Client FAQs about Money Market Fund Developments

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1 Client FAQs about Money Market Fund Developments The following is in response to the issues consumers are facing regarding money market mutual funds including The Reserve Funds. As we learn more we will keep you informed of changes that may affect you. Q. What is the strength and stability of Securities America? Securities America is a wholly-owned subsidiary of Ameriprise Financial, Inc., a Fortune 300 company with decades of experience, growth and success in financial services. Securities America and its parent company continue to operate from a position of strength and stability. Q. How have money market funds with which Securities America has relationships been affected by recent market events? How have accounts been affected? Securities America does not have its own money market funds. We use third-party money market fund companies. Prior to Sept. 17, 2008, Securities America used a third-party firm called The Reserve Fund for its brokerage cash sweep accounts. The Reserve Funds has key client relationships with many of the nation s leading corporations, endowments, pensions, municipalities and hedge funds, including over 400 financial services firms and over 30% of the Fortune 100 companies. The Reserve Fund s money market funds have been significantly affected by recent market events. Our relationship with The Reserve Funds was concentrated primarily on the use of The Reserve Funds as a cash sweep option in brokerage accounts. Due to The Reserve Fund s circumstances, Securities America and Ameriprise no longer make the Reserve Funds available as a brokerage sweep money market option. Securities America worked with our clearing firm National Financial Services to establish a new core sweep money market option from Fidelity funds, and with our clearing firm Pershing to establish a new core sweep money market option from Federated funds. Fidelity and Federated have applied to participate in Federal Treasury Guaranty program announced by the U.S. Treasury on Sept. 19. Reserve Fund investors are not covered and ONLY assets held at the close of business on Sept. 19 in money market funds that can certify that their NAV was $1.00 and who choose to participate in the plan are covered. Q. What does the Treasury Department s money market guaranty plan mean? On Friday, Sept. 19, the Treasury Department announced it would establish a temporary guaranty program for U.S. money market mutual funds. The U.S. Treasury Temporary Guarantee Program provides a guarantee to participating money market mutual fund shareholders based on the number of shares invested in the fund at the close of business on Sept. 19 both retail and institutional that was trading at $1.00 per share. Eligible funds must apply and pay a fee to participate in the program. Under this program, investors in money market mutual funds with a net asset value (NAV) that falls below $1.00 would be notified that their fund triggered the guarantee program. President Bush has approved the use of $50 billion in assets from the Exchange Stabilization Fund, established by the Gold Reserve Act of 1934, to cover the cost of guaranteeing these investments. The Reserve Fund applied to participate in this program and their Primary II, Reserve Liquid Performance, US Government, US Government II and Treasury & Repo funds are included in the program. Page 1 of 5

2 Important points to understand about the Guaranty Program include that if an investor closes his/her account with a fund or broker-dealer, any future investment in the fund will not be guaranteed; any increase in the number of shares an investor holds after the close of business on Sept, 19, 2008 will not be guaranteed; and the program expires on April 30, 2009, unless extended by the United States Treasury. Funds must make a program extension payment and submit the extension notice to participate. If a fund does not participate in this extension, that fund will not be eligible to participate in any potential further extension of the program. Both Fidelity and Federated money market funds will continue their coverage under the program. Q. What happened to The Reserve Fund? The Reserve Fund announced on Tuesday, Sept. 16, that it had reduced the net asset value of their Primary Fund to less than one dollar ($0.97) and subsequently to a lower price ($0.95), although that price was not deemed official. The net asset value of the Primary Fund currently posted on the The Reserve website is $0.97. On Wednesday, Sept. 17, The Reserve Fund closed all of its money market funds to new deposits. We were informed that the price of The Reserve Fund s Primary Fund falling below $1.00 was a direct result of the Lehman Brothers bankruptcy. All other funds offered by The Reserve to which clients may have access through Securities America s relationship with The Reserve Fund remain priced at $1.00 NAV per the Reserve Fund website. Redemption proceeds have been disbursed from The Reserve Fund to Securities America s clearing firm, National Financial Services, for the Interstate Tax-Exempt Fund, U.S. Government Fund and all state- specific tax-exempt funds. Partial distributions have been made for the Primary Fund. Q. Do Securities America clients have exposure to The Reserve Fund? Some of Securities America s clients held The Reserve Fund s Primary Fund as the sweep option for their brokerage accounts. The Reserve Fund completed an initial partial distribution for this fund on Friday, Oct. 31, 2008, a second partial distribution on Wednesday, Dec. 3, 2008 and a third partial distribution on Friday, Feb. 20. The Reserve s U.S. Government Fund completed a full distribution on Friday, Jan. 16, We are doing everything in our power to help clients gain access to the remainder of their assets. Q. Given the events surrounding The Reserve Fund, what actions have Securities America and Ameriprise taken on behalf of clients? On Wednesday, Sept. 17, Securities America worked with one of our clearing firms, National Financial Services, to establish a new money market account using Fidelity funds for clients with accounts at National Financial. On Thursday, Sept. 18, we worked with our other clearing firm, Pershing, to establish a new money market account using Federated funds for clients with accounts at Pershing. On Thursday, Sept. 18, in order to secure existing client assets, Securities America submitted a request to liquidate all client assets currently held in any of The Reserve Fund s money market funds available through Securities America s relationship with The Reserve Fund. Liquidation requests began processing on Thursday, Sept. 18, and completed early on Friday, Sept. 19. Only a very few liquidation requests carried into Friday for processing due to Thursday s processing cut-off time. Securities America and Ameriprise dissolved our relationship with The Reserve Fund and their money market funds are no longer available as a sweep option. Page 2 of 5

3 On Friday, Sept. 19, Ameriprise Financial, Inc. announced that its wholly-owned subsidiaries Ameriprise Financial Services, Inc. and Securities America Inc., had filed suit in the United States District Court, District of Minnesota, accusing Reserve Management Co. of misconduct in its administration of the Primary Fund. Ameriprise asked the court to require The Reserve Fund to liquidate the Primary Fund in a fair and equitable manner that treats all investors equally. On the afternoon of Friday, Sept. 19, the judge approved the temporary restraining order requested in our suit against The Reserve Management Co. On Tuesday, Sept. 23, the judge lifted the restraining order because the SEC took over control of The Reserve Fund. The judge also granted Ameriprise and Securities America s request for expedited discovery. Redemption proceeds have been fully disbursed from The Reserve Fund to Securities America s clearing firms, National Financial Services and Pershing, for the Interstate Tax- Exempt Fund, U.S. Government Fund and all state-specific tax-exempt funds. Partial distributions have been received for the Primary Fund at National Financial and Pershing. On Dec. 3, 2008, The Reserve Primary Fund announced its liquidation plan for the Primary fund. As part of this plan, it established a special reserve fund to cover legal and accounting costs arising from The Primary Fund problems. This special reserve fund would use client assets individual investors cash to cover costs, and would further erode the fund s net asset value. Ameriprise Financial and Securities America, Inc. filed a federal court motion on Dec. 11 asking the court to freeze all payments out of the special reserve fund, and to appoint a special master or supervisor to ensure only appropriate and reasonable expenses are paid using investor money. On Jan. 5, 2009, the court agreed to appoint such a supervisor. While the court did not grant the request to freeze payments from this special fund, the appointment of the special supervisor will give Ameriprise and Securities America additional recourse for ensuring that investors do not shoulder the burden of inappropriate accounting and legal fees related to the Primary Fund s liquidation. As of Mar. 4, 2009, the legal proceedings continue. The SEC and other regulators are on site at The Reserve and are conducting their reviews and assessments. Everyone involved has recognized the liquidity needs of clients and understands the importance of being timely and fair in this matter. Q. How do I know if I have a money market account with The Reserve Fund? You can check your current Securities America account statement, call your financial advisor or call Securities America s customer service at (800) , Option 1. Q. Will my advisor or Securities America help me access my cash, since The Reserve Fund has not fully honored redemption requests? We know it is important that clients have access to their cash assets, so we have created a process for reviewing our clients' limited day-to-day liquidity needs by working with National Financial Services and Pershing (our clearing firms), and Ameriprise (our parent company). We will be evaluating this decision on a daily basis based on client needs. Securities America is continuing to work with its clearing firms to allow you to use your ATM and Debit Cards to access new money in your newly established Fidelity funds or Federated funds sweep account. Any new money deposited to your account as of Wednesday, Sept. 17, will be accessible since it will be held in your new sweep account at Fidelity funds or Federated funds. Now that all Reserve funds have made full or partial distributions for many of its funds, you should have access to large portions of your cash. Page 3 of 5

4 Q. I heard that Securities America along with its parent company, Ameriprise, has filed a lawsuit against The Reserve Fund. What does this mean to me? Ameriprise Financial and Securities America filed a suit against The Reserve Fund alleging that it tipped institutional investors of the potential to break the buck which we believe, in turn, has hurt retail investors. We obtained a restraining order to prevent the distribution of redemption proceeds until it is assured that the liquidation of assets in the fund is handled in an orderly fashion, equitable to all investors. The restraining order was issued on Sept.19. On Tuesday, Sept. 23, the judge lifted the restraining order because the SEC was involved in overseeing action by The Reserve to distribute fund assets. The judge also granted Ameriprise and Securities America s request for expedited discovery and we have been engaged in aggressively pursuing relevant facts and information. Q. What is Ameriprise doing to offset problems related to the losses in The Reserve Fund s Primary Fund? Ameriprise is a diversified financial services company. It has retail advisors who work under the Ameriprise name. While Securities America is a subsidiary of Ameriprise, Securities America operates independently. Ameriprise announced on Sept. 24, 2008, that for clients of its branded distribution channels it would commit up to $33 million, or $0.03 per share of the client investment held in the Primary Fund, to mitigate these client losses in the fund. Ameriprise made this decision not out of any sense of liability or culpability for the losses suffered by clients in the Reserve Fund, but to protect their high value brand image and the products and services offered under that brand. This commitment does not extend to Securities America s advisors clients because we are an independent company. As such, we must wait for the situation to mature and develop to decide the best course of action. Definitive determinations cannot be made until more information is received. Q. What happens to my assets with The Reserve Fund? Until The Reserve has completed the full redemption of their funds, any asset balances with The Reserve Fund show as a position on your account statement. These assets cannot be used to purchase stocks and are not currently available for complete withdrawal. Q. Is it safe to make new deposits into my Securities America brokerage account? Yes. Securities America is no longer offering The Reserve Fund as a sweep option. Instead, we are sweeping your new money into a new Fidelity money market fund if your accounts are with National Financial and a new Federated money market fund if your accounts are with Pershing. Q. What changes will I see in my account? The Reserve s Primary Fund and U.S Government Fund were moved from a sweep position to a securities position in your brokerage account similar to the way other money market funds are held in your account. An open order has been entered to liquidate your full position in The Reserve. At this time, only partial distributions have occurred for The Primary Fund. A full distribution has been completed for the U.S Government Fund. During September, an adjustment was entered by National Financial at the direction of The Reserve to decrease the value of Reserve Primary fund holdings by 3%. Subsequently, an adjustment back to the original value was entered at the direction of The Reserve to prepare records for the initial distribution of the Primary fund. Page 4 of 5

5 During September, an adjustment was entered by Pershing at the direction of The Reserve to decrease the value of Reserve Primary fund holdings by 3%. The undistributed fund balance remains priced at $.97. The Reserve initiated the first partial distribution from its Reserve Primary Fund Class R money market fund under the oversight of the SEC. The distribution was credited to accounts on Oct. 31, 2008 based on the value as of Sept. 15, 2008, and multiplying that value by %. The Reserve initiated the second partial distribution from its Reserve Primary Fund Class R money market fund under the oversight of the SEC. The distribution was credited to accounts on Dec. 3, 2008 based on the value as of Sept. 15, 2008, and multiplying that value by %. Alternatively, this second distribution was % of the current balance remaining after the initial partial distribution. Distributions to date total % of the value of the fund as of Sept. 15, The Reserve initiated the third partial distribution from its Reserve Primary Fund Class R money market fund under the oversight of the SEC on Feb. 20, The distribution amount was % of the remaining balance, which equaled approximately 6% of the original fund assets as of Sept. 15, Therefore, clients have received about 85% of their money after this third partial distribution. The Reserve initiated the first distribution from its Reserve U.S Government money market fund under the oversight of the SEC. The distribution was credited to accounts on Nov. 13, 2008 based on the value as of Sept. 15, 2008, and multiplying that value by %. The final full distribution for the U.S. Government Fund was completed on Friday, Jan. 16, Q. Will my checking account number change? No. If you already had check-writing established with your money market account, there will be no impact to the checking account number because of the change to your sweep account. Q. Can I make trades in my brokerage account? You can continue to sell any position in your brokerage account. These transactions are not affected by The Reserve Fund issue. For new purchases, you can purchase securities in your account as long as you have a source of funds other than your shares in The Reserve Fund. Your funds could come from a deposit of new money, proceeds from other transactions or your margin account. An investment in a money market fund is not guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Investment products are not federally or FDIC insured, are not deposits or obligations of, or guaranteed by, any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. Securities America, Inc., Member FINRA/SIPC. Securities America Advisors, Inc., an SEC Registered Investment Advisor. An investor should carefully consider the investment objectives, risks, charges and expenses before investing. The fund prospectus contains this and other information about the investment company. For a copy of the prospectus, please contact your advisor. Read the prospectus carefully before investing or sending money. Page 5 of 5