Q: Could you give us more details about these managers and the models?

A: They're actually four institutional money managers. And the models are defined by the allocation amongst asset classes, or by how much you might have in bonds versus international stocks versus domestic. That's what defines the model. But within the equity allocation, those four institutional money managers are responsible for the returns on the domestic equity.

Q: So you and your staff would add, replace, or broaden the mandate depending on your investment view at the macro level?

A: Yes, both on the macro level and on the level of the managers that we've selected. We monitor them formally on a quarterly basis through our investment policy committee, and CRA Rogers Casey is a key part of that formal evaluation. We want to make sure that the managers are managing money consistent with their historical process, and that their performance is in line with our expectations based on what we've observed historically.

Then we look at the allocations and think about adjustments based upon what the market's doing. So, the other level would be modest adjustments to allocations to small-cap, or to emerging markets, for example. On the bond side, we have the flexibility to modestly adjust maturities or duration based on where interest rates are headed. So on two key levels, we're monitoring the managers and the portfolio allocations.

Q: How did you arrive at such a large number of models?

A: We wanted to meet a very broad spectrum of investor objectives and risk tolerances. There are certainly many models that you could come up with, because of the broad array of investors out there. But with the 300+ models that we have, we cover quite a broad spectrum of individual objectives almost on a customized basis. If one of those models doesn't precisely meet the investor's objective, we can fine-tune the allocation based on that objective. More often than not, we find that the 300+ models are adequate in meeting most investors objectives out there.

Q: How often do you review that list and change it?

A: The strategic allocation of the 300+ models doesn?t change very often. The mix between stocks and bonds won't change very often because they were constructed based on long-term assumptions. Again, we did that in conjunction with CRA Rogers Casey using mean-variance optimization and some fairly sophisticated modeling techniques to come up with these allocations. These models would only change when longterm expectations for the capital markets change significantly. We review that formally on an annual basis and it's not unusual to go several years without changing those assumptions.

Q: Could you give us a couple of examples of model portfolios that are broadly used across your client base?

A: It is a matter of diversification over a number of assets classes. For a typical investor, if there is such an investor, but if he is looking for total return, we'd provide exposure to domestic equity markets, international developed markets, international emerging markets, real estate, and fixed income. So it's a well-diversified portfolio with sub-asset classes like exposure to large, mid, and small-cap stocks, both growth and value, while the fixed income side would traditionally include investment grade bonds plus investment in TIPs. So that would be a very well-diversified portfolio.

Q: Generally, what kind of risks do you perceive in SMA accounts? How do you monitor and mitigate them?

A: It's similar to monitoring the risk of any portfolio. We use a range of asset classes whose performance tendencies complement each other, so correlations are low. For example, asset classes like investment grade bonds tend to do well when the economy struggles, so using a range of asset classes is a way to control the risk. Monitoring the managers every quarter, looking at their performance within the context of the previous quarter and longer-term performance, the focus on the personnel, the process, and the consistency, really helps to avoid surprises. So the due diligence that we do on a regular basis helps to control risk over time.

Q: The tax-efficiency issue seems to be widely perceived as the one of the most prominent features of SMAs. Do you find this issue to be important for your client base?

A: Absolutely. Certainly, relative to mutual fund investing, you've got considerably more flexibility in managing taxes because you have control. With Curian, you can have control on two levels. The first one is selecting the so-called ''tax lot preference strategy'' so that if a holding has multiple tax lots and you sell a portion of that holding, you can prioritize which tax lot is sold first. If you're trying to minimize taxes, obviously, you'd want the tax lot that minimizes your taxes to be sold first.

Probably the more influential level of controlling the taxes is the ability to harvest your gains and/or losses at yearend. You have the ability to sell individual securities that have a loss if you want to minimize taxes, stay out of that security for at least 30 days, and then get back into that security. That may offset the gains that have occurred through the year, even if those gains are outside the Curian portfolio. That flexibility is certainly not available through mutual fund investing.