------------------------------------
Gary L. and Karen L. Fournier, Class A 11.08% --
Vicksburg, MS
------------------------------------------------------------------------------------------
Richard and Stefanie A. Nelson, Hot Class A 7.93% --
Springs, SD
------------------------------------------------------------------------------------------
William Crossen, Tuckahoe, NY Class A 6.53% --
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2040 RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Wachovia Bank Class Y 97.06% --
- --------------------------------------------------------------------------------------------------------------------------------
Retirement Plus 2045 RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Wachovia Bank Class Y 97.29% --
------------------------------------------------------------------------------------------
Anthony D. And Rebecca H. Marken, Class A 5.96% --
Lexington, MA
- --------------------------------------------------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING MAY 31
- --------------------------------------------------------------------------------------------------------------------------------
High Yield Bond RiverSource Investments Class R2 52.98% --
Class R3 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
American Enterprise Investment Services Class W 99.94% --
Inc. (American Enterprise Investment
Services) Minneapolis, MN
------------------------------------------------------------------------------------------
Charles Schwab Class A 9.51% --
Class R4 79.90%
------------------------------------------------------------------------------------------
GWFS Equities Inc. Class R4 20.05% --
------------------------------------------------------------------------------------------
ING Life Insurance and Annuity (ING), Class R2 47.02% --
Hartford, CT
------------------------------------------------------------------------------------------
Income Builder Basic Income Class I 11.04% --
------------------------------------------------------------------------------------------
Income Builder Enhanced Income Class I 42.91% --
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 42.52% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 172
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
Partners Aggressive Growth RiverSource Investments Class R2 5.96% --
Class R3 100.00%
Class R4 12.33%
Class R5 100.00%
------------------------------------------------------------------------------------------
Charles Schwab Class R4 82.97% --
------------------------------------------------------------------------------------------
GWFS Equities (GWFS Equities), Greenwood Class R2 94.04% --
Village, CO
------------------------------------------------------------------------------------------
MLP Fenner & Smith, Inc. (MLP Fenner & Class C 11.01% --
Smith), Jacksonville, FL
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.74% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 22.22% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.86% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.83% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.77% --
- --------------------------------------------------------------------------------------------------------------------------------
Partners Fundamental Value Charles Schwab Class A 14.29% --
Class R4 98.39%
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.73% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 22.30% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.87% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.86% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.69% --
- --------------------------------------------------------------------------------------------------------------------------------
Partners Select Value RiverSource Investments Class R4 14.56% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 7.07% --
Class R4 85.44%
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.74% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 22.22% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.84% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.86% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.76% --
- --------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Equity RiverSource Investments Class I 100.00% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 7.52% --
Class R4 8.69%
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 90.97% --
- --------------------------------------------------------------------------------------------------------------------------------
Partners Small Cap Value Charles Schwab Class A 14.80% --
Class R4 93.84%
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.62% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 22.13% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 32.04% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.78% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.79% --
------------------------------------------------------------------------------------------
RiverSource Investments Class R3 56.42% --
------------------------------------------------------------------------------------------
Hartford Life Insurance Company Class R2 99.11% --
(Hartford Life),
Weatogue, CT Class R3 43.58%
------------------------------------------------------------------------------------------
JPMorgan Chase Bank, Kansas City, MO Class R5 99.96% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 173
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
Short Duration U.S. Charles Schwab Class A 11.76% --
------------------------------------------------------------------------------------------
Government GWFS Equities Class R4 17.39% --
------------------------------------------------------------------------------------------
Portfolio Builder Conservative Fund Class I 29.71% --
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 15.82% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate aggressive Class I 22.71% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 31.76% --
Fund
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 81.54% --
------------------------------------------------------------------------------------------
RiverSource Investments Class W 100.00% --
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Government Mortgage Charles Schwab Class A 18.44% --
------------------------------------------------------------------------------------------
Income Builder Basic Income Class I 38.42% 56.31%(a)
------------------------------------------------------------------------------------------
Income Builder Enhanced Income Class I 12.55% --
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 49.03% --
------------------------------------------------------------------------------------------
Wells Fargo Bank, Minneapolis, MN Class R4 99.88% --
- --------------------------------------------------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING JUNE 30
- --------------------------------------------------------------------------------------------------------------------------------
Dividend Opportunity RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R5 100.00%
Class W 100.00%
------------------------------------------------------------------------------------------
Charles Schwab Class A 23.09% --
Class R4 100.00%
------------------------------------------------------------------------------------------
Income Builder Basic Income Class I 13.95% --
------------------------------------------------------------------------------------------
Income Builder Enhanced Income Class I 14.25% --
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 34.77% --
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 6.91% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 8.28% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 11.66% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 7.46% --
- --------------------------------------------------------------------------------------------------------------------------------
Real Estate RiverSource Investments Class R4 10.36% 53.84%(a)
Class W 100.00%
------------------------------------------------------------------------------------------
Charles Schwab Class A 13.17% --
Class R4 89.64%
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 7.92% --
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 13.20% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 25.18% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 27.58% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 6.33% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 11.69% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 174
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
FOR FUNDS WITH FISCAL PERIOD ENDING JULY 31
- --------------------------------------------------------------------------------------------------------------------------------
Cash Management Charles Schwab Class A 5.96% --
------------------------------------------------------------------------------------------
RiverSource Investments Class R5 100.00% --
------------------------------------------------------------------------------------------
American Enterprise Investment Services Class W 99.94% --
------------------------------------------------------------------------------------------
Income Builder Basic Income Class I 33.15% --
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 27.47% --
------------------------------------------------------------------------------------------
Portfolio Builder Conservative Fund Class I 12.00% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 11.40% --
Fund
------------------------------------------------------------------------------------------
Income Builder Enhanced Income Class I 5.65% --
------------------------------------------------------------------------------------------
Russell P. and Janice K. Costanza, Class C 6.42% --
Sodus, MI
------------------------------------------------------------------------------------------
Wachovia Bank Class Y 94.86% --
------------------------------------------------------------------------------------------
GWFS Equities Class Y 5.14% --
- --------------------------------------------------------------------------------------------------------------------------------
Disciplined Equity RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
American Enterprise Investment Services Class W 99.99% --
------------------------------------------------------------------------------------------
Income Builder Basic Income Class I 7.06% --
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 10.50% --
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 9.53% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 11.43% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 16.15% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 10.23% --
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 99.44% --
- --------------------------------------------------------------------------------------------------------------------------------
Disciplined Small and RiverSource Investments Class A 45.76% 57.55%(a)
Mid Cap Equity Class R4 83.04%
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 11.38% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 13.93% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 19.04% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 12.18% --
------------------------------------------------------------------------------------------
Retirement Plus Fund 2025 Class I 6.06% --
------------------------------------------------------------------------------------------
Retirement Plus Fund 2030 Class I 5.69% --
------------------------------------------------------------------------------------------
American Enterprise Investment Services Class W 99.79% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 10.42% --
Class R4 16.96%
------------------------------------------------------------------------------------------
Deanna L. Rose, Punta Gorda, Fl Class C 8.49% --
------------------------------------------------------------------------------------------
William E. and MaryLou K. Carroll, Punta Class C 11.48% --
Gorda, Fl
------------------------------------------------------------------------------------------
Mary Ruth Neal, Sacramento, CA Class C 5.38% --
------------------------------------------------------------------------------------------
Don M. and Barbara A. Warner, Fair Oaks, Class C 5.06% --
CA
------------------------------------------------------------------------------------------
Antim G. and Sonal A Shah, Springfield, Class C 5.01% --
VA
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 175
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Value RiverSource Investments Class A 67.37% 86.60%
Class C 9.20%
Class R2 100.00%
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Joanne and David J. Thorpe, Lakeville, Class B 8.77% --
MA
------------------------------------------------------------------------------------------
John A. and Dawn M. Gettman, Beaumont, Class B 7.50% --
CA
------------------------------------------------------------------------------------------
Neil Van Slyke, Rochester, NY Class B 5.08% --
------------------------------------------------------------------------------------------
Sanford A. Greentree, Westlake VLG, CA Class C 28.37% --
------------------------------------------------------------------------------------------
Keith and Sandra Crowell, Huntersville, Class C 19.41% --
NC
------------------------------------------------------------------------------------------
Bea Vande Merwe, Salt Lake City, UT Class C 12.96% --
------------------------------------------------------------------------------------------
Richard T. Castiano, Fort Myers, FL Class C 11.18% --
------------------------------------------------------------------------------------------
Matthew M. Harrison, Richmond, IN Class C 6.92% --
------------------------------------------------------------------------------------------
Timothy E. Releford, New York, NY Class C 6.06% --
------------------------------------------------------------------------------------------
Income Builder Basic Income Class I 34.91% --
------------------------------------------------------------------------------------------
Income Builder Enhanced Income Class I 26.71% --
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 38.34% --
- --------------------------------------------------------------------------------------------------------------------------------
Floating Rate RiverSource Investments Class W 100.00% 37.41%(a)
Class R5 100.00%
------------------------------------------------------------------------------------------
Income Builder Basic Income Class I 11.75% --
------------------------------------------------------------------------------------------
Income Builder Enhanced Income Class I 29.59% --
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 47.73% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 46.63% --
Class R4 95.13%
------------------------------------------------------------------------------------------
MLP Fenner & Smith Class C 6.46% --
- --------------------------------------------------------------------------------------------------------------------------------
Growth RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R5 100.00%
Class W 100.00%
------------------------------------------------------------------------------------------
Charles Schwab Class A 5.99% --
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.62% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 22.40% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.53% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.78% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 20.08% --
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 42.87% --
------------------------------------------------------------------------------------------
Ameriprise Trust Company Class R4 51.99% --
- --------------------------------------------------------------------------------------------------------------------------------
Income Opportunities Charles Schwab Class A 14.09% --
Class R4 93.46%
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 14.67% 25.94%(a)
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 41.16% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 35.94% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 8.21% --
Fund
------------------------------------------------------------------------------------------
RiverSource Life Insurance Company Class R4 6.54% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 176
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
Inflation Protected Securities RiverSource Life Insurance Company Class R4 26.67% 42.88%(a)
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 11.24% --
------------------------------------------------------------------------------------------
Income Builder Enhanced Income Class I 5.50% --
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 6.68% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 26.84% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 29.28% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 8.17% --
Fund
------------------------------------------------------------------------------------------
Charles Schwab Class A 35.37% --
Class R4 26.55%
------------------------------------------------------------------------------------------
GWFS Equities Class R4 5.02% --
------------------------------------------------------------------------------------------
Matrix Capital Bank MSCS (Matrix Class R4 41.76% --
Capital), Denver, Co
------------------------------------------------------------------------------------------
American Enterprise Investment Services Class W 99.98% --
- --------------------------------------------------------------------------------------------------------------------------------
Large Cap Equity RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.58% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 22.41% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.61% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.77% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 20.03% --
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 99.85% --
- --------------------------------------------------------------------------------------------------------------------------------
Large Cap Value RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R4 39.10%
Class R5 100.00%
------------------------------------------------------------------------------------------
Charles Schwab Class A 10.18% --
Class R4 60.90%
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.52% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 22.76% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.69% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.77% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.56% --
------------------------------------------------------------------------------------------
Patricia J. King Graham, Lakeview, AR Class C 5.11% --
------------------------------------------------------------------------------------------
Columbia 529 Plan, Boston, MA Class A 5.07% --
- --------------------------------------------------------------------------------------------------------------------------------
Limited Duration Bond RiverSource Investments Class R4 100.00% 60.07%(a)
Class W 100.00%
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 56.50% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Conservative Fund Class I 43.50% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 18.86% --
------------------------------------------------------------------------------------------
John W. and Cecelia E. Kramar, Hacienda Class C 17.03% --
Heights, CA
------------------------------------------------------------------------------------------
Mary Loretta Jacobsmeyer, Riverside, CA Class C 7.78% --
------------------------------------------------------------------------------------------
Michael N. Stanley, Palm Springs, CA Class C 8.16% --
------------------------------------------------------------------------------------------
Rita R. and Lawrence E. Dale, Barstow, Class C 6.50% --
CA
------------------------------------------------------------------------------------------
Bernard C. and Denise M. Asbell, Class C 5.70% --
Riverside, CA
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 177
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING AUGUST 31
- --------------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt Linda A. Wochnik, Sierra Madre, CA Class B 5.01% --
- --------------------------------------------------------------------------------------------------------------------------------
Diversified Bond RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
American Enterprise Investment Services Class W 99.97% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 7.72% --
------------------------------------------------------------------------------------------
Citigroup Global Markets, Owings Mills, Class C 26.98% --
MD
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 5.92% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 40.79% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 21.02% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 12.46% --
Fund
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 96.96% --
Minnesota Tax-Exempt None None N/A --
- --------------------------------------------------------------------------------------------------------------------------------
New York Tax-Exempt Charles Schwab Class A 8.47% --
------------------------------------------------------------------------------------------
Joan Sabbatini, E. Northport, NY Class B 8.19% --
------------------------------------------------------------------------------------------
Ena S. Ryan, Brooklyn, NY Class C 8.64% --
------------------------------------------------------------------------------------------
Ottoviano Asarese, Buffalo, NY Class C 6.00% --
- --------------------------------------------------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING SEPTEMBER 30
- --------------------------------------------------------------------------------------------------------------------------------
Balanced MLP Fenner & Smith Class C 9.91% --
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 99.96% --
- --------------------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Growth RiverSource Investments Class R2 100.00% 84.96%(a)
Class R3 100.00%
Class R4 34.24%
Class R5 100.00%
Class W 100.00%
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 16.76% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 20.85% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 27.61% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.59% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.18% --
------------------------------------------------------------------------------------------
Matrix Capital Class R4 65.76% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 8.85% --
------------------------------------------------------------------------------------------
MLP Fenner & Smith Class C 66.35% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 178
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
Disciplined Large Cap Value RiverSource Investments Class B 36.84% 98.09(a)
Class C 100.00%
Class I 17.75%
Class R2 100.00%
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
Class W 100.00%
------------------------------------------------------------------------------------------
Income Builder Basic Income Class I 30.20% --
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 29.87% --
------------------------------------------------------------------------------------------
Disciplined Asset Allocation Portfolios Class I 6.06% --
Moderate
------------------------------------------------------------------------------------------
Paul W. Eastman, Dublin, OH Class A 25.80% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 23.18% --
------------------------------------------------------------------------------------------
Ronald E. and Patricia S. Leithe, Cary, Class A 12.12% --
NC
------------------------------------------------------------------------------------------
Josph E. and Sonya M. Landholm, Sedona, Class A 10.08% --
AZ
------------------------------------------------------------------------------------------
Ralph and Carol Sievert, Appleton, WI Class A 7.62% --
------------------------------------------------------------------------------------------
Tseng-Yen Yen, Fullerton, CA Class B 42.60% --
------------------------------------------------------------------------------------------
Rita S. Mall, Wyncote, PA Class B 20.56% --
- --------------------------------------------------------------------------------------------------------------------------------
Diversified Equity Income Charles Schwab Class A 25.97% --
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.19% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 23.08% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.33% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 6.07% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.37% --
------------------------------------------------------------------------------------------
Hartford Life Class R2 74.50% --
------------------------------------------------------------------------------------------
Hartford Securities Distribution Company Class R2 6.00% --
Inc., Hartford, CT
------------------------------------------------------------------------------------------
GWFS Equities Class R3 84.53% --
Class R4 11.39%
------------------------------------------------------------------------------------------
Wachovia Bank Class R2 13.87% --
Class R3 8.11%
Class R4 35.07%
Class R5 22.97%
------------------------------------------------------------------------------------------
Wells Fargo Bank Class R4 27.91% --
------------------------------------------------------------------------------------------
American Century Investments, Kansas Class R4 6.24% --
City, MO
------------------------------------------------------------------------------------------
ING Class R4 13.19% --
Class R5 39.87%
------------------------------------------------------------------------------------------
Ameriprise Trust Company Class R5 11.76% --
------------------------------------------------------------------------------------------
Taynik & Co., Boston, MA Class R5 9.07% --
------------------------------------------------------------------------------------------
RiverSource Investments Class W 100.00% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 179
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Charles Schwab Class A 34.32% --
Class R5 8.42%
------------------------------------------------------------------------------------------
Prudential Investment Management Class A 12.85% --
Services LLC, Newark, NJ
------------------------------------------------------------------------------------------
MLP Fenner & Smith Class C 18.24% --
------------------------------------------------------------------------------------------
Citigroup Global Markets, Owings Mills, Class C 5.56% --
MD
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.10% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 23.36% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.01% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 6.14% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.35% --
------------------------------------------------------------------------------------------
Hartford Life Class R2 81.55% --
Class R3 12.83%
------------------------------------------------------------------------------------------
JP Morgan Chase Bank, New York NY Class R3 15.80% --
------------------------------------------------------------------------------------------
GWFS Equities Class R3 34.97% --
------------------------------------------------------------------------------------------
Wachovia Bank Class R3 9.90% --
Class R4 18.81%
------------------------------------------------------------------------------------------
ING Class R3 8.27% --
Class R4 20.24%
Class R5 17.33%
------------------------------------------------------------------------------------------
John Hancock Life Insurance Company, Class R4 25.79% --
Buffalo, NY
------------------------------------------------------------------------------------------
NFS LLC FEBO, Chicago, IL Class R5 28.65% --
------------------------------------------------------------------------------------------
PIMS/Prudential Retirement, Greenville, Class R5 16.80% --
SC
------------------------------------------------------------------------------------------
Standard Insurance Company, Portland, OR Class R5 10.61% --
------------------------------------------------------------------------------------------
RiverSource Investments Class W 100.00% --
- --------------------------------------------------------------------------------------------------------------------------------
Strategic Allocation Charles Schwab Class A 11.51% --
------------------------------------------------------------------------------------------
RiverSource Investments Class I 100.00% --
Class R2 100.00%
Class R3 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 59.42% --
------------------------------------------------------------------------------------------
Charles Schwab Class R4 39.07% --
- --------------------------------------------------------------------------------------------------------------------------------
Strategic Income Allocation Charles Schwab Class A 26.98% --
------------------------------------------------------------------------------------------
RiverSource Investments Class A 14.28% --
Class R2 100.00%
Class R3 100.00%
Class R4 100.00%
Class R5 100.00%
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 180
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING OCTOBER 31
- --------------------------------------------------------------------------------------------------------------------------------
Absolute Return Currency Income RiverSource Investments Class R4 46.97% 28.54%(a)
Class R5 100.00%
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 8.72% --
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 9.93% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 21.85% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 21.69% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 8.43% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 8.61% --
Fund
------------------------------------------------------------------------------------------
American Enterprise Class W 99.96% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 70.04% --
Class R4 53.03%
------------------------------------------------------------------------------------------
MLP Fenner & Smith Class C 5.79% --
- --------------------------------------------------------------------------------------------------------------------------------
Disciplined International Equity RiverSource Investments Class R2 100.00% --
Class R3 100.00%
Class R4 8.27%
Class R5 100.00%
------------------------------------------------------------------------------------------
Income Builder Enhanced Income Class I 9.01% --
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 10.16% --
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 9.80% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 11.96% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 16.42% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 10.56% --
------------------------------------------------------------------------------------------
American Enterprise Investment Services, Class W 99.96% --
Inc.
------------------------------------------------------------------------------------------
Charles Schwab Class A 12.93% --
Class R4 91.73%
------------------------------------------------------------------------------------------
Daniel and Linda Miklovic, St. Louis, MO Class C 5.17% --
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond Income Builder Enhanced Income Class I 34.35% 35.11%(a)
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 35.29% --
------------------------------------------------------------------------------------------
Income Builder Basic Income Class I 9.81% --
------------------------------------------------------------------------------------------
RiverSource Investments Class R4 46.85% --
------------------------------------------------------------------------------------------
American Enterprise Investment Services, Class W 99.98% --
Inc.
------------------------------------------------------------------------------------------
Charles Schwab Class A 13.44% --
Class R4 27.12%
------------------------------------------------------------------------------------------
Matrix Capital Class R4 26.03% --
------------------------------------------------------------------------------------------
Muhammad A. Ali, Twn and Cntry, MO Class C 6.62% --
------------------------------------------------------------------------------------------
Brenda L. Ruiz, Lake Mary, FL Class C 5.77% --
- --------------------------------------------------------------------------------------------------------------------------------
Global Bond Income Builder Enhanced Income Class I 5.55% 32.63%(a)
------------------------------------------------------------------------------------------
Income Builder Moderate Income Class I 5.64% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 34.08% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 30.07% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 9.23% --
Fund
------------------------------------------------------------------------------------------
American Enterprise Investment Services, Class W 99.94% --
Inc.
------------------------------------------------------------------------------------------
Charles Schwab Class A 13.23% --
Class R4 100.00%
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 181
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
Global Technology RiverSource Investments Class I 100.00% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 12.08% --
Class R4 99.65%
- --------------------------------------------------------------------------------------------------------------------------------
Partners International Select Growth Charles Schwab Class A 15.31% 41.23%
Class R4 82.82%
------------------------------------------------------------------------------------------
New York Life Trust Company Class R4 13.64% --
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.58% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 22.88% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.47% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.57% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.79% --
- --------------------------------------------------------------------------------------------------------------------------------
Partners International Select Value Charles Schwab Class A 17.27% --
Class R4 99.14%
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.71% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 22.73% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.10% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.64% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 20.12% --
- --------------------------------------------------------------------------------------------------------------------------------
Partners International Small Cap Portfolio Builder Aggressive Fund Class I 19.06% 30.16%(a)
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 23.14% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.63% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.81% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 18.64% --
------------------------------------------------------------------------------------------
Charles Schwab Class A 13.66%
------------------------------------------------------------------------------------------
Massachusetts Mutual Life Insurance Co. Class R4 96.79% --
Springfield, MA
- --------------------------------------------------------------------------------------------------------------------------------
Threadneedle Emerging Markets Charles Schwab Class A 13.95% --
Class R4 87.24%
------------------------------------------------------------------------------------------
RiverSource Investments Class I 100.00% --
Class R5 100.00%
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 12.76% --
- --------------------------------------------------------------------------------------------------------------------------------
Threadneedle European Equity RiverSource Investments Class I 100.00% --
Class R4 17.97%
------------------------------------------------------------------------------------------
Charles Schwab Class A 10.98% --
Class R4 82.03%
------------------------------------------------------------------------------------------
Marilyn O. Matthews, Pasadena, CA Class C 5.31% --
- --------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity RiverSource Investments Class I 100.00% --
Class R2 98.46%
Class R3 100.00%
Class R5 100.00%
Class W 100.00%
------------------------------------------------------------------------------------------
Charles Schwab Class A 12.95% --
------------------------------------------------------------------------------------------
GWFS Equities Inc. Class R4 5.35% --
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 90.82% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 182
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Equity Income RiverSource Investments Class C 6.40% 29.58%(a)
Class I 100.00%
Class R2 100.00%
Class R3 100.00%
Class R4 83.38%
Class R5 100.00%
------------------------------------------------------------------------------------------
Charles Schwab Class A 20.16% --
Class R4 16.62%
------------------------------------------------------------------------------------------
Janet K. Zimmer, Warsaw, IN Class C 24.03% --
------------------------------------------------------------------------------------------
Michael A. Streiber, Mount Airy, MD Class C 11.24% --
------------------------------------------------------------------------------------------
Alfred T. Hockenmaier, North Hills, CA Class C 9.72% --
------------------------------------------------------------------------------------------
Sandra H. Norene, Rio Oso, CA Class C 7.99% --
------------------------------------------------------------------------------------------
Steven A. and Melissa D. Stiles, Class C 7.05% --
Roanoke, VA
------------------------------------------------------------------------------------------
Louis M. and Shirli A. Nagy, Ventura, CA Class C 5.93% --
- --------------------------------------------------------------------------------------------------------------------------------
Threadneedle Global Extended Alpha RiverSource Investments Class C 7.38% 57.92%(a)
Class I 100.00%
Class R2 100.00%
Class R3 100.00%
Class R4 30.07%
Class R5 100.00%
------------------------------------------------------------------------------------------
Charles Schwab Class A 66.08% --
Class R4 69.93%
------------------------------------------------------------------------------------------
Michael and Marissa Jenkinson, Burke, VA Class C 17.59% --
------------------------------------------------------------------------------------------
Michael Selig, Arlington, VA Class C 11.38% --
------------------------------------------------------------------------------------------
Poonam and Pradeep Singh, McLean, VA Class C 10.72% --
------------------------------------------------------------------------------------------
Michael and Kristin L. Elder, Class C 9.76% --
Alexandria, VA
------------------------------------------------------------------------------------------
Steven R. and Wendy L. Person, Atlanta, Class C 9.53% --
GA
------------------------------------------------------------------------------------------
Jennifer S. Carter, Washington, D.C. Class C 8.76% --
- --------------------------------------------------------------------------------------------------------------------------------
Threadneedle International RiverSource Investments Class R2 100.00% --
Opportunity Class R3 100.00%
Class R5 100.00%
------------------------------------------------------------------------------------------
Charles Schwab Class A 10.09% --
Class R4 84.55%
------------------------------------------------------------------------------------------
Matrix Capital Class R4 14.22% --
------------------------------------------------------------------------------------------
Portfolio Builder Aggressive Fund Class I 18.90% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 22.66% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 31.25% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 5.81% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.70% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
Statement of Additional Information - April 1, 2009 Page 183
<Table>
<Caption>
FUND SHARES
---------------------
SHARE PERCENT OF FUND
FUND SHAREHOLDER NAME, CITY AND STATE CLASS PERCENTAGE (if greater than 25%)
- --------------------------------------------------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING NOVEMBER 30
- --------------------------------------------------------------------------------------------------------------------------------
Intermediate Tax Exempt Charles Schwab Class A 7.21% --
- --------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio Builder Aggressive Fund Class I 18.26% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Fund Class I 23.37% --
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Aggressive Class I 30.84% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Moderate Conservative Class I 6.00% --
Fund
------------------------------------------------------------------------------------------
Portfolio Builder Total Equity Fund Class I 19.56% --
------------------------------------------------------------------------------------------
Wachovia Bank Class R4 78.73% --
------------------------------------------------------------------------------------------
GWFS Equities Class R4 12.28% --
- --------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Bond None N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt High Income None N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
FUNDS WITH FISCAL PERIOD ENDING DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Lawrence Garner, Woodstock, GA and Class A 6.67% --
Ronald J. Garner, Wyckoff, NJ
------------------------------------------------------------------------------------------
Charles Schwab Class A 6.25% --
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) Combination of all share classes of RiverSource Investments 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 funds in the RiverSource Family of 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, RiverSource Investments 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
RiverSource Investments 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)), entered into settlement agreements with the Securities
and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC)
related to market timing activities. As a result, AEFC was censured and ordered
to cease and desist from committing or causing any violations of certain
provisions
Statement of Additional Information - April 1, 2009 Page 184
of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and
various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil
money penalties of $7 million. AEFC also agreed to retain an independent
distribution consultant to assist in developing a plan for distribution of all
disgorgement and civil penalties ordered by the SEC in accordance with various
undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf.
Ameriprise Financial and its affiliates have cooperated with the SEC and the
MDOC in these legal proceedings, and have made regular reports to the
RiverSource Family of Fund's Board of Directors/Trustees.
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J.&W. Seligman & Co., Inc. ("Seligman"). In late 2003,
Seligman conducted an extensive internal review concerning mutual fund trading
practices. Seligman's review, which covered the period 2001-2003, noted one
arrangement that permitted frequent trading in certain open-end registered
investment companies managed by Seligman (the "Seligman Funds"); this
arrangement was in the process of being closed down by Seligman before September
2003. Seligman identified three other arrangements that permitted frequent
trading, all of which had been terminated by September 2002. In January 2004,
Seligman, on a voluntary basis, publicly disclosed these four arrangements to
its clients and to shareholders of the Seligman Funds. Seligman also provided
information concerning mutual fund trading practices to the SEC and the Office
of the Attorney General of the State of New York ("NYAG"). In September 2005,
the New York staff of the SEC indicated that it was considering recommending to
the Commissioners of the SEC the instituting of a formal action against Seligman
and the distributor of the Seligman Funds, Seligman Advisors, Inc., (which is
now known as RiverSource Fund Distributor Inc.,) relating to frequent trading in
the Seligman Funds. Seligman responded to the staff in October 2005 that it
believed that any action would be both inappropriate and unnecessary, especially
in light of the fact that Seligman had previously resolved the underlying issue
with the Independent Directors of the Seligman Funds and made recompense to the
affected Seligman Funds.
In September 2006, the NYAG commenced a civil action in New York State Supreme
Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. and Brian
T. Zino (collectively, the "Seligman Parties"), alleging, in substance, that the
Seligman Parties permitted various persons to engage in frequent trading and, as
a result, the prospectus disclosure used by the registered investment companies
then managed by Seligman is and has been misleading. The NYAG included other
related claims and also claimed that the fees charged by Seligman to the
Seligman Funds were excessive. On March 13, 2009, without admitting or denying
any violations of law or wrongdoing, the Seligman Parties entered into a
stipulation of settlement with the NYAG and settled the claims made by the NYAG.
Under the terms of the settlement, Seligman will pay $11.3 million to four
Seligman Funds. This settlement resolved all outstanding matters between the
Seligman Parties and the NYAG. In addition to the foregoing matter, the New York
staff of the SEC indicated in September 2005 that it was considering
recommending to the Commissioners of the SEC the instituting of a formal action
against Seligman and Seligman Advisors, Inc. relating to frequent trading in the
Seligman Funds. Seligman responded to the staff in October 2005 that it believed
that any action would be both inappropriate and unnecessary, especially in light
of the fact that Seligman had previously resolved the underlying issue with the
Independent Directors of the Seligman Funds and made recompense to the affected
Seligman Funds. There have been no further developments with the SEC on this
matter.
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 years 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,
Statement of Additional Information - April 1, 2009 Page 185
MN 55402. The information for periods ended on or before June 30, 2007 was
audited by other auditors. The independent registered public accounting firm
also provides other accounting and tax-related services as requested by the
funds.
Statement of Additional Information - April 1, 2009 Page 186
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 - April 1, 2009 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 - April 1, 2009 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 - April 1, 2009 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 - April 1, 2009 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 - April 1, 2009 A-5
APPENDIX B
STATE TAX-EXEMPT FUNDS
STATE RISK FACTORS
California Tax-Exempt Fund, Minnesota Tax-Exempt Fund and New York 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.
Statement of Additional Information - April 1, 2009 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.
Statement of Additional Information - April 1, 2009 C-1
APPENDIX D
SELIGMAN FUNDS
<Table>
SELIGMAN CAPITAL FUND, INC.
SELIGMAN CASH MANAGEMENT FUND, INC.
SELIGMAN COMMON STOCK FUND, INC.
SELIGMAN COMMUNICATIONS AND INFORMATION FUND,
INC.
SELIGMAN CORE FIXED INCOME FUND, INC.
SELIGMAN FRONTIER FUND, INC.
SELIGMAN GLOBAL FUND SERIES, INC.
Seligman Emerging Markets Fund
Seligman Global Smaller Companies Fund
Seligman Global Growth Fund
Seligman Global Technology Fund
Seligman International Growth Fund
SELIGMAN GROWTH FUND, INC.
SELIGMAN HIGH INCOME FUND SERIES
Seligman U.S. Government Securities Fund
Seligman High-Yield Fund
SELIGMAN INCOME AND GROWTH FUND, INC.
SELIGMAN LASALLE REAL ESTATE FUND SERIES, INC.
Seligman LaSalle Global Real Estate Fund
Seligman LaSalle Monthly Dividend Real
Estate Fund
SELIGMAN MUNICIPAL FUND SERIES, INC.
Seligman National Municipal Class
Seligman Colorado Municipal Class
Seligman Georgia Municipal Class
Seligman Louisiana Municipal Class
Seligman Maryland Municipal Class
Seligman Massachusetts Municipal Class
Seligman Michigan Municipal Class
Seligman Minnesota Municipal Class
Seligman Missouri Municipal Class
Seligman New York Municipal Class
Seligman Ohio Municipal Class
Seligman Oregon Municipal Class
Seligman South Carolina Municipal Class
SELIGMAN MUNICIPAL SERIES TRUST
Seligman California Municipal High Yield
Series
Seligman California Municipal Quality Series
Seligman Florida Municipal Series
Seligman North Carolina Municipal Series
SELIGMAN NEW JERSEY MUNICIPAL FUND, INC.
SELIGMAN PENNSYLVANIA MUNICIPAL FUND SERIES
SELIGMAN PORTFOLIOS, INC.
Seligman Capital Portfolio
Seligman Cash Management Portfolio
Seligman Common Stock Portfolio
Seligman Communications and Information
Portfolio
Seligman Global Technology Portfolio
Seligman International Growth Portfolio
Seligman Investment Grade Fixed Income
Portfolio
Seligman Large-Cap Value Portfolio
Seligman Smaller-Cap Value Portfolio
SELIGMAN TARGETHORIZON ETF PORTFOLIOS, INC.
Seligman TargETFund 2045
Seligman TargETFund 2035
Seligman TargETFund 2025
Seligman TargETFund 2015
Seligman TargETFund Core
SELIGMAN ASSET ALLOCATION SERIES, INC.
Seligman Asset Allocation Aggressive Growth
Fund
Seligman Asset Allocation Balanced Fund
Seligman Asset Allocation Growth Fund
Seligman Asset Allocation Moderate Growth
Fund
SELIGMAN VALUE FUND SERIES, INC.
Seligman Large-Cap Value Fund
Seligman Smaller-Cap Value Fund
SELIGMAN LASALLE INTERNATIONAL REAL ESTATE
FUND, INC.
SELIGMAN SELECT MUNICIPAL FUND, INC.
TRI-CONTINENTAL CORPORATION
</Table>
S-6500 AW (4/09)
Statement of Additional Information - April 1, 2009 D-1