D I S C L O S U R E M E M O R A N D U M

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1 COLUMBIA TRUST STABLE INCOME FUND D I S C L O S U R E M E M O R A N D U M February 18, 2014 Collective trust funds maintained by Ameriprise Trust Company that seek to preserve principal while maximizing current income. There can be no guarantee or assurance that a Fund will achieve its investment objective. Each Participating Trust solely bears the risk of a decrease in value of its investment in a Fund. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE

2 CONTENTS GENERAL INFORMATION... 2 INVESTMENT INFORMATION... 4 SECURITIES LENDING INVESTMENT RISKS PARTICIPATING TRUSTS VALUATION OF UNITS PURCHASES AND REDEMPTIONS FEES AND EXPENSES FUND MANAGEMENT REGULATION OF THE COLLECTIVE TRUST REPORTS TO PARTICIPATING TRUSTS ADDITIONAL INFORMATION... 30

3 PLEASE TAKE NOTE OF THE FOLLOWING: This Disclosure Memorandum ( Memorandum ) has been prepared for sponsors or other authorized representatives of Eligible Trusts to assist them and their advisers in considering whether to allow an Eligible Trust to become a Participating Trust in any of Columbia Trust Stable Income I-0 Fund, Columbia Trust Stable Income I-5 Fund, Columbia Trust Stable Income I-10 Fund, Columbia Trust Stable Income I-15 Fund, Columbia Trust Stable Income I-25 Fund, Columbia Trust Stable Income I-30 Fund, Columbia Trust Stable Income I-35 Fund, Columbia Trust Stable Income I-50 Fund, Columbia Trust Stable Income II-0 Fund, Columbia Trust Stable Income II-5 Fund, Columbia Trust Stable Income II-10 Fund, Columbia Trust Stable Income II-15 Fund, Columbia Trust Stable Income II-25 Fund, Columbia Trust Stable Income II-30 Fund, Columbia Trust Stable Income II-35 Fund, Columbia Trust Stable Income II-50 Fund, Columbia Trust Stable Income III-0 Fund, Columbia Trust Stable Income III-5 Fund, Columbia Trust Stable Income III- 10 Fund, Columbia Trust Stable Income III-15 Fund, Columbia Trust Stable Income III-25 Fund, Columbia Trust Stable Income III-30 Fund, Columbia Trust Stable Income III-35 Fund, Columbia Trust Stable Income III-50 Fund, Columbia Trust Stable Income Fund IV and Columbia Trust Stable Income Fund Z (sometimes referred to herein for convenience as Sub-Funds ). Each of the Sub-Funds intends to invest substantially all of its assets in the Columbia Trust Stable Income Fund (the Fund ). The Fund and the Sub-Funds are collective trust funds maintained by Ameriprise Trust Company. References to the Fund herein shall include each Sub-Fund, unless the context requires otherwise. This Memorandum may not be reproduced or used for any other purpose. This Memorandum does not constitute an offer to sell units of beneficial interest in the Fund or any Sub-Fund ( Units ) to, or a solicitation of an offer to buy from, any person or entity that does not constitute an Eligible Trust, nor does it constitute such an offer or solicitation in any jurisdiction where the same would be prohibited by law. The Units are not registered under the Securities Act in reliance on an exemption under that Act for interests in a collective trust fund maintained by a bank for certain types of employee benefit trusts. Neither the U.S. Securities and Exchange Commission nor any other federal or state regulatory agency has passed upon or approved the merits of an investment in Units or the accuracy or adequacy of this Memorandum. This Memorandum is not to be construed as investment, tax or legal advice. A fiduciary of each Eligible Trust should review this Memorandum and the legal, tax, economic and related consequences of an investment in the Units with its legal counsel or other professional advisors. The Units are available for purchase only by Eligible Trusts that are accepted as Participating Trusts. Eligible Trusts are defined in the Declaration of Trust and below; a Participating Trust is an Eligible Trust that has been accepted for participation in the Collective Trust. See PARTICIPATING TRUSTS. The Units are not transferable or redeemable except as described under PURCHASES AND REDEMPTIONS. This Memorandum contains summaries, believed and intended to be accurate, of certain terms of certain documents relating to the Fund. For complete information concerning the rights and obligations of the Trustee and Participating Trusts, reference is hereby made to the actual documents, copies of which will be furnished to Eligible Trusts at or before their acceptance as Participating Trusts. All such summaries are qualified in their entirety by this reference. -1-

4 Certain references used in this Memorandum are defined as follows: Advisers Act the U.S. Investment Advisers Act of 1940, as amended. Code the U.S. Internal Revenue Code of 1986, as amended. ERISA the U.S. Employee Retirement Income Security Act of 1974, as amended. Exchange Act the U.S. Securities Exchange Act of 1934, as amended. Fitch - Fitch, Inc. Investment Company Act the U.S. Investment Company Act of 1940, as amended. Moody s - Moody s Investors Service, Inc. Securities Act the U.S. Securities Act of 1933, as amended. S&P -Standard & Poor s, a division of The McGraw-Hill Companies, Inc. ( Standard & Poor s and S&P are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the Adviser. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor s and Standard & Poor s makes no representation regarding the advisability of investing in the Fund). GENERAL INFORMATION Ameriprise Trust Company ( ATC ) maintains the Ameriprise Trust Company Collective Investment Trust for Employee Benefit Plans (the Collective Trust ) and its constituent funds pursuant to a Declaration of Trust by ATC, as trustee (the Trustee ), dated September 19, 2011, as amended from time to time (the Declaration of Trust ). The Trustee established and maintains the Fund and Sub-Funds pursuant to a Supplemental Declaration, dated February 18, 2014, as amended from time to time. The Fund invests principally in the types of securities and instruments discussed below. Each of the Sub-Funds intends to invest substantially all of its assets in the Fund. Each Participating Trust may be subject to different fee arrangements depending on the amount the Participating Trust invests in the Fund and whether or not an authorized fiduciary of the Participating Trust wishes to direct that providers of other administrative services to the Participating Trust be compensated for such services out of Participating Trust assets invested in the Fund. To accommodate Participating Trusts with differing needs and objectives, the Trustee maintains separate Sub-Funds with different levels of required investments and Trustee and administrative services fee arrangements described under FEES AND EXPENSES below, each of which invests all of its assets in the Fund. Consequently, the disclosures and descriptions in this Memorandum relating to investments of the Fund apply equally to the Sub-Funds described above. See INVESTMENT INFORMATION and INVESTMENT RISKS. ATC is a trust company chartered and regulated by the State of Minnesota and is a wholly owned subsidiary of Ameriprise Financial, Inc. ATC is headquartered in Minneapolis, Minnesota. The Trustee has retained Columbia Management Investment Advisers, LLC, an affiliate of the Trustee (the Adviser ), as investment adviser to the Trustee with respect to the Fund. The Adviser is registered as an investment adviser under the Advisers Act. The Adviser is headquartered in Boston, Massachusetts, and, as of September 30, 2013, had staff of more than 1,100 in nine offices and total client assets under management of approximately $314.4 billion. -2-

5 FUND SUMMARY Columbia Trust Stable Income Fund is a stable value fund investing primarily in stable value investment contracts ( Investment Contracts ) and certain fixed-income securities. In a typical Investment Contract, an insurance company, bank or other financial institution agrees to wrap some of the Fund s fixed-income securities, units of a fixed-income collective trust fund or securities held in an insurance company separate account, and to allow redemptions from the Investment Contract to pay Fund redemptions directed by Participating Trust participants for certain purposes at the book value of the Investment Contract. Investment Contract book value is equal to the accumulated amount contributed to the contract by the Fund (a) less withdrawals from the Investment Contract and certain fees and charges and (b) plus a rate of return based on a formula specified in the contract known as the crediting rate. The crediting rate, which is adjusted periodically, is designed to amortize the market value gain or loss of the wrapped assets backing the contract over the duration of these assets as well as reflect actual interest paid on the wrapped securities and cash flows in and out of the Investment Contract. Generally, if the market value of the wrapped securities falls below the Investment Contract s book value, the crediting rate is reduced below the securities interest rate to the extent necessary to recover the deficit over time, and in some cases, the crediting rate may be reduced to, but not below, 0%. Another type of Investment Contract utilized by the Fund is the traditional guaranteed investment contract, which may be issued by an insurance company and generally provides a fixed rate of interest over a set period of time. The Fund also holds positions in short-term investments which are used to manage the liquidity of the Fund. It is important to note that Participating Trust redemptions that are not certain types of participantdirected redemptions may be subject to a delay in payment of up to 12 months. This includes redemptions directed by a fiduciary of a Participating Trust in order to redeem all or a portion of the Participating Trust s interest in the Fund. See OTHER REDEMPTION PROCEDURES. Investment Contracts typically do not provide protection against credit quality risk of the underlying securities in the Fund or the separate account and will not cover securities that become impaired. Impaired securities may include those that fail to make interest or principal payments, are in default, whose issuers are insolvent, or that are rated below the Fund s quality guidelines. Consequently, a credit downgrade or default with respect to a security could result in a decrease in the value of the underlying securities, which will cause a decrease in the crediting rate of the Fund Units in future periods. See INVESTMENT RISKS CREDIT RISK. Income from Investment Contracts and other assets of the Fund is reinvested in the Fund and not distributed in the form of additional Units of the Fund or otherwise. Income from the Investment Contracts and short-term investments is credited to the Fund on each Business Day. Consequently, the value of the Units will change rather than maintain a constant value. -3-

6 INVESTMENT OBJECTIVE INVESTMENT INFORMATION The Fund s and each Sub-Fund s investment objective is to seek to preserve principal while maximizing current income. While there is no assurance that the Fund or any Sub-Fund will achieve its investment objective, it endeavors to do so by following the policies described in this Memorandum. It is possible to lose money by investing in the Fund, including the principal invested. PERFORMANCE BENCHMARKS The Fund s performance benchmark is the Citigroup Three-Month U.S. Treasury Bill Index. The Fund s performance is also benchmarked against the average historic yield of Three-Year U.S. Treasury notes. There is no assurance that the Fund s performance or yield will meet or exceed these benchmarks. INVESTMENT STRATEGIES Each Sub-Fund will pursue its investment objective by investing substantially all of its assets in the Fund. The Trustee established investment guidelines and parameters for Fund investments. Acting in accordance with these guidelines and parameters, the Adviser may select and dispose of investments. However, the Trustee retains ultimate authority and responsibility with respect to Fund investments. Although investments are made at the Fund level, the guidelines discussed below also relate to each Sub-Fund indirectly through its investment in the Fund. Investment Contracts The Fund invests in Investment Contracts which may consist of: (1) traditional insurance company guaranteed investment contracts ( Guaranteed Investment Contracts ), (2) book value investment contracts backed by assets held in trust by the Trustee or its agent ( Book Value Contracts ) and (3) insurance company separate account investment contracts backed by assets held in a separate account maintained by the relevant Separate Account Contract issuer ( Separate Account Contracts ). The assets backing Separate Account Contracts may be held in distinct separate accounts or pooled in separate accounts with other investors. The assets backing certain Investment Contracts may be managed by the Adviser or the relevant Investment Contract issuer or its advisory affiliate. In some cases, the Adviser may retain portfolio management of the assets by acting as subadviser to such Investment Contract issuer or its advisory affiliate. A Guaranteed Investment Contract issuer may not represent more than 15% of the Fund s assets at the time of placement. If a Separate Account Contract issuer or its advisory affiliate manages all or a portion of the assets being wrapped, such issuer-managed portion may represent up to 15% of the Fund s assets at the time of placement. If the Adviser manages the assets being wrapped, such Separate Account Contract issuer may represent up to 20% of the Fund s assets. If a Book Value Contract issuer or its advisory affiliate manages all or a portion of the assets being wrapped, such issuer-managed portion may represent up to 20% of the Fund s assets at the time of placement. If the Adviser manages the assets being wrapped, such Book Value Contract issuer may represent up to 25% of the Fund s assets. Notwithstanding the foregoing, no single Investment Contract issuer -4-

7 may represent more than 25% of the Fund s assets at the time of any Investment Contract s placement. Investment Contract Type Asset Management by Trustee Asset Management by Investment Contract Issuer or its Advisory Affiliate Book Value Contracts 25% 20% Separate Account Contracts 20% 15% Guaranteed Investment Contracts Not Applicable 15% Each Investment Contract issuer must meet the Trustee s internal credit quality standards at the time of placement. Fixed-Income Bond Portfolios The Fund invests in one or more fixed-income portfolios managed by the Adviser or other parties, as set forth above, which assets are used to back the Investment Contracts and provide liquidity. Such investments may include U.S. Government and agency securities, mortgage-backed securities (including collateralized mortgage obligations), asset-backed and commercial mortgage-backed securities, U.S. dollar denominated corporate, sovereign and supranational fixed-income securities, futures contracts on securities and indices, forward commitments to purchase or sell securities, and other financial instruments that seek to provide similar characteristics as assets permitted hereunder. In addition, to the extent the Fund qualifies as a Qualified Institutional Buyer under Rule 144A of the Securities Act, the Fund may invest in Rule 144A securities. Such assets may be managed (1) on a constant duration basis without a fixed maturity date or (2) on a declining duration or fixed maturity basis, toward a fixed maturity date. Futures may be utilized in such fixed-income portfolios for hedging purposes or to provide incremental returns. With the exception of U.S. Government securities, all fixed-income securities must be investment grade, rated Baa by Moody s Investors Service or BBB by Standard and Poor s or higher, at the time of purchase. Cash and Cash Equivalents The Fund may invest in short-term investments which may include: (1) Investment Contracts with put options of three months or less, (2) fixed-income investments with thirteen months or less to expected maturity, including short-term securities issued or guaranteed as to principal and interest by the government of the United States or by instrumentalities or agencies thereof, (3) repurchase agreements collateralized by U.S. Government securities, (4) units of money market collective trust -5-

8 funds or shares of money market mutual funds, including, to the extent permitted by applicable law, funds managed by affiliates of the Trustee, (5) bank certificates of deposit, time deposits (including certificates of deposit and time deposits denominated in Eurodollars), bankers acceptances and letters of credit issued by U.S. banks and U.S. subsidiaries or branches of foreign banks with capital, surplus and undivided profits (as of the date of the most recently published annual financial statements) in excess of $100 million and (6) readily marketable short-term commercial paper and floating rate notes rated as of the date of investment A-1 or P-1 by Standard & Poor s or by Moody s Investors Services Inc., respectively. The Trustee intends to maintain short-term investments in a target range of 3-10% of Fund assets, but the actual amount may vary at any time based on market conditions, the Fund s anticipated liquidity requirements or other factors as may be determined by the Trustee. At the Trustee s discretion, up to 100% of the Fund may be placed in short-term investments, including cash and cash equivalents. Other Investments The Fund may also invest in (1) collective trust funds with similar investment objectives, investment strategies and/or investments as those of the Fund, including collective trust funds managed by the Trustee or other non-affiliated investment managers and (2) other investments with substantially similar characteristics to those described herein. Such assets may also be used to back Investment Contracts. Duration The Trustee intends to maintain the weighted average duration of the Fund within a target range of 1.5 to 4 years under normal circumstances, but the actual weighted average duration of the Fund may vary at any time based on Fund or market conditions, as determined by the Trustee. For purposes of calculating the weighted average duration of the Fund, the duration of the assets in the fixed-income bond portfolios (as determined by the Trustee), the average duration of any collective trust funds in which the Fund invests (as reported by the Trustee) and the stated final maturity dates on Guaranteed Investment Contracts and short-term investments will be utilized. INCOME AND GAINS Net income and realized capital gains of the Fund are accumulated and added to, and reinvested as a part of, the principal of the Fund. Consequently, the value of the Units will change rather than maintain a constant value. SECURITIES IN WHICH THE FUND INVESTS In addition to the Investment Contracts discussed above, the Fund invests principally in the types of securities and instruments listed below, which are generally wrapped by the Investment Contracts. Debt Obligations Many different types of debt obligations exist (for example, bills, bonds, and notes). Issuers of debt obligations have a contractual obligation to pay interest at a fixed, variable or floating rate on -6-

9 specified dates and to repay principal by 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. Corporate Debt Securities Corporate debt securities are long and short term fixed income securities typically issued by businesses to finance their operations. Corporate debt securities are issued by public or private companies, as distinct from debt securities issued by a government or its agencies. The issuer of a corporate debt security often has a contractual obligation to pay interest at a stated rate on specific dates and to repay principal periodically or on a specified maturity date. Corporate debt securities typically have four distinguishing features: (i) they are taxable; (ii) they have a par value of $1,000; (iii) they have a term maturity, which means they come due at a specified time period; and (iv) many are traded on major securities exchanges. Notes, bonds, debentures and commercial paper are the most common types of corporate debt securities, with the primary difference being their interest rates, maturity dates and secured or unsecured status. Commercial paper has the shortest term and usually is unsecured, as are debentures. The broad category of corporate debt securities includes debt issued by domestic or foreign companies of all kinds, including those with small-, mid- and large-capitalizations. The category also includes bank loans, as well as assignments, participations and other interests in bank loans. Corporate debt securities may be rated investment grade or below investment grade and may be structured as fixed-, variable or floating-rate obligations or as zerocoupon, pay-in-kind and step-coupon securities and may be privately placed or publicly offered. They may also be senior or subordinated obligations. Agency and Government Securities The U.S. Government, its agencies and instrumentalities, and government-sponsored enterprises 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 instrumentalities 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 ). Governmentsponsored entities may issue discount notes (with maturities ranging from overnight to 360 days) and bonds. Mortgage-Backed Securities Mortgage-backed securities represent interests in, or are backed by, pools of mortgages from which payments of interest and principal (net of fees paid to the issuer or guarantor of the securities) are distributed to the holders of the mortgage-backed securities. Pools of mortgages may be residential or commercial mortgages. Mortgage-backed securities can have a fixed or an adjustable rate. -7-

10 Payment of principal and interest on some mortgage-backed securities (but not the market value of the securities themselves) may be guaranteed (i) by the full faith and credit of the U.S. Government (in the case of securities guaranteed by the GNMA) or (ii) by its agencies, authorities, enterprises or instrumentalities (in the case of securities guaranteed by the FNMA or the FHLMC), which are not insured or guaranteed by the U.S. Government (although FNMA and FHLMC may be able to access capital from the U.S. Treasury to meet their obligations under such securities). Forward Contracts and Dollar Rolls A forward is a contract between two parties to buy or sell an asset at a specified future time at a price agreed today. Forwards are traded in the over-the-counter markets. The Fund may purchase forward contracts, including those on mortgage-backed securities in the to be announced ( TBA ) market. In the TBA market, the seller agrees to deliver the mortgage-backed securities for an agreed upon price on an agreed upon date, but makes no guarantee as to which or how many securities are to be delivered. Dollar rolls involve selling securities (e.g., mortgage-backed securities or U.S. Treasury securities) and simultaneously entering into a commitment to purchase those or similar (same collateral type, coupon and maturity) securities on a specified future date and price. Mortgage dollar rolls and U.S. Treasury rolls are types of dollar rolls. A fund foregoes principal and interest paid on the securities during the roll period. A fund is compensated by the difference between the current sales price and the lower forward price for the future purchase of the securities as well as the interest earned on the cash proceeds of the initial sale. Asset-Backed Securities Asset-backed securities represent interests in, or debt instruments that are backed by, pools of various types of assets that generate cash payments generally over fixed periods of time, such as, among others, motor vehicle installment sales, contracts, installment loan contracts, leases of various types of real and personal property, and receivables from revolving (credit card) agreements. Such securities entitle the security holders to receive distributions (i.e., principal and interest) that are tied to the payments made by the borrower on the underlying assets (less fees paid to the originator, servicer, or other parties, and fees paid for credit enhancement), so that the payments made on the underlying assets effectively pass through to such security holders. Asset-backed securities typically are created by an originator of loans or owner of accounts receivable that sells such underlying assets to a special purpose entity in a process called a securitization. The special purpose entity issues securities that are backed by the payments on the underlying assets, and have a minimum denomination and specific term. Asset-backed securities may be structured as fixed-, variable- or floating-rate obligations or as zero-coupon, pay-in-kind and step-coupon securities and may be privately placed or publicly offered. Collective Investment Funds The Fund may invest its assets in securities of other pooled investment vehicles, including other collective investment funds managed by the Trustee, affiliates of the Trustee (to the extent permitted by applicable law) or other non-affiliated investment managers. -8-

11 Money Market Instruments Money market instruments are high-quality, short-term debt obligations, which include: (a) repurchase agreements; (b) obligations of the United States and its agencies and instrumentalities, and (c) units of money market collective trust funds or shares of mutual funds. Money market instruments may be structured as fixed-, variable- or floating-rate obligations and may be privately placed or publicly offered. Derivatives Derivatives are financial instruments whose values are based on (or derived from) traditional securities (such as a stock or a bond), assets (such as a commodity, like gold), reference rates (such as LIBOR), market indices (such as the S&P 500 Index) or customized baskets of securities or instruments. Some forms of derivatives, such as exchange-traded futures and options on securities, commodities, or indices, are traded on regulated exchanges. These types of derivatives are standardized contracts that can easily be bought and sold, and whose market values are determined and published daily. Non-standardized derivatives, on the other hand, tend to be more specialized or complex, and may be harder to value. Many derivative instruments often require little or no initial payment and therefore often create inherent economic leverage. Derivatives, when used properly, can enhance returns and be useful in hedging portfolios and managing risk. Some common types of derivatives include futures; forward contracts on securities and securities indices; linked securities and structured products; CMOs; stripped securities; and warrants. Futures Contracts A futures contract sale creates an obligation by the seller to deliver the type of security or other asset called for in the contract at a specified delivery time for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of security or other asset called for in the contract at a specified delivery time for a stated price. The specific security or other asset delivered or taken at the settlement date is not determined until on or near that date. The determination is made in accordance with the rules of the exchange on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying security or other asset. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act (the CEA ) by the Commodity Futures Trading Commission (the CFTC ), a U.S. Government agency. Traders in futures contracts may be broadly classified as either hedgers or speculators. Hedgers use the futures markets primarily to offset unfavorable changes (anticipated or potential) in the value of securities or other assets currently owned or expected to be acquired by them. Speculators less often own the securities or other assets underlying the futures contracts which they trade, and generally use futures contracts with the expectation of realizing profits from fluctuations in the value of the underlying securities or other assets. -9-

12 Pursuant to a notice of eligibility claiming exclusion from the definition of commodity pool operator filed with the CFTC and the National Futures Association on behalf of the Collective Trust, neither the Collective Trust nor any of its constituent funds is deemed to be a commodity pool operator under the CEA, and, accordingly, they are not subject to registration or regulation as such under the CEA. SECURITIES LENDING To generate additional income, the Fund may lend up to one third of the value of its total assets to brokers, dealers, and financial institutions in accordance with ERISA Prohibited Transaction Class Exemption or any other applicable statutory or administrative exemption. JPMorgan Chase Bank, N.A. serves as lending agent (the Lending Agent ) to the Fund pursuant to a securities lending agreement (the Securities Lending Agreement ) between the Trustee and the Lending Agent. Under the Securities Lending Agreement, the Lending Agent loans securities to approved borrowers pursuant to borrower agreements in exchange for collateral equal to at least 100% of the market value of the loaned securities. Collateral may consist of cash, securities issued by the U.S. Government or its agencies or instrumentalities (collectively, U.S. Government securities ) or such other collateral as may be approved by the Trustee. For loans secured by cash, the Fund retains the income earned on cash collateral investments made by the Lending Agent under guidelines approved by the Trustee, but is required to pay the borrower a rebate for the use of the cash collateral. For loans secured by U.S. Government securities, the borrower pays a borrower fee to the Lending Agent on behalf of the Fund. If the market value of the loaned securities goes up, the Lending Agent will request additional collateral from the borrower. If the market value of the loaned securities goes down, the borrower may request that some collateral be returned. During the existence of the loan, the Fund will receive from the borrower amounts equivalent to any dividends, interest or other distributions on the loaned securities, as well as interest on such amounts. Loans are subject to termination by the Fund or a borrower at any time. The Trustee may choose to terminate a loan in order to vote in a proxy solicitation if the Trustee has knowledge of a material event to be voted on that would affect the Fund s investment in the loaned security. The Trustee has agreed to compensate the Lending Agent for its services as such pursuant to the Securities Lending Agreement. In the case of a loan secured by cash collateral, the Lending Agent is entitled to a portion of the income payable to the Fund from cash collateral investments. In the case of a loan secured by U.S. Government securities, the Lending Agent receives a portion of the borrower fee paid by the borrower. -10-

13 INVESTMENT RISKS The following is a summary of risks characteristics for the Fund. One or more of the following types of risk may be associated with the Fund at any time, directly or indirectly. Stable Value Risks NO GUARANTEE OF STABILITY There is no assurance that the Fund will achieve its investment objective. Further, while the investment objective of the Fund is to seek to preserve principal while maximizing current income, neither the Fund nor the Trustee provide a guarantee to repay principal, income and interest to investors. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Investors in the Fund may lose some portion of their investment in Fund. CREDIT RISK Credit risk is the risk that the borrower of a loan or the issuer of another debt security may or will default or otherwise become unable or unwilling to honor a financial obligation, such as making payments to the Fund. Although the credit risk of U.S. Government securities backing the Investment Contracts may be low, there is some credit risk associated with the Investment Contracts. Prior to making an investment in an Investment Contract, the Trustee conducts a credit analysis of the Investment Contract issuer based upon its internal standards. The risk associated with a default of a Book Value Contract issuer is mitigated because the Fund owns and holds the securities which back the Book Value Contract. The risk associated with the default of a Separate Account Contract issuer may be higher because the issuer s custodian for the separate account holds the securities which back the Separate Account Contract. In either case, if the Investment Contract issuer is not creditworthy the securities backing the Investment Contract must be marked to market and there is a risk that the market value of the securities backing such Investment Contracts may be lower than the book value of the relevant Investment Contract. Consequently the Fund could experience a loss in principal value of its assets and a decrease in the value of its Units. CREDITING RATE RISK Each Investment Contract utilizes a crediting rate formula intended to amortize the market value gain or loss of the Fund assets backing each Investment Contract over the duration of the assets in the relevant portfolio as well as reflect actual interest paid on the wrapped securities and cash flows in and out of the contract. The terms of each Investment Contract determine when the crediting rate for the assets backing such contract will be reset. In most cases, crediting rates are reset quarterly and upon the occurrence of certain triggering events. The Fund s yield is calculated by aggregating the crediting rates of all Investment Contracts in the Fund, as well as any yield on the Fund s investments in short-term investments and other Fund investments that are not wrapped. -11-

14 When the crediting rate of any Investment Contract is decreased to adjust for situations in which the market value of the underlying assets is below the book value of the contract, the Fund s yield may also decrease accordingly, and in some cases, the crediting rate of an Investment Contract may be reduced to, but not below, 0%, based on such contract s terms. Crediting rates are likely to differ from the current yields on other fixed income investments of comparable duration, and because crediting rates are reset only periodically, they may be substantially different from such current rates. INVESTMENT CONTRACT RISK The Fund s ability to maintain a stable value is dependent on issuers of Investment Contracts. It is possible that one or more of these issuers become uncreditworthy, insolvent or unable to honor its obligations under the relevant Investment Contract. Similarly, Investment Contract issuers have the right to terminate their Investment Contracts under various circumstances, some of which may be outside of the Fund s control and due to conduct of Participating Trusts or certain changes in the regulatory environment. If one of these instances were to occur and the Fund was not able to find a substitute Investment Contract issuer or otherwise achieve a stable value for that portion of the Fund s assets, the Fund s Unit value might fall and investors might experience a loss. In addition, Investment Contracts contain certain terms and conditions applicable to Participating Trusts and their participants which are required in order for Participating Trust participants to receive book value benefit responsive treatment for their redemption activity. If such Participating Trusts and/or their participants do not comply with such terms and conditions, as relayed to Participating Trusts herein and in the relevant provisions of the Participation Agreement, it is possible that Participant-directed Redemptions (as defined herein) may not receive book value benefit responsive treatment. Furthermore, Investment Contracts impose restrictions on the ability of a Participating Trust to redeem its investment for up to 12 months and may require that a Participating Trust redeem from the Fund upon the occurrence of certain events. LIQUIDITY RISK Liquidity risk occurs when the Investment Contracts or the Fund assets used to back such Investment Contracts must be liquidated in order to meet liquidity demands on the Fund. The Trustee utilizes short-term investments (the cash buffer ) to seek to manage Fund liquidity by anticipating the volume of Participant-directed Redemptions from the Fund and to reduce the Fund s overall duration. Participant-directed Redemptions may be first funded from net contributions and other transfers to the Fund and then from the Fund s cash buffer. To the extent that additional funds are necessary, certain Fund assets backing Investment Contracts may be liquidated to fund any remaining amount. If the market value of such assets is below their book value, such liquidation could invoke the wrap coverage provided by the Investment Contracts. Alternatively, it is possible that the Trustee may overestimate the volume of upcoming Participantdirected Redemptions from the Fund or for other reasons hold a higher portion of the Fund in cash or cash equivalents than is strictly necessary to manage the Fund s liquidity. Such higher percentage of cash investments may reduce the Fund s overall yield. -12-

15 Fixed-Income Securities Risks While most fixed-income securities held by the Fund are wrapped by Investment Contracts, declines in such securities value will reduce the crediting rate and the Fund s yield. Moreover, Investment Contracts typically do not provide protection against credit quality risk of the securities in the Fund and will not cover securities that become impaired. Impaired securities are those that fail to make interest or principal payments, are in default, whose issuers are insolvent, or that are rated below the Fund s quality guidelines. Consequently, a credit downgrade or default with respect to a security could result in a decrease in the value of the Units. ACTIVE MANAGEMENT RISK The Fund is actively managed and its performance therefore will reflect, in part, the ability of the Adviser and other managers of Investment Contract portfolios to select investments and to make investment decisions that are suited to achieving the Fund s investment objective, as established by the Trustee. Due to its active management, the Fund could underperform other funds with similar investment objectives and strategies. The Fund may fail to achieve its investment objective and you may lose money. ASSET-BACKED SECURITIES RISK The value of the Fund s asset-backed securities may be affected by, among other things, changes in: interest rates, factors concerning the interests in and structure of the issuer or the originator of the receivables, the creditworthiness of the entities that provide any supporting letters of credit, surety bonds or other credit enhancements, or the market s assessment of the quality of underlying assets. Asset-backed securities represent interests in, or are backed by, pools of receivables such as credit card, auto, student and home equity loans. They may also be backed, in turn, by securities backed by these types of loans and others, such as mortgage loans. Asset-backed securities can have a fixed or an adjustable rate. Most asset-backed securities are subject to prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining or low interest rates, causing the Fund to have to reinvest the money received in securities that have lower yields. In addition, the impact of prepayments on the value of asset-backed securities may be difficult to predict and may result in greater volatility. Rising or high interest rates tend to extend the duration of asset-backed securities, making them more volatile and more sensitive to changes in interest rates. CREDIT RISK Credit risk is the risk that the issuer of a fixed-income security may or will default or otherwise become unable or unwilling, or is perceived to be unable or unwilling, to honor a financial obligation, such as making payments to the Fund when due. Various factors could affect the issuer s actual or perceived willingness or ability to make timely interest or principal payments, including changes in the issuer s financial condition or in general economic conditions. Debt securities backed by an issuer s taxing authority may be subject to legal limits on the issuer s power to increase taxes or otherwise to raise revenue, or may be dependent on legislative appropriation or government aid. -13-

16 Certain debt securities are backed only by revenues derived from a particular project or source, rather than by an issuer s taxing authority, and thus may have a greater risk of default. If the Fund purchases unrated securities, or if the rating of a security is lowered after purchase, the Fund will depend on analysis of credit risk more heavily than usual. Unrated securities held by the Fund may present increased credit risk as compared to higher-rated securities. Certain forward-settling agency mortgage-backed securities may reduce credit risk by collateralizing the daily net liability attributable to such securities. 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. Losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, commodity, currency or index may result in a substantial loss for the Fund. In addition to the potential for increased losses, the use of derivative instruments may lead to increased volatility within the Fund. Derivatives will typically increase the Fund s exposure to the principal risks to which it is otherwise exposed, and may expose the Fund to additional risks, including correlation risk (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 risk (the risk that the counterparty to the instrument will not perform or be able to perform in accordance with the terms of the instrument), leverage risk (the risk that losses from the derivative instrument may be greater than the amount invested in the derivative instrument), hedging risk (the risk that a hedging strategy may not eliminate the risk that it is intended to offset, and may offset gains, which may lead to losses within the Fund) and liquidity risk (it may not be possible for the Fund to liquidate the instrument at an advantageous time or price, each of which may result in significant and unanticipated losses to the Fund). Below is more detailed information on certain derivatives expected to be utilized by the Fund. Derivatives Risk Forward Contracts. A forward is a contract between two parties to buy or sell an asset at a specified future time at a price agreed today. Forwards are traded in the over-thecounter markets. The Fund may purchase forward contracts, including those on mortgage-backed securities in the TBA market. In the TBA market, the seller agrees to deliver the mortgage backed securities for an agreed upon price on an agreed upon date, but makes no guarantee as to which or how many securities are to be delivered. Investments in forward contracts subject the Fund to counterparty risk. Counterparty risk associated with certain forward-settling agency mortgage-backed securities, including TBAs, may be mitigated by the collateralization of such securities. Derivatives Risk Futures Contracts Risk. The use of futures contracts is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. 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. The liquidity of the futures markets depends on participants entering into off-setting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market -14-

17 could be reduced. In addition, futures exchanges often impose a maximum permissible price movement on each futures contract for each trading session. The Fund may be disadvantaged if it is prohibited from executing a trade outside the daily permissible price movement. Moreover, to the extent the Fund engages in futures contracts on foreign exchanges, such exchanges may not provide the same protection as U.S. exchanges. The loss that may be incurred in entering into futures contracts may exceed the amount of the premium paid and may be potentially unlimited. Futures markets are highly volatile and the use of futures may increase the volatility of the Fund s net asset value. Additionally, as a result of the low collateral deposits normally involved in futures trading, a relatively small price movement in a futures contract may result in substantial losses to the Fund. Investment in these instruments involve risks, including counterparty risk (i.e., the counterparty to the instrument will not perform or be able to perform in accordance with the terms of the instrument), hedging risk (i.e., a hedging strategy may not eliminate the risk that it is intended to offset, and may offset gains, which may lead to losses within the Fund) and pricing risk (i.e., the instrument may be difficult to value). DOLLAR ROLLS RISK Dollar rolls are transactions in which the Fund sells securities to a counterparty and simultaneously agrees to purchase those or similar securities in the future at a predetermined price. Dollar rolls involve the risk that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the counterparty may default on its obligations. These transactions may also increase the Fund s portfolio turnover rate. If the Fund reinvests the proceeds of the security sold, the Fund will also be subject to the risk that the investments purchased with such proceeds will decline in value (a form of leverage risk). INTEREST RATE RISK Interest rate risk is the risk of losses attributable to changes in interest rates. In general, if prevailing interest rates rise, the values of debt securities will tend to fall, and if interest rates fall, the values of debt securities will tend to rise. Changes in the value of a debt security usually will not affect the amount of income the Fund receives from it but may affect the value of the Fund s units. In general, the longer the maturity or duration of a debt security, the greater its sensitivity to changes in interest rates. Interest rate changes also may increase prepayments of debt obligations, which, in turn, would increase prepayment risk. Where the assets backing an Investment Contract may be managed pursuant to a declining duration or fixed maturity strategy, the Trustee manages interest rate risk by primarily by selecting a portfolio which provides consistent cash flow. However, the Fund may encounter interest rate risk through the reinvestment of cash flows, as prevailing interest rates at the time of reinvestment may be higher or lower than the Fund s then-current yield. The Trustee also manages interest rate risk by purchasing Investment Contracts to help mitigate the impact of daily market value changes on the fixed-income investments due to market interest rate changes. MARKET RISK Market risk refers to the possibility that the market values of securities or other investments that the Fund holds will fall, sometimes rapidly or unpredictably, or fail to rise. Security values may fall or fail -15-

18 to rise because of a variety of factors affecting (or the market s perception of) individual companies (e.g., an unfavorable earnings report), industries or sectors, or the market as a whole, reducing the value of an investment in the Fund. Accordingly, an investment in the Fund could lose money over short or even long periods. The market values of the securities the Fund holds also can be affected by changes or perceived changes in U.S. or foreign economies and financial markets, and the liquidity of these securities, among other factors. In general, equity securities tend to have greater price volatility than debt securities. In addition, common stock prices may be sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. MORTGAGE- AND OTHER ASSET-BACKED SECURITIES RISK The value of any mortgage-backed and other asset-backed securities held by the Fund may be affected by, among other things, changes or perceived changes in: interest rates, factors concerning the interests in and structure of the issuer or the originator of the mortgages or other assets, the creditworthiness of the entities that provide any supporting letters of credit, surety bonds or other credit enhancements, or the market s assessment of the quality of underlying assets. Mortgagebacked securities represent interests in, or are backed by, pools of mortgages from which payments of interest and principal (net of fees paid to the issuer or guarantor of the securities) are distributed to the holders of the mortgage-backed securities. Mortgage-backed securities can have a fixed or an adjustable rate. Payment of principal and interest on some mortgage-backed securities (but not the market value of the securities themselves) may be guaranteed (i) by the full faith and credit of the U.S. Government (in the case of securities guaranteed by the GNMA) or (ii) by its agencies, authorities, enterprises or instrumentalities (in the case of securities guaranteed by the FNMA or the FHLMC), which are not insured or guaranteed by the U.S. Government (although FNMA and FHLMC may be able to access capital from the U.S. Treasury to meet their obligations under such securities). Counterparty risk associated with certain forward-settling agency mortgage-backed securities may be mitigated by the collateralization of such securities. Mortgage-backed securities issued by non-governmental issuers (such as commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers) may be supported by various credit enhancements, such as pool insurance, guarantees issued by governmental entities, letters of credit from a bank or senior/subordinated structures, and may entail greater risk than obligations guaranteed by the U.S. Government, whether or not such obligations are guaranteed by the private issuer. Mortgage-backed securities are subject to prepayment risk, which is the possibility that the underlying mortgage may be refinanced or prepaid prior to maturity during periods of declining or low interest rates, causing the Fund to have to reinvest the money received in securities that have lower yields. In addition, the impact of prepayments on the value of mortgage-backed securities may be difficult to predict and may result in greater volatility. Rising or high interest rates tend to extend the duration of mortgage-backed securities, making them more volatile and more sensitive to changes in interest rates. REINVESTMENT RISK Reinvestment risk is the risk that the Fund will not be able to reinvest income or principal at the same return it is currently earning. -16-