Registration Nos. 2-11101
811-00242
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 | ¨ | |||||
Pre-Effective Amendment No. | ¨ | |||||
Post-Effective Amendment No. 179 | x |
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 | ¨ | |||||
Amendment No. 109 | x |
(Check appropriate box or boxes.)
NATIXIS FUNDS TRUST II
(Exact Name of Registrant as Specified in Charter)
399 Boylston Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrants Telephone Number, including Area Code (617) 449-2810
Coleen Downs Dinneen, Esq.
NGAM Distribution, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to:
John M. Loder, Esq.
Ropes & Gray
800 Boylston Street
Boston, Massachusetts 02199
Approximate Date of Public Offering
It is proposed that this filing will become effective (check appropriate box):
¨ | Immediately upon filing pursuant to paragraph (b) |
x | On September 30, 2013 pursuant to paragraph (b) |
¨ | 60 days after filing pursuant to paragraph (a)(1) |
¨ | On (date) pursuant to paragraph (a)(1) |
¨ | 75 days after filing pursuant to paragraph (a)(2) |
¨ | on (date) pursuant to paragraph (a)(2) of Rule 485. |
If appropriate, check the following box:
¨ | This post-effective amendment designates a new effective date for a previously filed post-effective amendment. |
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Class A | Class C | Class Y |
ASG Tactical U.S. Market Fund | USMAX | USMCX | USMYX |
Shareholder Fees(fees paid directly from your investment) | Class A | Class C | Class Y |
Maximum sales charge (load) imposed on purchases (as a percentage of offering price) | 5.75% | None | None |
Maximum deferred sales charge (load) (as a percentage of original purchase price or redemption proceeds, as applicable) | None | 1.00% | None |
Redemption fees | None | None | None |
Annual Fund Operating Expenses(expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class Y |
Management fees | 0.80% | 0.80% | 0.80% |
Distribution and/or service (12b-1) fees | 0.25% | 1.00% | 0.00% |
Other expenses (estimated for the current fiscal year) | 1.79% | 1.79% | 1.79% |
Acquired fund fees and expenses (estimated for the current fiscal year) | 0.03% | 0.03% | 0.03% |
Total annual fund operating expenses | 2.87% | 3.62% | 2.62% |
Fee waiver and/or expense reimbursement1 | 1.44% | 1.44% | 1.44% |
Total annual fund operating expenses after fee waiver and/or expense reimbursement | 1.43% | 2.18% | 1.18% |
1 | AlphaSimplex Group, LLC (“AlphaSimplex” or the “Adviser”) has given a binding contractual undertaking to the Fund to limit the amount of the Fund’s total annual fund operating expenses to 1.40%, 2.15% and 1.15% of the Fund’s average daily net assets for Class A, C and Y shares, respectively, exclusive of brokerage expenses, interest expense, taxes, acquired fund fees and expenses, organizational and extraordinary expenses, such as litigation and indemnification expenses. This undertaking is in effect through April 30, 2015 and may be terminated before then only with the consent of the Fund’s Board of Trustees. The Fund’s investment adviser will be permitted to recover, on a class by class basis, management fees waived and/or expenses reimbursed to the extent that expenses in later periods fall below 1.40%, 2.15% and 1.15% of the Fund’s average daily net assets for Class A, C and Y shares, respectively. The Fund will not be obligated to repay any such waived/reimbursed fees and expenses more than one year after the end of the fiscal year in which the fee/expense was waived/reimbursed. |
If shares are redeemed: | ||
1 year | 3 years | |
Class A | $712 | $1,206 |
Class C | $321 | $894 |
Class Y | $120 | $593 |
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If shares are not redeemed: | ||
1 year | 3 years | |
Class C | $221 | $894 |
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Type of Account | Minimum Initial Purchase |
Minimum Subsequent Purchase |
Any account other than those listed below | $2,500 | $100 |
For shareholders participating in Natixis Funds’ Investment Builder Program | $1,000 | $50 |
For Traditional IRA, Roth IRA, Rollover IRA, SEP-IRA and Keogh plans using the Natixis Funds’ prototype document (direct accounts, not held through intermediary) | $1,000 | $100 |
Coverdell Education Savings Accounts | $500 | $100 |
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Your Investment | As a % of offering price |
As a % of your investment |
Less than $50,000 | 5.75% | 6.10% |
$ 50,000 – $99,999 | 4.50% | 4.71% |
$ 100,000 – $249,999 | 3.50% | 3.63% |
$ 250,000 – $499,999 | 2.50% | 2.56% |
$ 500,000 – $999,999 | 2.00% | 2.04% |
$1,000,000 or more** | 0.00% | 0.00% |
* | Not imposed on shares that are purchased with reinvested dividends or other distributions. |
** | For purchases of Class A shares of the Fund of $1 million or more, there is no front-end sales charge, but a CDSC of 1.00% may apply to redemptions of your shares within 18 months of the date of
purchase. See the section “How the CDSC is Applied to Your Shares”. |
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Class C Contingent Deferred Sales Charges | |
Year Since Purchase | CDSC on Shares Being Sold |
1st | 1.00% |
Thereafter | 0.00% |
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Opening an Account | Adding to an Account |
Through Your Investment Dealer |
•Call your investment dealer for information about opening or adding to an account. Dealers may also charge you a processing or service fee in connection with the purchase of Fund shares. |
By Mail | •Make out a check in U.S. dollars
for the investment amount, payable to “Natixis Funds.” Third party checks, “starter” checks and credit card convenience checks will not be accepted. •Mail the check with your completed application to Natixis Funds, P.O. Box 219579, Kansas City, MO 64121-9579, or the overnight address, 330 West 9th Street, Kansas City, MO 64105-1514. •Investments made by check are redeemable although the Fund may withhold payment until the purchase check has cleared. See the section “Selling Restrictions.” |
•Make out a check in U.S. dollars
for the investment amount, payable to “Natixis Funds.” Third party checks, “starter” checks and credit card convenience checks will not be accepted. •Complete the investment slip from an account statement or include a letter specifying the Fund name, your class of shares, your account number and the registered account name(s). •Investments made by check are redeemable although the Fund may withhold payment until the purchase check has cleared. See the section “Selling Restrictions.” |
By Exchange (See the section “Exchanging Shares” for more details.) |
•Call your investment dealer or Natixis Funds at 800-225-5478 or visit ngam.natixis.com to 1) obtain a current prospectus for the fund into which you are exchanging and 2) request an exchange. •In writing: Mail request to Natixis Funds, P.O. Box 219579, Kansas City, MO 64121-9579, or the overnight address, 330 West 9th Street, Kansas City, MO 64105-1514. | •Call your investment dealer or Natixis Funds at 800-225-5478 or visit ngam.natixis.com to request an exchange. •In writing: Mail request to Natixis Funds, P.O. Box 219579, Kansas City, MO 64121-9579, or the overnight address, 330 West 9th Street, Kansas City, MO 64105-1514. |
By Wire | •Mail your completed application
to Natixis Funds, P.O. Box 219579, Kansas City, MO 64121-9579. For Class Y only: Call Natixis Funds to obtain an account number and wire transfer instructions. Your bank may charge you for such a transfer. |
•Visit ngam.natixis.com or contact
Natixis Funds at 800-225-5478 to add shares to your account by wire. •Instruct your bank to transfer funds to State Street Bank
& Trust Company, ABA #011000028, and DDA #99011538. •Specify the Fund name, your class of shares, your account number and the registered account name(s). Your bank may charge you for such a transfer. |
Through Automated Clearing House (“ACH”) | •Although you cannot open an
account through ACH, you may add this feature by selecting it on your account application. •Ask your bank or credit union whether it is a member of the ACH system. |
•Call Natixis Funds at
800-225-5478 or visit ngam.natixis.com to add shares to your account through ACH. •If you have not signed up for the ACH system, please call Natixis Funds or visit ngam.natixis.com for a Service Options Form. A medallion signature guarantee may be required to add this privilege. •Redemption proceeds may not be available immediately upon redemption for shares purchased through ACH. See the section “Selling Restrictions.” |
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Opening an Account | Adding to an Account |
Automatic Investing Through Investment Builder | •Although you cannot open an
account through Investment Builder, you may add this feature by selecting it on your account application. The Fund minimum must be met in order to establish an account. •Ask your bank or credit union whether it is a member of the ACH system. |
•If you have not signed up for
Investment Builder, please call Natixis Funds at 800-225-5478 or visit ngam.natixis.com for a Service Options Form. A medallion signature guarantee may be required to add this privilege. •See the section “Additional Investor Services.” •Redemption proceeds may not be available immediately upon redemption for shares purchased through ACH. See the section “Selling Restrictions.” |
Through Your Investment Dealer | •Call your investment dealer for information. Dealers may also charge you a processing or service fee in connection with the redemption of Fund shares. |
By Mail | •Write a letter to
request a redemption. Specify the name of your Fund, class of shares, account number, the exact registered account name(s), the number of shares or the dollar amount to be redeemed and the method by which you wish to receive your proceeds.
Additional materials may be required. See the section “Selling Shares in Writing.” •The request must be signed by all of the owners of the shares and must include the capacity in which they are signing, if appropriate. •Mail your request by regular mail to Natixis Funds, P.O. Box 219579, Kansas City, MO 64121-9579 or by registered, express or certified mail to Natixis Funds, 330 West 9th Street, Kansas City, MO 64105-1514. •Proceeds (less any applicable CDSC) will be delivered by the method chosen in your letter. Proceeds delivered by mail will generally be mailed to you within three business days after the request is received in good order, although it may take longer. See the sections “Selling Shares in Writing” and “Selling Restrictions.” |
By Exchange (See the section “Exchanging Shares” for more details.) |
•Obtain a current
prospectus for the fund into which you are exchanging by calling your investment dealer or Natixis Funds at 800-225-5478 or visit ngam.natixis.com. •Call Natixis Funds or visit ngam.natixis.com to request an exchange. |
By Wire | •Complete the
“Bank Information” section on your account application. •Call Natixis Funds at 800-225-5478, visit ngam.natixis.com or indicate in your redemption request letter (see above) that you wish to have your proceeds wired to your bank. •Proceeds (less any applicable CDSC) will generally be wired on the next business day, although it may take longer. See the sections “Selling Shares in Writing” and “Selling Restrictions.” A wire fee will be deducted from the proceeds. Your bank may charge you a fee to receive the wire. If you have not signed up for banking information on your application, please call Natixis Funds at 800-225-5478 or visit ngam.natixis.com for a Service Options Form. A medallion signature guarantee may be required to add this privilege. |
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Through ACH | •Ask your bank or
credit union whether it is a member of the ACH system. •Complete the “Bank Information” section on your account application. •If you have not signed up for the ACH system on your application, please call Natixis Funds at 800-225-5478 or visit ngam.natixis.com for a Service Options Form. A medallion signature guarantee may be required to add this privilege. •Call Natixis Funds or visit ngam.natixis.com to request an ACH redemption or indicate in your redemption letter that you wish to have your proceeds sent to your bank through ACH. •Proceeds (less any applicable CDSC) will generally arrive at your bank within three business days, although it may take longer. See the sections “Selling Shares in Writing” and “Selling Restrictions.” |
By Telephone | •Call Natixis Funds at
800-225-5478 to choose the method you wish to use to redeem your shares. You may receive your proceeds (less any applicable CDSC) by mail, by wire or through ACH (see above), subject to certain restrictions. See the sections “Selling Shares in
Writing” and “Selling Restrictions.” •Redemptions by check in the amount greater than $100,000 must be done in writing. |
By Systematic Withdrawal Plan (See the section “Additional Investor Services” for more details.) | •Call Natixis Funds at
800-225-5478 or your financial representative for more information. • Because withdrawal payments may have tax consequences, you should consult your tax adviser before establishing such a plan. See the sections “Selling Shares in Writing” and “Selling Restrictions.” |
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Restriction | Situation |
The Fund may suspend the right of redemption or postpone payment for more than 7 days: | •When the New York Stock Exchange
(the “NYSE”) is closed (other than a weekend/holiday) as permitted by the SEC. •During an emergency as permitted by the SEC. •During any other period permitted by the SEC. |
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Restriction | Situation |
The Fund reserves the right to suspend account services or refuse transaction requests: | •With a notice of a dispute
between registered owners or death of a registered owner. •With suspicion/evidence of a fraudulent act. |
The Fund may pay the redemption price in whole or in part by a distribution in kind of readily marketable securities in lieu of cash or may take up to 7 days to pay a redemption request in order to raise capital: | •When it is detrimental for the Fund to make cash payments as determined in the sole discretion of the adviser or subadviser. |
The Fund may withhold redemption proceeds for 10 days from the purchase date: | •When redemptions are made within 10 calendar days of purchase by check or ACH to allow the check or ACH transaction to clear. |
Net Asset Value = | Total market value of securities + Cash and other assets – Liabilities Number of outstanding shares |
1 | Please see the section “Buying Shares,” which provides additional information regarding who can receive a purchase order. |
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STATEMENT OF ADDITIONAL INFORMATION
September 30, 2013
NATIXIS FUNDS TRUST II
ASG TACTICAL U.S. MARKET FUND (the Fund)
Class A (USMAX), Class C (USMCX) and Class Y (USMYX)
This Statement of Additional Information (Statement) contains specific information that may be useful to investors but that is not included in the Statutory Prospectus of the Fund. This Statement is not a prospectus and is authorized for distribution only when accompanied or preceded by the Funds Summary or Statutory Prospectus, each dated September 30, 2013 (the Prospectus), as from time to time revised or supplemented. This Statement should be read together with the Prospectus. Investors may obtain the Prospectus without charge from NGAM Distribution, L.P. (the Distributor), Prospectus Fulfillment Desk, 399 Boylston Street, Boston, Massachusetts 02116, by calling Natixis Funds at 800-225-5478 or by visiting the Funds website at ngam.natixis.com.
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The following is a description of restrictions on the investments to be made by the Fund. These restrictions are fundamental policies that may not be changed without the vote of a majority of the outstanding voting securities of the Fund (as defined in the Investment Company Act of 1940 (the 1940 Act)). Except in the case of restrictions marked with a dagger () below, the percentages set forth below and the percentage limitations set forth in the Prospectus apply at the time of the purchase of a security and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of a purchase of such security. The Fund has elected to be classified as a diversified series of an open-end investment company.
ASG Tactical U.S. Market Fund
ASG Tactical U.S. Market Fund may not:
(1) | Purchase any security (other than U.S. government securities) if, as a result 25% or more of the Funds total assets (taken at current value) would be invested in any one industry, except that the Fund will invest at least 25% of its assets in securities and other obligations of issuers in the financial service industry. For purposes of this restriction, telephone, gas and electric public utilities are each regarded as separate industries and finance companies whose financing activities are related primarily to the activities of their parent companies are classified in the industry of their parents, finance companies whose financing activities are not related primarily to the activities of their parent companies are classified in the industry the Funds adviser or subadviser believes is most applicable to such finance companies, and each foreign countrys government (together with all subdivisions thereof) will be considered to be a separate industry. For purposes of this restriction, asset-backed securities are not considered to be bank obligations. |
(2) | Make short sales of securities or maintain a short position, except that the Fund may make any short sales or maintain any short positions where the short sales or short positions would not constitute senior securities under the 1940 Act. |
(3) | Borrow money, except to the extent permitted under the 1940 Act. |
(4) | Make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objectives and policies, provided, however, this restriction does not apply to repurchase agreements or loans of portfolio securities. |
(5) | Act as an underwriter of securities of other issuers except that, in the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws. |
(6) | Purchase or sell real estate, although it may purchase securities of issuers which deal in real estate, securities which are secured by interests in real estate, and securities which represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. |
(7) | Issue senior securities, except for permitted borrowings or as otherwise permitted under the 1940 Act. |
ASG Tactical U.S. Market Fund may:
(8) | Purchase and sell commodities to the maximum extent permitted by applicable law. |
Restrictions (2) and (7) shall be interpreted based upon no-action letters and other pronouncements of the staff of the SEC.
General Notes on Investment Restrictions
In addition to temporary borrowing, and subject to any stricter restrictions on borrowing applicable to any particular fund, the Fund may borrow from any bank, provided that immediately after any such borrowing there is an asset
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coverage of at least 300% for all borrowings by the Fund and provided further, that in the event that such asset coverage shall at any time fall below 300%, the Fund shall, within three days (not including Sundays and holidays) thereafter or such longer period as the SEC may prescribe by rules and regulations, reduce the amount of its borrowings to such an extent that the asset coverage of such borrowing shall be at least 300%. With respect to restrictions on borrowing, the 1940 Act limits the Funds ability to borrow money on a non-temporary basis if such borrowings constitute senior securities. The Fund may also borrow money or engage in economically similar transactions if those transactions do not constitute senior securities under the 1940 Act.
Under current pronouncements, certain positions (e.g., reverse repurchase agreements) are excluded from the definition of senior security so long as the Fund maintains adequate cover, segregation of assets or otherwise. Similarly, a short sale will not be considered a senior security if the Fund takes certain steps contemplated by SEC staff pronouncements, such as ensuring the short sale transaction is adequately covered.
The Fund may not purchase any illiquid security if, as a result, more than 15% of the Funds net assets (based on current value) would then be invested in such securities. This policy may be changed without a shareholder vote. The staff of the SEC is presently of the view that repurchase agreements maturing in more than seven days are subject to this restriction. Until that position is revised, modified or rescinded, the Fund will conduct its operations in a manner consistent with this view. This limitation on investment in illiquid securities does not apply to certain securities which might otherwise be considered illiquid, including securities issued pursuant to Rule 144A under the Securities Act of 1933 (the Securities Act) and certain commercial paper, which the Funds adviser or subadviser has determined to be liquid under procedures approved by the Board of Trustees (the Board).
Advisory Fees
Pursuant to an investment advisory agreement, AlphaSimplex Group, LLC (AlphaSimplex or the Adviser) has agreed to manage the investment and reinvestment of the assets of the Fund subject to the supervision of the Board. For the services described in the advisory agreement, the Fund has agreed to pay AlphaSimplex an advisory fee at the annual rate of 0.80% based on the average daily net assets of the Fund reduced by the amount of any subadvisory fees payable directly by the Fund to NGAM Advisors, L.P. (NGAM Advisors) through its Active Investment Advisors division (Active Investment) or Reich & Tang Asset Management, LLC (Reich & Tang) (each a Subadviser and collectively, the Subadvisers) pursuant to the subadvisory agreements.
AlphaSimplex has given a binding contractual undertaking to all classes of the Fund to waive its advisory fee and, if necessary, to reimburse certain expenses related to operating the Fund in order to limit the Funds expenses, exclusive of acquired fund fees and expenses, brokerage expenses, interest expense, taxes, organizational and extraordinary expenses, such as litigation and indemnification expenses, to the annual rates indicated below. The undertakings are in effect until April 30, 2015 for the Fund and may be terminated before then only with the consent of the Board. The undertakings will be reevaluated on an annual basis thereafter, subject to the obligation of the Fund to repay such advisory fees waived and/or expenses reimbursed in later periods to the extent that the classs expenses fall below the expense limit; provided, however, that the Fund is not obligated to repay such waived/reimbursed fees and expenses more than one year after the end of the fiscal year in which the fees or expenses were waived/reimbursed.
Fund |
Expense Limit | Date of Undertaking | ||||||
ASG Tactical U.S. Market Fund |
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Class A |
1.40 | % | September 30, 2013 | |||||
Class C |
2.15 | % | September 30, 2013 | |||||
Class Y |
1.15 | % | September 30, 2013 |
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Subadvisory Fees
The investment advisory agreement between AlphaSimplex and the Fund provides that AlphaSimplex may delegate its responsibilities thereunder to other parties. Pursuant to the subadvisory agreements, AlphaSimplex has delegated some of its portfolio management responsibilities to NGAM Advisors, through its Active Investment division, which manages the equity portion of the Funds portfolio and to Reich & Tang, which manages the portion of the Funds assets that are invested in money market and other short-term, high-quality securities. For the services described in the subadvisory agreements, the Fund has agreed to pay NGAM Advisors and Reich & Tang a subadvisory fee at the annual rate of 0.10% and 0.05%, respectively, of the average daily net assets of the Fund that are allocated by the Adviser to be managed by the Subadvisers, subject to a minimum annual subadvisory fee of $50,000 with respect to Reich & Tang.
The Fund is newly formed and thus has not incurred any advisory or subadvisory fees as of the date of this Statement.
For more information about the Funds advisory and subadvisory agreements, see Investment Advisory and Other Services.
Brokerage Commissions
The Fund is newly formed and thus has not incurred any brokerage commissions as of the date of this Statement.
For a description of how transactions in portfolio securities are effected and how the Adviser and Subadvisers select brokers, see the section Portfolio Transactions and Brokerage.
Regular Broker-Dealers
The Fund is newly formed and thus does not have any holdings of its regular broker-dealers as of the date of this Statement.
Sales Charges and Distribution and Service (12b-1) Fees
As explained in this Statement, the Class A and Class C shares of the Fund pay the Distributor fees under plans adopted pursuant to Rule 12b-1 under the 1940 Act (the Plans). The Fund is newly formed and thus has not paid any Rule 12b-1 fees as of the date of this Statement.
The Fund is newly formed and has not yet publicly offered shares prior to the date of this Statement.
The Fund may experience large redemptions or investments due to transactions in Fund shares by funds of funds, other large shareholders or similarly managed accounts. While it is impossible to predict the overall effect of these transactions over time, there could be an adverse impact on the Funds performance. In the event of such redemptions or investments, the Fund could be required to sell securities or to invest cash at a time when it may not otherwise desire to do so. Such transactions may increase the Funds brokerage and/or other transaction costs. In addition, when funds of funds or other investors own a substantial portion of the Funds shares, a large redemption by a fund of funds could cause actual expenses to increase, or could result in the Funds current expenses being allocated over a smaller asset base, leading to an increase in the Funds expense ratio. Redemptions of fund shares could also accelerate the realization of taxable capital gains in the Fund if sales of securities result in capital gains. The impact of these transactions is likely to be greater when a fund of funds or other significant investor purchases, redeems, or owns a substantial portion of the Funds shares. When possible, the Funds Adviser will consider how to minimize these potential adverse effects, and may take such actions as it deems appropriate to address potential adverse effects, including redemption of shares in-kind rather than in cash or carrying out the transactions over a period of time, although there can be no assurance that such actions will be successful.
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Natixis Funds Trust II (the Trust) is registered with the SEC as an open-end management investment company. Natixis Funds Trust II is organized as a Massachusetts business trust under the laws of Massachusetts pursuant to a Declaration of Trust (a Declaration of Trust) dated May 6, 1931, as last amended and restated on June 2, 2005, and consisted of a single Fund (now the Harris Associates Large Cap Value Fund) until January 1989, when the Trust was reorganized as a series company as described in Section 18(f)(2) of the 1940 Act. Each series (with the exception of Loomis Sayles Strategic Alpha Fund, Loomis Sayles Multi-Asset Real Return Fund, Select Fund and Senior Floating Rate and Fixed Income Fund) of Natixis Funds Trust II is diversified. The name of Natixis Funds Trust II has changed several times since its organization as noted below:
Name of Trust |
Date | |
Investment Trust of Boston |
May 1931 to November 1988 | |
Investment Trust of Boston Funds |
December 1988 to April 1992 | |
TNE Funds Trust |
April 1992 to March 1994 | |
New England Funds Trust II |
April 1994 to January 2000 | |
Nvest Funds Trust II |
January 2000 to April 2001 | |
CDC Nvest Funds Trust II |
May 2001 to April 2005 | |
IXIS Advisor Funds Trust II |
April 2005 to August 2007 | |
Natixis Funds Trust II |
August 2007 to present |
INVESTMENT STRATEGIES AND RISKS
Investment Strategies
The following is a list of certain investment strategies, including particular types of securities or instruments or specific practices that may be used by the Adviser or Subadvisers in managing the Fund. Because of the Funds use of derivative instruments, the Fund is subject to many of the risks below indirectly through its derivative transactions as well as directly through investment in the actual securities themselves. For example, to the extent the Fund enters into a futures contract on an equity index, the Fund is subject to equity securities risk.
The Funds principal strategies are described in its Prospectus. This Statement describes some of the non-principal strategies the Fund may use, in addition to providing additional information, including related risks, about its principal strategies.
The list of securities or other instruments under each category below is not intended to be an exclusive list of securities, instruments and practices for investment and unless a strategy, practice or security is specifically prohibited by the investment restrictions listed in the Prospectus, in the section Investment Restrictions in this Statement or under applicable law, the Fund may engage in strategies and invest in securities and instruments in addition to those listed below. The Adviser or Subadvisers may invest in a general category listed below and, where applicable, with particular emphasis on a certain type of security, but investment is not limited to the categories listed below or the securities specifically enumerated under each category. The Fund is not required to engage in a particular transaction or invest in any security or instrument, even if to do so might benefit the Fund. Its Adviser or Subadvisers may invest in some securities under a given category as a primary strategy and in other securities under the same category as a secondary strategy. The Adviser or Subadvisers may invest in any security that falls under the specific category, including securities that are not listed below. The Prospectus and/or this Statement will be updated if the Fund begins to engage in investment practices that are not described in the Prospectus and/or this Statement.
Adjustable Rate Mortgage (ARM) Securities
The Fund may invest in ARMs. An ARM, like a traditional mortgage security, is an interest in a pool of mortgage loans that provides investors with payments consisting of both principal and interest as mortgage loans in the underlying mortgage pool are paid off by the borrowers. ARMs have interest rates that are reset at periodic
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intervals, usually by reference to some interest rate index or market interest rate. Although the rate adjustment feature may act as a buffer to reduce sharp changes in the value of adjustable rate securities, these securities are still subject to changes in value based on changes in market interest rates or changes in the issuers creditworthiness. Since the interest rates are reset only periodically, changes in the interest rate on ARMs may lag behind changes in prevailing market interest rates. In addition, some ARMs (or the underlying mortgages) are subject to caps or floors that limit the maximum change in interest rate during a specified period or over the life of the security. As a result, changes in the interest rate on an ARM may not fully reflect changes in prevailing market interest rates during certain periods. Because of the resetting of interest rates, ARMs are less likely than non-adjustable rate securities of comparable quality and maturity to increase significantly in value when market interest rates fall. In addition, the Fund will not benefit from increases in interest rates to the extent that interest rates rise to the point where they cause the current coupon of the underlying ARM to exceed a cap rate for a particular mortgage. See Mortgage-Related Securities for more information on the risks involved in ARMs.
Asset-Backed Securities
The Fund may invest in asset-backed securities, which are securities that represent a participation in, or are secured by and payable from, a stream of payments generated by particular assets, most often a pool or pools of similar assets (e.g., trade receivables). The credit quality of these securities depends primarily upon the quality of the underlying assets and the level of credit support and/or enhancement provided. Mortgage-backed securities are a type of asset-backed security. The securitization techniques used to develop mortgage securities are being applied to a broad range of other assets. Through the use of trusts and special purpose vehicles, assets, such as automobile and credit card receivables, are being securitized in pass-through structures similar to mortgage pass-through structures or in a pay-through structure similar to a collateralized mortgage obligation (CMO) structure (described herein). Generally, the issuers of asset-backed bonds, notes or pass-through certificates are special purpose entities and do not have any significant assets other than the receivables securing such obligations. In general, the collateral supporting asset-backed securities is of shorter maturity than mortgage loans. Instruments backed by pools of receivables are similar to mortgage-backed securities in that they are subject to unscheduled prepayments of principal prior to maturity. When the obligations are prepaid, the Fund will ordinarily reinvest the prepaid amounts in securities, the yields of which reflect interest rates prevailing at the time. Therefore, the Funds ability to maintain a portfolio that includes high-yielding asset-backed securities will be adversely affected to the extent that prepayments of principal must be reinvested in securities that have lower yields than the prepaid obligations. Moreover, prepayments of securities purchased at a premium could result in a realized loss. In addition, the value of some mortgage-backed or asset-backed securities in which the Fund invests may be particularly sensitive to changes in prevailing interest rates, and the ability of the Fund to successfully utilize these instruments may depend in part upon the ability of its Adviser or Subadvisers to forecast interest rates and other economic factors correctly. The market for mortgage-backed and asset-backed securities has recently experienced high volatility and a lack of liquidity. As a result, the value of many of these securities has significantly declined. There can be no assurance that these markets will become more liquid or less volatile, and it is possible that the value of these securities could decline further. Asset-backed securities involve risks similar to those described in the section Mortgage-Related Securities.
The Fund may also gain exposure to asset-backed securities through entering into derivative contracts related to this asset class. For example, the Fund may enter into derivative contracts, which are indices made up of tranches of asset-backed securities, each with different credit ratings. Utilizing ABX, one can either gain synthetic risk exposure to a portfolio of such securities by selling protection or take a short position by buying protection. The protection buyer pays a monthly premium to the protection seller, and the seller agrees to cover any principal losses and interest shortfalls of the referenced underlying asset-backed securities. Derivative instruments related to asset-backed securities are subject to the risks associated with asset-backed securities generally, as well as the risks of derivative transactions. See the section Derivative Instruments below.
Bank Loans, Loan Participations and Assignments
The Fund may invest in bank loans, which include both secured and unsecured loans made by banks and other financial institutions to corporate customers. Senior loans typically hold the most senior position in a borrowers capital structure, may be secured by the borrowers assets and have interest rates that reset frequently. Senior loans can include term loans, revolving credit facility loans and second lien loans. The proceeds of senior loans primarily
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are used to finance leveraged buyouts, recapitalizations, mergers, acquisitions, stock repurchases, dividends, and, to a lesser extent, to finance internal growth and for other corporate purposes. These loans may not be rated investment-grade by the rating agencies. Although secured loans are secured by collateral of the borrower, there is no assurance that the liquidation of collateral from a secured loan would satisfy the borrowers obligation, or that the collateral can be liquidated. Economic downturns generally lead to higher non-payment and default rates and a senior loan could lose a substantial part of its value prior to a default. Some senior loans are subject to the risk that a court, pursuant to fraudulent conveyance or other similar laws, could subordinate such senior loans to presently existing or future indebtedness of the borrower or take other action detrimental to the holders of senior loans including, in certain circumstances, invalidating such senior loans or causing interest previously paid to be refunded to the borrower.
The Funds investments in loans are subject to credit risk and liquidity risk. Indebtedness of borrowers whose creditworthiness is poor involves substantially greater risks, and may be highly speculative. The interest rates on many bank loans reset frequently, and thus bank loans are subject to interest rate risk. Most bank loans are not traded on any national securities exchange. Bank loans generally have less liquidity than investment-grade bonds and there may be less public information available about them.
Large loans to corporations or governments may be shared or syndicated among several lenders, usually (but often not limited to) banks. The Fund may participate in the primary syndicate for a loan or it may also purchase loans from other lenders (sometimes referred to as loan assignments), in either case becoming a direct lender. The Fund also may acquire a participation interest in another lenders portion of the loan. Participation interests involve special types of risk, including liquidity risk and the risks of being a lender. Loans and loan participations may be transferable among financial institutions; however, they may not have the liquidity of conventional debt securities and because they may be subject to restrictions on resale, they are potentially illiquid. The purchase or sale of loans may require the consent of a third party or of the borrower, and although such consent is rarely withheld in practice, the consent requirement could delay a purchase or affect the Funds ability to dispose of its investments in loans in a timely fashion. Although the market for loans and loan participations has become increasingly liquid over time, this market is still developing, and there can be no assurance that adverse developments with respect to this market or particular borrowers will not prevent the Fund from selling these loans at their market values at a desirable time or price. To the extent a senior loan has been deemed illiquid, it will be subject to the Funds restrictions on investment in illiquid securities. When investing in a loan participation, the Fund typically will have the right to receive payments only from the lender to the extent the lender receives payments from the borrower, and not from the borrower itself. Likewise, the Fund typically will be able to enforce its rights only through the lender, and not directly against the borrower. As a result, the Fund will assume the credit risk of both the borrower and the lender that is selling the participation.
Investments in loans through direct assignment of a financial institutions interests with respect to a loan may involve additional risks to the Fund. For example, if the loan is foreclosed, the Fund could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral. In addition, it is conceivable that under emerging legal theories of lender liability, the Fund could be held liable as a co-lender. Loans and other debt instruments that are not in the form of securities may offer less legal protection to the Fund in the event of fraud or misrepresentation.
A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless, under the terms of the loan or other indebtedness, the Fund has direct recourse against the borrower, it may have to rely on the agent to pursue appropriate credit remedies against a borrower. In addition, holders of the loans, such as the Fund, may be required to indemnify the agent bank in certain circumstances.
In addition to investing in senior secured loans, the Fund may invest in other loans, such as second lien loans and other secured loans, as well as unsecured loans. Second lien loans and other secured loans are subject to the same risks associated with investment in senior loans and below investment-grade bonds. However, such loans may rank lower in right of payment than senior secured loans, and are subject to additional risk that the cash flow of the borrower and any property securing the loan may be insufficient to meet scheduled payments after giving effect to the higher ranking secured obligations of the borrower. Second lien loans and other secured loans are expected to
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have greater price volatility than more senior loans and may be less liquid. There is also a possibility that originators will not be able to sell participations in lower ranking loans, which would create greater credit risk exposure. Each of these risks may be increased in the case of unsecured loans, which are not backed by a security interest in any specific collateral.
The Fund may also gain exposure to loan investments through the use of derivatives. See the section Derivative Instruments.
Commodities General
Commodities are assets that have tangible properties, such as oil, metals, livestock or agricultural products. Historically, commodity investments have had a relatively high correlation with changes in inflation and a relatively low correlation to stock and bond returns. Commodity-related securities and other instruments provide exposure, which may include long and/or short exposure, to the investment returns of physical commodities that trade in commodities markets, without investing directly in physical commodities. The Fund may invest in commodity-related securities and other instruments that derive value from the price movement of commodities, or some other readily measurable economic variable dependent upon changes in the value of commodities or the commodities markets. However, investments in commodity-linked instruments do not generally provide a claim on the underlying commodity. In addition, the ability of the Fund to invest directly in commodities, and in certain commodity-related securities and other instruments, is subject to significant limitations in order to enable the Fund to maintain its status as a regulated investment company (a RIC) under the Internal Revenue Code of 1986, as amended (the Code).
The value of commodity-related instruments may be affected by changes in overall market movements, volatility of the underlying benchmark, changes in interest rates or factors affecting a particular industry or commodity, such as droughts, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. The value of commodity-related instruments will rise or fall in response to changes in the underlying commodity or related index. Investments in commodity-related instruments may be subject to greater volatility than non-commodity-based investments. A highly liquid secondary market may not exist for certain commodity-related instruments, and there can be no assurance that one will develop. Commodity-related instruments are also subject to credit and interest rate risks that in general affect the values of debt securities. The Fund may lose money on its commodity investments.
Convertible Securities
The Fund may invest in convertible securities. Convertible securities include corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (exchanged for) common stocks or other equity securities. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Since convertible securities may be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. Convertible securities are generally subject to the same risks as non-convertible fixed-income securities, but usually provide a lower yield than comparable fixed-income securities. Many convertible securities are relatively illiquid.
Corporate Reorganizations
The Fund may invest in securities for which a tender or exchange offer has been made or announced and in securities of companies for which a merger, consolidation, liquidation or reorganization proposal has been announced if, in the judgment of the Adviser or Subadvisers, there is a reasonable prospect of capital appreciation significantly greater than the brokerage and other transaction expenses involved. The primary risk of such investments is that if the contemplated transaction is abandoned, revised, delayed or becomes subject to unanticipated uncertainties, the market price of the securities may decline below the purchase price paid by the Fund.
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In general, securities which are the subject of such an offer or proposal sell at a premium to their historic market price immediately prior to the announcement of the offer or proposal. However, the increased market price of such securities may also discount what the stated or appraised value of the security would be if the contemplated transaction were approved or consummated. Such investments may be advantageous when the discount significantly overstates the risk of the contingencies involved, significantly undervalues the securities, assets or cash to be received by shareholders of the prospective company as a result of the contemplated transaction, or fails adequately to recognize the possibility that the offer or proposal may be replaced or superseded by an offer or proposal of greater value. The evaluation of such contingencies requires unusually broad knowledge and experience on the part of the Adviser or Subadvisers which must appraise not only the value of the issuer and its component businesses, but also the financial resources and business motivation of the offer or proposal as well as the dynamics of the business climate when the offer or proposal is in process.
Debt Securities
The Fund may invest in debt securities. Debt securities are used by issuers to borrow money. The issuer usually pays a fixed, variable or floating rate of interest and must repay the amount borrowed at the maturity of the security. Some debt securities, such as zero-coupon securities, do not pay interest but are sold at a discount from their face values. Debt securities include corporate bonds, government securities and mortgage- and other asset-backed securities. Debt securities include a broad array of short-, medium- and long-term obligations issued by the U.S. or foreign governments, government or international agencies and instrumentalities, and corporate issuers of various types. Some debt securities represent uncollateralized obligations of their issuers; in other cases, the securities may be backed by specific assets (such as mortgages or other receivables) that have been set aside as collateral for the issuers obligation. Debt securities generally involve an obligation of the issuer to pay interest or dividends on either a current basis or at the maturity of the securities, as well as the obligation to repay the principal amount of the security at maturity.
Risks. Debt securities are subject to market risk and credit risk. Credit risk relates to the ability of the issuer to make payments of principal and interest and includes the risk of default. Sometimes, an issuer may make these payments from money raised through a variety of sources, including, with respect to issuers of municipal securities, (i) the issuers general taxing power, (ii) a specific type of tax, such as a property tax, or (iii) a particular facility or project such as a highway. The ability of an issuer to make these payments could be affected by general economic conditions, issues specific to the issuer, litigation, legislation or other political events, the bankruptcy of the issuer, war, natural disasters, terrorism or other major events. U.S. government securities are not generally perceived to involve credit risks to the same extent as investments in other types of fixed-income securities; as a result, the yields available from U.S. government securities are generally lower than the yields available from corporate and municipal debt securities. Market risk is the risk that the value of the security will fall because of changes in market rates of interest. Generally, the value of debt securities falls when market rates of interest are rising. Some debt securities also involve prepayment or call risk. This is the risk that the issuer will repay the Fund the principal on the security before it is due, thus depriving the Fund of a favorable stream of future interest payments.
Because interest rates vary, it is impossible to predict the income of the Fund that invests in debt securities for any particular period. Fluctuations in the value of the Funds investments in debt securities will cause the Funds net asset value (NAV) to increase or decrease.
Depositary Receipts
The Fund may invest in foreign equity securities by purchasing depositary receipts. Depositary receipts are instruments issued by banks that represent an interest in equity securities held by arrangement with the bank. Depositary receipts can be either sponsored or unsponsored. Sponsored depositary receipts are issued by banks in cooperation with the issuer of the underlying equity securities. Unsponsored depositary receipts are arranged without involvement by the issuer of the underlying equity securities and, therefore, less information about the issuer of the underlying equity securities may be available and the price may be more volatile than in the case of sponsored depositary receipts. American Depositary Receipts (ADRs) are depositary receipts that are bought and sold in the United States and are typically issued by a U.S. bank or trust company which evidence ownership of underlying securities by a foreign corporation. All depositary receipts, including those denominated in U.S. dollars,
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will be subject to foreign currency risk. European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are depositary receipts that are typically issued by foreign banks or trust companies which evidence ownership of underlying securities issued by either a foreign or U.S. corporation. All depositary receipts, including those denominated in U.S. dollars, will be subject to foreign currency risk.
The effect of changes in the dollar value of a foreign currency on the dollar value of the Funds assets and on the net investment income available for distribution may be favorable or unfavorable. The Fund may incur costs in connection with conversions between various currencies. In addition, the Fund may be required to liquidate portfolio assets, or may incur increased currency conversion costs, to compensate for a decline in the dollar value of a foreign currency occurring between the time when the Fund declares and pays a dividend, or between the time when the Fund accrues and pays an operating expense in U.S. dollars.
Because the Fund may invest in depositary receipts, changes in foreign economies and political climates are more likely to affect the Fund than a mutual fund that invests exclusively in U.S. companies. There may also be less government supervision of foreign markets, resulting in non-uniform accounting practices and less publicly available information. If the Funds portfolio is over-weighted in a certain geographic region, any negative development affecting that region will have a greater impact on the Fund than a fund that is not over-weighted in that region.
Derivative Instruments
The Fund expects to use a number of derivative instruments for risk management purposes or as part of its investment strategies. Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, commodities and related indices and other assets. For additional information about the use of derivatives in connection with foreign currency transactions, see the section Foreign Currency Transactions. The Adviser or Subadvisers may decide not to employ any of these strategies and there is no assurance that any derivatives strategy used by the Fund will succeed. In addition, suitable derivative transactions may not be available in all circumstances and there can be no assurance that the Fund will engage in these transactions to reduce exposure to other risks when that would be beneficial. Examples of derivative instruments that the Fund may use include (but are not limited to) futures contracts, warrants, structured notes, foreign currency transactions, options contracts, swap transactions and forward currency contracts.
Derivatives involve special risks, including possible default by the other party to the transaction, illiquidity, difficulties in valuation, leverage risk and, to the extent the Advisers or Subadvisers view as to certain market movements is incorrect, the risk that the use of derivatives could result in significantly greater losses or lower income or gains than if they had not been used. See the subsection Additional Risks of Derivative Instruments. Recently, several broker-dealers and other financial institutions have experienced extreme financial difficulty, sometimes resulting in the bankruptcy of the institution. Although the Adviser and/or Subadvisers monitor the creditworthiness of the Funds counterparties, there can be no assurance that the Funds counterparties will not experience similar difficulties, possibly resulting in losses to the Fund. Losses resulting from the use of derivatives will reduce the Funds NAV, and possibly income, and the losses may be significantly greater than if derivatives had not been used. The degree of the Funds use of derivatives may be limited by certain provisions of the Code. When used, derivatives may increase the amount and affect the timing and character of taxable distributions paid to shareholders. See the section Additional Risks of Derivatives Investments below for additional information about the risks relating to derivatives instruments.
Several types of derivative instruments in which the Fund may invest are described in more detail below. However, the Fund is not limited to investments in these instruments.
Asset Segregation and Coverage
The Fund will segregate with its custodian or otherwise designate on its records liquid assets in an amount the Fund believes to be adequate to ensure that it has sufficient liquid assets to meet its obligations under its derivatives contracts, or the Fund may engage in other measures to cover its obligations with respect to such transactions.
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The amounts that are segregated or designated may be based on the notional value of the derivative or on the daily mark-to-market obligation under the derivatives contract and may be reduced by amounts on deposit with the applicable broker or counterparty to the derivatives transaction. The Fund may segregate amounts in addition to the amounts described above. In certain circumstances, the Fund may enter into an offsetting position rather than segregating or designating liquid assets (e.g., the Fund may cover a written put option with a purchased put option with the same or higher exercise price). Although the Funds Adviser or Subadvisers will attempt to ensure that the Fund has sufficient liquid assets to cover its obligations under its derivative contracts, it is possible that the Funds liquid assets may be insufficient to support such obligations under its derivatives positions. The Fund may modify its asset segregation policies from time to time.
Futures Contracts
Futures transactions involve the Funds buying or selling futures contracts. A futures contract is an agreement between two parties to buy and sell a particular security, currency or other asset, or group or index of securities, currencies or other assets for a specified price on a specified future date. A futures contract creates an obligation by the seller to deliver and the buyer to take delivery of the type of instrument or cash (depending on whether the contract calls for physical delivery or cash settlement) at the time and in the amount specified in the contract. In the case of futures on an index, the seller and buyer agree to settle in cash, at a future date, based on the difference in value of the contract between the date it is opened and the settlement date. The value of each contract is equal to the value of the index from time to time multiplied by a specified dollar amount. For example, S&P 500® Index futures may trade in contracts with a value equal to $250 multiplied by the S&P 500® Index.
When a trader, such as the Fund, enters into a futures contract, it is required to deposit with (or for the benefit of) its broker as initial margin an amount of cash or short-term, high-quality/liquid securities (such as U.S. Treasury bills or high-quality tax-exempt bonds acceptable to the broker) equal to approximately 2% to 5% of the delivery or settlement price of the contract (depending on applicable exchange rules). Initial margin is held to secure the performance of the holder of the futures contract. As the value of the contract changes, the value of futures contract positions increases or declines. At the end of each trading day, the amount of such increase and decline is received and paid respectively by and to the holders of these positions. The amount received or paid is known as variation margin.
Gain or loss on a futures position is equal to the net variation margin received or paid over the time the position is held, plus or minus the amount received or paid when the position is closed, minus brokerage commissions and other transaction costs.
Although many futures contracts call for the delivery (or acceptance) of the specified instrument, futures are usually closed out before the settlement date through the purchase (or sale) of a comparable contract. If the price of the sale of the futures contract by the Fund is less than the price of the offsetting purchase, the Fund will realize a loss. A futures sale is closed by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity and with the same delivery date. Similarly, a futures purchase is closed by the purchaser selling an offsetting futures contract.
Options and Warrants
Options transactions may involve the Funds buying or writing (selling) options on securities, futures contracts, securities indices (including futures on securities indices) or currencies. The Fund may engage in these transactions either to enhance investment return or to hedge against changes in the value of other assets that it owns or intends to acquire.
Options can generally be classified as either call or put options. There are two parties to a typical options transaction: the writer (seller) and the buyer. A call option gives the buyer the right to buy a security or other asset (such as an amount of currency or a futures contract) from, and a put option gives the buyer the right to sell a security or other asset to, the option writer at a specified price, on or before a specified date. The buyer of an option pays a premium when purchasing the option, which reduces the return on the underlying security or other asset if the
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option is exercised, and results in a loss if the option expires unexercised. The writer of an option receives a premium from writing an option, which may increase its return if the option expires or is closed out at a profit. An American-style option allows exercise of the option at any time during the term of the option. A European-style option allows an option to be exercised only at a specific time or times, such as the end of its term. Options may be traded on or off an established securities or options exchange.
If the holder (writer) of an option wishes to terminate its position, it may seek to effect a closing sale transaction by selling (buying) an option identical to the option previously purchased. The effect of the purchase is that the previous option position will be canceled. The Fund will realize a profit from closing out an option if the price received for selling the offsetting position is more than the premium paid to purchase the option; the Fund will realize a loss from closing out an option transaction if the price received for selling the offsetting option is less than the premium paid to purchase the option. Since premiums on options having an exercise price close to the value of the underlying securities or futures contracts usually have a time value component (i.e., a value that diminishes as the time within which the option can be exercised grows shorter), the value of an options contract may change as a result of the lapse of time even though the value of the futures contract or security underlying the option (and of the security or other asset deliverable under the futures contract) has not changed.
As an alternative to purchasing call and put options on index futures, the Fund may purchase or sell call or put options on the underlying indices themselves. Such options would be used in a manner similar to the use of options on index futures.
Warrants and Rights
The Fund may invest in warrants and rights. A warrant is an instrument that gives the holder a right to purchase a given number of shares of a particular security at a specified price until a stated expiration date. Buying a warrant generally can provide a greater potential for profit or loss than an investment of equivalent amounts in the underlying common stock. The market value of a warrant does not necessarily move with the value of the underlying securities. If a holder does not sell the warrant, it risks the loss of its entire investment if the market price of the underlying security does not, before the expiration date, exceed the exercise price of the warrant. Investment in warrants is a speculative activity. Warrants pay no dividends and confer no rights (other than the right to purchase the underlying securities) with respect to the assets of the issuer. A right is a privilege granted to existing shareholders of a corporation to subscribe for shares of a new issue of common stock before it is issued. Rights normally have a short life, usually two to four weeks, are freely transferable and entitle the holder to buy the new common stock at a lower price than the public offering price.
Options on Foreign Currencies
The Fund may buy and write options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized, as described in the Prospectus. In addition, options on foreign currencies may be used to hedge against adverse changes in foreign currency conversion rates. For example, a decline in the U.S. dollar value of a foreign currency in which portfolio securities are denominated will reduce the U.S. dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of the portfolio securities, the Fund may buy put options on the foreign currency. If the value of the currency declines, the Fund will have the right to sell such currency for a fixed amount in U.S. dollars, thereby offsetting, in whole or in part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, the Fund may buy call options on the foreign currency. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to the Fund from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, if currency exchange rates do not move in the direction or to the extent desired, the Fund could sustain losses on transactions in foreign currency options that would require the Fund to forego a portion or all of the benefits of advantageous changes in those rates.
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The Fund may also write options on foreign currencies. For example, to hedge against a potential decline in the U.S. dollar due to adverse fluctuations in exchange rates, the Fund could, instead of purchasing a put option, write a call option on the relevant currency. If the decline expected by the Fund occurs, the option will most likely not be exercised and the diminution in value of portfolio securities will be offset at least in part by the amount of the premium received. Similarly, instead of purchasing a call option to hedge against a potential increase in the U.S. dollar cost of securities to be acquired, the Fund could write a put option on the relevant currency which, if rates move in the manner projected by the Fund, will expire unexercised and allow the Fund to hedge the increased cost up to the amount of the premium. If exchange rates do not move in the expected direction, the option may be exercised and the Fund would be required to buy or sell the underlying currency at a loss, which may not be fully offset by the amount of the premium. Through the writing of options on foreign currencies, the Fund also may lose all or a portion of the benefits that might otherwise have been obtained from favorable movements in exchange rates.
Options on Indices
The Fund may transact in options on indices (index options). Put and call index options are similar to puts and calls on securities or futures contracts except that all settlements are in cash and gain or loss at expiration depends on changes in the index in question rather than on price movements in individual securities or futures contracts. When the Fund writes an index call option, it receives a premium and undertakes the obligation that, prior to the expiration date (or, upon the expiration date for European-style options), the purchaser of the call, upon exercise of the call, will receive from the Fund an amount of cash if the exercise settlement value of the relevant index is greater than the exercise price of the call. The manner of determining exercise settlement value for a particular option series is fixed by the options market on which the series is traded. S&P 500® Index options, for example, have a settlement value that is calculated using the opening sales price in the primary market of each component security on the last business day (usually a Friday) before the expiration date. The amount of cash is equal to the difference between the exercise settlement value of the index and the exercise price of the call times a specified multiple (multiplier). When the Fund buys an index call option, it pays a premium and has the same rights as to such call as are indicated above. When the Fund buys an index put option, it pays a premium and has the right, prior to the expiration date (or, upon the expiration date for European-style options), to collect, upon the Funds exercise of the put, an amount of cash equal to the difference between the exercise price of the option and the exercise settlement value of the index, times a multiplier, similar to that described above for calls, if the exercise settlement value is less than the exercise price. When the Fund writes an index put option, it receives a premium and the purchaser of the put has the right, prior to the expiration date, to require the Fund to deliver to it an amount of cash equal to the difference between the exercise settlement value of the index and exercise price times the multiplier, if the closing level is less than the exercise price.
Exchange-Traded and Over-the-Counter Options
The Fund may purchase or write both exchange-traded and over-the-counter (OTC) options. OTC options differ from exchange-traded options in that they are two-party contracts, with price and other terms negotiated between buyer and seller, and generally do not have as much market liquidity as exchange-traded options.
An exchange-traded option may be closed out only on an exchange that generally provides a liquid secondary market for an option of the same series. If a liquid secondary market for an exchange-traded option does not exist, it might not be possible to effect a closing transaction with respect to a particular option, with the result that the Fund would have to exercise the option in order to consummate the transaction. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation or other clearing organization may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or
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series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
An OTC option (an option not traded on an established exchange) may be closed out only by agreement with the other party to the original option transaction. With OTC options, the Fund is at risk that the other party to the transaction will default on its obligations or will not permit the Fund to terminate the transaction before its scheduled maturity. While the Fund will seek to enter into OTC options only with dealers who agree to or are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate an OTC option at a favorable price at any time prior to its expiration. OTC options are not subject to the protections afforded purchasers of listed options by the Options Clearing Corporation or other clearing organizations.
Index Warrants
The Fund may purchase put warrants and call warrants whose values vary depending on the change in the value of one or more specified securities indices (index warrants). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index warrant, the holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments from the issuer at a time when, in the case of a call warrant, the exercise price is more than the value of the underlying index, or in the case of a put warrant, the exercise price is less than the value of the underlying index. If the Fund were not to exercise an index warrant prior to its expiration, then the Fund would lose the amount of the purchase price paid by it for the warrant. The Fund will normally use index warrants in a manner similar to its use of options on securities indices.
Forward Contracts
As described in the section Foreign Currency Transactions below, the Fund may invest in forward contracts. Forward contracts are transactions involving the Funds obligation to purchase or sell a specific currency or other asset at a future date at a specified price. For example, forward contracts may be used when the Adviser or Subadvisers anticipate that particular foreign currencies will appreciate or depreciate in value or to take advantage of the expected relationships between various currencies, regardless of whether securities denominated in such currencies are held in the Funds investment portfolio. Forward contracts may also be used by the Fund for hedging purposes to protect against uncertainty in the level of future foreign currency exchange rates, such as when the Fund anticipates purchasing or selling a foreign security. This technique would allow the Fund to lock in the U.S. dollar price of the investment. Forward contracts also may be used to attempt to protect the value of the Funds existing holdings of foreign securities. There may be, however, imperfect correlation between the Funds foreign securities holdings and the forward contracts entered into with respect to such holdings. The cost to the Fund of engaging in forward contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing.
Swap Transactions
A swap transaction is an individually negotiated agreement (typically with a bank, a brokerage firm or other financial institution as counterparty) to exchange two streams of payments (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). The Fund may enter into interest rate, currency, index, total return and other swap transactions. For example, the Fund may enter into interest rate or currency swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, to gain exposure to one or more securities, currencies, commodities, or interest rates, to protect against currency
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fluctuations, to manage duration, to protect against any increase in the price of securities the Fund anticipates purchasing at a later date and to take advantage of perceived mispricing in the securities markets. Interest rate swaps involve the exchange by the Fund with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). A currency swap is an agreement to exchange cash flows on a notional amount based on changes in the relative values of the specified currencies. An index swap is an agreement to make or receive payments based on the different returns that would be achieved if a notional amount were invested in a specified basket of securities (such as the S&P 500® Index) or in some other investment (such as U.S. Treasury securities or commodities). A total return swap is an agreement to make payments of the total return from a specified asset or instrument (or a basket of such instruments) during the specified period, in return for payments equal to a fixed or floating rate of interest or the total return from another specified asset or instrument. Alternatively, a total return swap can be structured so that one party will make payments to the other party if the value of the relevant asset or instrument increases, but receive payments from the other party if the value of that asset or instrument decreases.
Under most swap agreements, payments by the parties will be exchanged on a net basis, and a party will receive or pay, as the case may be, only the net amount of the two payments.
The Fund may also enter into options on swaps. The Fund may engage in swap options for hedging purposes or to manage and mitigate credit and interest rate risk. The Fund may write (sell) and purchase put and call swap options. The use of swap options involves risks, including, among others, (i) imperfect correlation between movements of the price of the swap options and the price of the securities, indices or other assets serving as reference instruments for the swap option, reducing the effectiveness of the instrument for hedging or investment purposes, (ii) there may not be a liquid market to sell a swap option, which could result in difficulty closing a position, (iii) swap options can magnify the extent of losses incurred due to changes in the market value of the securities to which they relate, and (iv) counterparty risk. Swap agreements are sophisticated financial instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. Swaps can be highly volatile and may have a considerable impact on the Funds performance, as the potential gain or loss on any swap transaction is not subject to any fixed limit. The Funds successful use of swap agreements will depend on its Advisers or Subadvisers ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. Even though swap markets in which swap transactions are traded have grown significantly in recent years, swap agreements are typically not traded on exchanges and are subject to liquidity risk. As a result, the Fund bears the risk of loss of the amount expected to be received pursuant to a swap agreement in the event of the default or bankruptcy of the counterparty, and the value of a swap agreement in general depends on the creditworthiness of the counterparty. The Fund may also suffer losses if it is unable to terminate (or terminate at the time and price desired) outstanding swap agreements (either by assignment or other disposition) or reduce its exposure through offsetting transactions.
Investment Pools of Swap Contracts
In addition, the Fund may invest in publicly or privately issued interests in investment pools whose underlying assets are credit-linked, interest rate, currency exchange, equity-linked or other types of swap contracts and related underlying securities or securities loan agreements. The pools investment results may be designed to correspond generally to the performance of a specified securities index or basket of securities, sometimes a single security. These types of pools are often used to gain exposure to multiple securities with a smaller investment than would be required to invest directly in the individual securities. They may also be used to gain exposure to foreign securities markets without investing in the foreign securities themselves and/or the relevant foreign market. To the extent that the Fund invests in pools of swap contracts and related underlying securities or securities loan agreements whose performance corresponds to the performance of a foreign securities index or one or more foreign securities, investing in such pools will involve risks similar to the risks of investing in foreign securities. See Foreign Securities below. In addition to the risks associated with investing in swaps generally, an investing Fund bears the risks and costs generally associated with investing in pooled investment vehicles, such as paying the fees and expenses of the pool and the risk that the pool or the operator of the pool may default on its obligations to the holder of interests in the pool, such as the Fund. Interests in privately offered investment pools of swap contracts may be considered illiquid and, except to the extent that such interests are deemed liquid under the Funds policies, subject to the Funds restrictions on investments in illiquid securities.
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Additional Risks of Derivative Instruments
As described in the Prospectus, the Fund intends to use derivative instruments, including several of the instruments described above, as part of its investment practices as well as for risk management purposes. Although the Adviser or Subadvisers may seek to use these transactions to achieve the Funds investment goal, no assurance can be given that the use of these transactions will achieve this result. Any or all of these investment techniques may be used at any time. The ability of the Fund to utilize these derivative instruments successfully will depend on its Advisers or Subadvisers ability to predict pertinent market movements, which cannot be assured. Furthermore, the Funds use of certain derivatives may in some cases involve forms of financial leverage, which involves risk and may increase the volatility of the Funds NAV. Leveraging may cause the Fund to liquidate portfolio positions to satisfy its obligations or to meet segregation requirements when it may not be advantageous to do so. To the extent that the Fund is not able to close out a leveraged position because of market illiquidity, its liquidity may be impaired to the extent that it has a substantial portion of liquid assets segregated or earmarked to cover obligations. The Fund will comply with applicable regulatory requirements when implementing these strategies, techniques and instruments. Use of derivatives for other than hedging purposes may be considered a speculative activity, involving greater risks than are involved in hedging. A short exposure through a derivative may present additional risks. If the value of the asset, asset class or index on which the Fund has obtained a short exposure increases, the Fund will incur a loss. Moreover, the potential loss from a short exposure is theoretically unlimited.
The value of some derivative instruments in which the Fund invests may be particularly sensitive to changes in prevailing interest rates or other economic factors and the ability of the Fund to successfully utilize these instruments may depend in part upon the ability of the Adviser or Subadvisers to forecast interest rates and other economic factors correctly. If the Adviser or Subadvisers incorrectly forecast such factors and have taken positions in derivative instruments contrary to prevailing market trends, the Fund could be exposed to the risk of loss. If the Adviser or Subadvisers incorrectly forecast interest rates, market values or other economic factors in using a derivatives strategy for the Fund, the Fund might have been in a better position if it had not entered into the transaction at all. Also, suitable derivative transactions may not be available in all circumstances. The use of these strategies involves certain special risks, including a possible imperfect correlation, or even no correlation, between price movements of derivative instruments and price movements of related investments. While some strategies involving derivative instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in related investments or otherwise, due to the possible inability of the Fund to purchase or sell a portfolio security at a time that otherwise would be favorable or the possible need to sell a portfolio security at a disadvantageous time because the Fund is required to maintain asset coverage or offsetting positions in connection with transactions in derivative instruments, and the possible inability of the Fund to close out or to liquidate its derivatives positions. In addition, the Funds use of such instruments may cause the Fund to realize higher amounts of short-term capital gains (generally taxed at ordinary income tax rates) than if it had not used such instruments. To the extent that the Fund gains exposure to an asset class using derivative instruments backed by a collateral portfolio of other securities, changes in the value of those other securities may result in greater or lesser exposure to that asset class than would have resulted from a direct investment in securities comprising that asset class. The Fund may invest in derivative instruments linked to the returns of one or more hedge funds or groups of hedge funds. To the extent that the Fund invests in such instruments, in addition to the risks associated with investments in derivative instruments generally, the Fund will be subject to the risks associated with investments in hedge funds.
The correlation between the price movement of the derivatives contract and the hedged security may be distorted due to differences in the nature of the relevant markets. For example, if the price of the futures contract moves more than the price of the hedged security, the Fund would experience either a loss or a gain on the derivative that is not completely offset by movements in the price of the hedged securities. For example, in an attempt to compensate for imperfect price movement correlations, the Fund may purchase or sell futures contracts in a greater dollar amount than the hedged securities if the price movement volatility of the hedged securities is historically greater than the volatility of the futures contracts. Conversely, the Fund may purchase or sell futures contracts in a smaller dollar amount than the hedged securities if the volatility of the price of hedged securities is historically less than that of the futures contracts.
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The price of index futures may not correlate perfectly with movement in the relevant index due to certain market distortions. One such distortion stems from the fact that all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationship between the index and futures markets. Another market distortion results from the deposit requirements in the futures market being less onerous than margin requirements in the securities market, and as a result the futures market may attract more speculators than does the securities market. A third distortion is caused by the fact that trading hours for foreign stock index futures may not correspond perfectly to hours of trading on the foreign exchange to which a particular foreign stock index futures contract relates. This may result in a disparity between the price of index futures and the value of the relevant index due to the lack of continuous arbitrage between the index futures price and the value of the underlying index. Finally, hedging transactions using stock indices involve the risk that movements in the price of the index may not correlate with price movements of the particular portfolio securities being hedged.
Price movement correlation in derivative transactions also may be distorted by the illiquidity of the derivatives markets and the participation of speculators in such markets. If an insufficient number of contracts are traded, commercial users may not deal in derivatives because they do not want to assume the risk that they may not be able to close out their positions within a reasonable amount of time. In such instances, derivatives market prices may be driven by different forces than those driving the market in the underlying securities, and price spreads between these markets may widen. The participation of speculators in the market enhances its liquidity. Nonetheless, speculators trading spreads between futures markets may create temporary price distortions unrelated to the market in the underlying securities.
Positions in futures contracts and options on futures contracts may be established or closed out only on an exchange or board of trade. There is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract or at any particular time. The liquidity of markets in futures contracts and options on futures contracts may be adversely affected by daily price fluctuation limits established by commodity exchanges that limit the amount of fluctuation in a futures or options price during a single trading day. Once the daily limit has been reached in a contract, no trades may be entered into at a price beyond the limit, which may prevent the liquidation of open futures or options positions. Prices have in the past exceeded the daily limit on a number of consecutive trading days. If there is not a liquid market at a particular time, it may not be possible to close a futures or options position at such time, and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. However, if futures or options are used to hedge portfolio securities, an increase in the price of the securities, if any, may partially or completely offset losses on the futures contract.
Income earned by the Fund from its options activities will be treated as capital gain and, if not offset by net recognized capital losses incurred by the Fund, will be distributed to shareholders in taxable distributions. Although gain from options transactions may hedge against a decline in the value of the Funds portfolio securities, that gain, to the extent not offset by losses, will be distributed in light of certain tax considerations and will constitute a distribution of that portion of the value preserved against decline.
The value of the Funds derivative instruments may fluctuate based on a variety of market and economic factors. In some cases, the fluctuations may offset (or be offset by) changes in the value of securities or derivatives held in the Funds portfolio. All transactions in derivatives involve the possible risk of loss to the Fund of all or a significant part of the value of its investment. In some cases, the risk of loss may exceed the amount of the Funds investment. When the Fund writes a call option or sells a futures contract without holding the underlying securities, currencies or futures contracts, its potential loss is unlimited.
The risks of the Funds use of index warrants are generally similar to those relating to its use of index options. Unlike most index options, however, index warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are backed only by the credit of the bank or other institution which issues the warrant. Also, index warrants generally have longer terms than index options. Although the Fund will normally invest only in exchange-listed warrants, index warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index warrants may limit the Funds ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise wish to do.
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In the case of options that are not traded on an exchange (OTC options), the Fund is at risk that the other party to the transaction will default on its obligations, or will not permit the Fund to terminate the transaction before its scheduled maturity.
The derivatives markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than U.S. markets. In addition, derivatives that are traded on foreign exchanges may not be regulated as effectively as similar transactions in the United States, may not involve a clearing mechanism and related guarantees, may be subject to less detailed reporting requirements, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such positions also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays in the Funds ability to act upon economic events occurring in foreign markets during non-business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (v) lesser trading volume. Furthermore, investments in options in foreign markets are subject to many of the same risks as other foreign investments. See the section Foreign Securities below.
Forward contracts are subject to many of the same risks as options, warrants and futures contracts described above. As described in the section Foreign Currency Transactions below, forward contracts may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. In addition, the effect of changes in the dollar value of a foreign currency on the dollar value of the Funds assets and on the net investment income available for distribution may be favorable or unfavorable. The Fund may incur costs in connection with conversions between various currencies, and the Fund will be subject to increased illiquidity and counterparty risk because forward contracts are not traded on an exchange and often are not standardized. The Fund may also be required to liquidate portfolio assets, or may incur increased currency conversion costs, to compensate for a decline in the dollar value of a foreign currency occurring between the time when the Fund declares and pays a dividend, or between the time when the Fund accrues and pays an operating expense in U.S. dollars.
It is possible that government regulation of various types of derivative instruments, including futures and swap agreements, may limit or prevent the Fund from using such instruments as part of its investment strategy, and could ultimately prevent the Fund from being able to achieve its investment goals. It is impossible to fully predict the effects of legislation and regulation in this area, but the effects could be substantial and adverse. It is possible that legislative and regulatory activity could limit or completely restrict the ability of the Fund to use these instruments as a part of its investment strategy, increase the costs of using these instruments or make them less effective. Limits or restrictions applicable to the counterparties with which the Fund engages in derivative transactions could also prevent the Fund from using these instruments or affect the pricing or other factors relating to these instruments, or may change the availability of certain investments.
There is a possibility of future regulatory changes altering, perhaps to a material extent, the nature of an investment in the Fund or the ability of the Fund to continue to implement its investment strategies. The futures markets are subject to comprehensive statutes, regulations, and margin requirements. The SEC, U.S. Commodity Futures Trading Commission (CFTC) and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the implementation or reduction of speculative position limits, the implementation of higher margin requirements, the establishment of daily price limits and the suspension of trading.
In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) (which was passed into law in July 2010) sets forth a new legislative framework for OTC derivatives, including financial instruments, such as swaps, in which the Fund may invest. Title VII of the Dodd-Frank Act makes broad changes to the OTC derivatives market, grants significant new authority to the SEC and the CFTC to regulate OTC derivatives and market participants, and will require clearing and exchange trading of many OTC derivatives transactions. Provisions in the Dodd-Frank Act include new capital and margin requirements and the mandatory use of clearinghouse mechanisms for many OTC derivative transactions. Other provisions would expand entity registration requirements, impose business conduct requirements on dealers that enter into swaps with a pension plan, endowment, retirement plan or government entity, and could require banks to move some derivatives trading units to
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a non-guaranteed affiliate separate from the deposit-taking bank or divest them altogether. The CFTC, SEC and other federal regulators have been tasked with developing the rules and regulations enacting the provisions of the Dodd-Frank Act. Because there is a prescribed phase-in period during which many provisions of the Dodd-Frank Act must be implemented, it is not possible at this time to gauge the exact nature and scope of the impact of the Dodd-Frank Act on the Fund. However, it is expected that swap dealers, major market participants and swap counterparties will experience new and/or additional regulations, requirements, compliance burdens and associated costs. The new law and the rules to be promulgated may negatively impact the Funds ability to meet its investment objective either through limits or requirements imposed on it or upon its counterparties. In particular, new position limits imposed on the Fund or its counterparties may impact the Funds ability to invest in futures, options and swaps in a manner that efficiently meets its investment objective. New requirements, including capital and mandatory clearing, may increase the cost of the Funds investments and cost of doing business, which could adversely affect investors.
Other Derivatives; Future Developments
The above discussion relates to the Funds proposed use of certain types of derivatives currently available. However, the Fund is not limited to the transactions described above. In addition, the relevant markets and related regulations are constantly changing and, in the future, the Fund may use derivatives not currently available or widely in use.
The Fund is operated by persons who have claimed an exclusion from the definition of the term commodity pool operator (the CPO) under the Commodity Exchange Act (the CEA) with respect to the Fund pursuant to Rule 4.5 under the CEA (the exclusion) promulgated by the CFTC. Accordingly, neither the Fund nor its Adviser or Subadvisers is subject to registration or regulation as a CPO or commodity trading advisor (CTA) under the CEA. To remain eligible for the exclusion, the Fund will be limited in its ability to use certain financial instruments regulated under the CEA (commodity interests), including futures and options on futures and certain swaps transactions. In the event that the Funds investments in commodity interests are not within the thresholds set forth in the exclusion, the Adviser and/or Subadvisers may be required to register as a CPO and/or a CTA with the CFTC with respect to the Fund. The Advisers and/or Subadvisers eligibility to claim the exclusion with respect to the Fund will be based upon, among other things, the level and scope of the Funds investment in commodity interests, the purposes of such investments, and the manner in which the Fund holds out its use of commodity interests. The Funds ability to invest in commodity interests (including, but not limited to, futures and swaps on broad-based securities indexes and interest rates) is limited by the Advisers intention to operate the Fund in a manner that would permit the Adviser to continue to claim the exclusion under Rule 4.5, which may adversely affect the Funds total return. In the event the Adviser becomes unable to rely on the exclusion in Rule 4.5 and is required to register with the CFTC as a CPO with respect to the Fund, the Funds expenses may increase, adversely affecting the Funds total return. In addition, certain aspects of the Fund are currently subject to change, and any resulting effect on the Fund is uncertain at this time.
Emerging Markets
Investments in foreign securities may include investments in emerging or developing countries whose economies or securities markets are not yet highly developed. The same or similar risks are seen in investments in companies that are located in developed markets but derive substantial revenues from emerging markets. The risks associated with investing in foreign securities are often heightened for investments in emerging market countries. These heightened risks include (i) greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and economic stability; (ii) the small size of the markets for securities of emerging market issuers and the oftentimes low or nonexistent volume of trading, resulting in lack of liquidity and in price volatility; (iii) certain national policies that may restrict the Funds investment opportunities, including restrictions on investing in issuers or industries deemed sensitive to relevant national interests or currency transfer restrictions; (iv) an economys dependence on revenues from particular commodities or on international aid or development assistance and (v) the absence of developed legal structures governing private or foreign investment and private property and/or less developed custodial and deposit systems and delays and disruptions in securities settlement procedures. The Funds purchase and sale of portfolio securities in certain emerging market countries may be constrained by limitations as to daily changes in the prices of listed securities, periodic trading or settlement volume and/or limitations on aggregate holdings of foreign investors. In certain cases, such limitations may be computed based upon the aggregate trading by or holdings of the Fund, its Adviser or Subadvisers and their affiliates and their respective clients and other
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service providers. The Fund may not be able to sell securities in circumstances where price, trading or settlement volume limitations have been reached. These limitations may have a negative impact on the Funds performance and may adversely affect the liquidity of the Funds investment to the extent that it invests in certain emerging market countries. In addition, some emerging market countries may have fixed or managed currencies that are not free-floating against the U.S. dollar. Further, certain emerging market countries currencies may not be internationally traded. Certain of these currencies have experienced a steady devaluation relative to the U.S. dollar. If the Fund does not hedge the U.S. dollar value of securities it owns denominated in currencies that are devalued, the Funds NAV will be adversely affected. Many emerging market countries have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have adverse effects on the economies and securities markets of certain of these countries.
In determining whether to invest in securities of foreign issuers, the Adviser may consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax laws may reduce the Funds net income available for distribution to shareholders.
Equity Securities
The Fund may invest in equity securities. Common stocks, preferred stocks, warrants, securities convertible into common or preferred stocks and similar securities, together called equity securities, are generally volatile and more risky than some other forms of investment. Equity securities of companies with relatively small market capitalizations may be more volatile than the securities of larger, more established companies and than the broad equity market indices generally. Common stock and other equity securities may take the form of stock in corporations, partnership interests, interests in limited liability companies and other direct or indirect interests in business organizations.
Equity securities are securities that represent an ownership interest (or the right to acquire such an interest) in a company and may include common and preferred stocks, securities exercisable for, or convertible into, common or preferred stocks, such as warrants, convertible debt securities and convertible preferred stock, and other equity-like interests in an entity. Equity securities may take the form of stock in a corporation, limited partnership interests, interests in limited liability companies, depositary receipts, real estate investment trusts (REITs) or other trusts and other similar securities. Common stocks represent an equity or ownership interest in an issuer. Preferred stocks represent an equity or ownership interest in an issuer that pays dividends at a specified rate and that has precedence over common stock in the payment of dividends. In the event that an issuer is liquidated or declares bankruptcy, the claims of owners of bonds and other debt securities take precedence over holders of preferred stock, whose claims take precedence over the claims of those who own common stock.
While offering greater potential for long-term growth, equity securities generally are more volatile and more risky than some other forms of investment, particularly debt securities. The value of your investment in a fund that invests in equity securities may decrease, potentially by a significant amount. The Fund may invest in equity securities of companies with relatively small market capitalizations. Securities of such companies may be more volatile than the securities of larger, more established companies and the broad equity market indices. See the section Market Capitalizations. The Funds investments may include securities traded OTC as well as those traded on a securities exchange. Some securities, particularly OTC securities, may be more difficult to sell under some market conditions.
Stocks of companies that the Adviser or Subadvisers believe have earnings that will grow faster than the economy as a whole are known as growth stocks. Growth stocks typically trade at higher multiples of current earnings than other stocks. As a result, the values of growth stocks may be more sensitive to changes in current or expected earnings than the values of other stocks. If the Advisers or Subadvisers assessment of the prospects for a companys earnings growth is wrong, or if its judgment of how other investors will value the companys earnings growth is wrong, then the price of that companys stock may fall or may not approach the value that the Adviser or Subadvisers have placed on it.
Stocks of companies that are not expected to experience significant earnings growth, but whose stocks the Adviser or Subadvisers believe are undervalued compared to their true worth, are known as value stocks. These companies may have experienced adverse business developments or may be subject to special risks that have caused their stocks to be out of favor. If the Advisers or Subadvisers assessment of a companys prospects is wrong, or if other
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investors do not eventually recognize the value of the company, then the price of the companys stock may fall or may not approach the value that the Adviser or Subadvisers have placed on it.
Many stocks may have both growth and value characteristics, and for some stocks it may be unclear which category, if any, it fits into.
Exchange-Traded Notes
The Fund may invest in exchange-traded notes (ETNs). ETNs are generally unsecured debt securities whose returns are linked to the performance of a particular market benchmark or strategy minus applicable fees. ETNs are traded on an exchange (e.g., the New York Stock Exchange (the NYSE)) during normal trading hours. However, investors can also hold the ETN until maturity. At maturity, the issuer pays to the investor a cash amount equal to the principal amount, adjusted to reflect the performance of the relevant benchmark or strategy factor(s). ETNs generally do not make periodic coupon payments or provide principal protection. ETNs are subject to credit risk and the value of the ETN may drop due to a downgrade in the issuers credit rating, notwithstanding the performance of the underlying market benchmark or strategy. The value of an ETN may also be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying assets, changes in the applicable interest rates, changes in the issuers credit rating, and economic, legal, political, or geographic events that affect the referenced underlying benchmark or strategy. When the Fund invests in ETNs it will bear its proportionate share of any fees and expenses borne by the ETN. These fees and expenses generally reduce the return realized at maturity or upon redemption from an investment in an ETN; therefore, the value of the index underlying the ETN must increase in order for an investor in an ETN to receive at least the principal amount of the investment at maturity or upon redemption. The Funds decision to sell its ETN holdings may be limited by the availability of a secondary market.
The market price and return of the ETN may not correspond with that of the underlying benchmark or strategy. As a result, there may be times when an ETN share trades at a premium or discount to its market benchmark or strategy. This difference in price may be due to the fact that the supply and demand in the market for ETN shares at any point in time is not always identical to the supply and demand in the market for the securities or other components underlying the market benchmark or strategy that the ETN seeks to track. An ETN that is tied to a specific market benchmark or strategy may not be able to replicate and maintain exactly the composition and relative weighting of securities, commodities or other components in the applicable market benchmark or strategy.
The returns of some ETNs may be leveraged. Leveraged ETNs are subject to the same risk as other instruments that use leverage in any form. ETNs can, at times, be relatively illiquid, and thus they may be difficult to purchase or sell at an advantageous price. ETNs are also subject to tax risk. No assurance can be given that the IRS will accept, or a court will uphold, how the Fund characterizes and treats ETNs for tax purposes. Further, the IRS and Congress are considering proposals that would change the timing and character of income and gains from ETNs.
Fixed-Income Securities
The Fund may invest in fixed-income securities. Fixed-income securities pay a specified rate of interest or dividends, or a rate that is adjusted periodically by reference to some specified index or market rate. Fixed-income securities include securities issued by federal, state, local and foreign governments and related agencies, and by a wide range of private or corporate issuers. Fixed-income securities include, among others, bonds, debentures, notes, bills and commercial paper. Because interest rates vary, it is impossible to predict the income of the Fund for any particular period. In addition, the prices of fixed-income securities generally vary inversely with changes in interest rates. Prices of fixed-income securities may also be affected by items related to a particular issue or to the debt markets generally. The NAV of the Funds shares will vary as a result of changes in the value of the securities in the Funds portfolio.
Investment-Grade Fixed-Income Securities. To be considered investment-grade quality, at least one of the three major rating agencies (Fitch Investor Services, Inc. (Fitch), Moodys Investors Service, Inc. (Moodys) or Standard & Poors Ratings Group (S&P)) must have rated the security in one of its respective top four rating categories at the time the Fund acquires the security or, if the security is unrated, the Adviser or a Subadviser must have determined it to be of comparable quality.
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Below Investment-Grade Fixed-Income Securities. Below investment-grade fixed-income securities (commonly referred to as junk bonds) are rated below investment-grade quality. To be considered below investment-grade quality, none of the three major rating agencies (Fitch, Moodys and S&P) must have rated the security in one of its respective top four rating categories at the time the Fund acquires the security or, if the security is unrated, the Adviser or a Subadviser must have determined it to be of comparable quality.
Below investment-grade fixed-income securities are subject to greater credit risk and market risk than higher-quality fixed-income securities. Below investment-grade fixed-income securities are considered predominantly speculative with respect to the ability of the issuer to make timely principal and interest payments. If the Fund invests in below investment-grade fixed-income securities, the Funds achievement of its objective may be more dependent on its Advisers or Subadvisers own credit analysis than is the case with funds that invest in higher-quality fixed-income securities. The market for below investment-grade fixed-income securities may be more severely affected than some other financial markets by economic recession or substantial interest rate increases, by changing public perceptions of this market, or by legislation that limits the ability of certain categories of financial institutions to invest in these securities. In addition, the secondary market may be less liquid for below investment-grade fixed-income securities. This lack of liquidity at certain times may affect the values of these securities and may make the evaluation and sale of these securities more difficult. Below investment-grade fixed-income securities may be in poor standing or in default and typically have speculative characteristics.
For more information about the ratings services descriptions of the various ratings categories, see Appendix A. The Fund may continue to hold fixed-income securities that are downgraded in quality subsequent to their purchase if its Adviser or Subadvisers believe it would be advantageous to do so.
Foreign Securities
The Fund may invest in foreign securities. Foreign securities may include, among other things, securities of issuers organized or headquartered outside the U.S. as well as obligations of supranational entities. In addition to the risks associated with investing in securities generally, such investments present additional risks not typically associated with investments in comparable securities of U.S. issuers. Investments in emerging markets may be subject to these risks to a greater extent than those in more developed markets, as described more fully in the section Emerging Markets. The non-U.S. securities in which the Fund may invest, a portion of which may be non-U.S. dollar-denominated, may include, among other investments: (a) debt obligations issued or guaranteed by non-U.S. national, provincial, state, municipal or other governments or by their agencies or instrumentalities, including Brady Bonds; (b) debt obligations of supranational entities; (c) debt obligations of the U.S. government issued in non-dollar securities; (d) debt obligations and other fixed-income securities of foreign corporate issuers; (e) non-U.S. dollar-denominated securities of U.S. corporate issuers and (f) equity securities issued by foreign corporations or other business organizations.
There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than those in the United States, and judgments against foreign entities may be more difficult to obtain and enforce. With respect to certain foreign countries, there is a possibility of governmental expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. If the Funds portfolio is over-weighted in a certain geographic region, any negative development affecting that region will have a greater impact on the Fund than a fund that is not over-weighted in that region. The receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuers obligations.
Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of the Fund may be affected favorably or unfavorably by changes in currency exchange rates or exchange control regulations. To the extent the Fund may purchase securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a
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change in the U.S. dollar value of the Funds assets and the Funds income available for distribution.
Although the Funds income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after the Funds income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of such dividend, the Fund could be required to liquidate portfolio securities to pay such dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund incurs expenses or other obligations in U.S. dollars and the time such expenses or obligations are paid, the amount of such currency required to be converted into U.S. dollars in order to pay such expenses in U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred.
In addition, because the Fund may invest in foreign securities traded primarily on markets that close prior to the time the Fund determines its NAV, the risks posed by frequent trading may have a greater potential to dilute the value of Fund shares held by long-term shareholders than a fund investing in U.S. securities. In instances where a significant event that affects the value of one or more foreign securities held by the Fund takes place after the close of the primary foreign market, but before the time that the Fund determines its NAV, certain investors may seek to take advantage of the fact that there will be a delay in the adjustment of the market price for a security caused by this event until the foreign market reopens (sometimes referred to as price or time zone arbitrage). Shareholders who attempt this type of arbitrage may dilute the value of the Funds shares by virtue of their transaction, if those prices reflect the fair value of the foreign securities. Although the Fund has procedures designed to determine the fair value of foreign securities for purposes of calculating its NAV when such an event has occurred, fair value pricing, because it involves judgments which are inherently subjective, may not always eliminate the risk of price arbitrage. The Funds securities may change in price on days on which the U.S. markets are closed and the Fund does not calculate its NAV or sell or redeem its shares. For more information on how the Fund uses fair value pricing, see the section Net Asset Value.
Foreign withholding or other taxes imposed on the Funds investments in foreign securities will reduce the Funds return on those securities. In certain circumstances, the Fund may be able to elect to permit shareholders to claim a credit or deduction on their income tax returns with respect to foreign taxes paid by the Fund. See the section Taxes.
The Fund may invest in certain securities that are denominated and traded in the euro, the official currency of the eurozone. The recent global economic crisis has caused many European countries to experience serious fiscal difficulties, including bankruptcy, public budget deficits, recession, sovereign default, restructuring of government debt, credit rating downgrades and an overall weakening of the banking and financial sectors. In addition, some European economies may depend on others for assistance, and the inability of such economies to achieve the reforms or objectives upon which that assistance is conditioned may result in a deeper and/or longer global financial downturn. These recent events in the eurozone have called into question the long-term viability of the euro as a shared currency among the eurozone nations. Moreover, the strict fiscal and monetary controls of the European Economic and Monetary Union as well as any new requirements it may impose on member countries may significantly impact such countries and limit them from implementing their own economic policies to some degree. As the result of economic, political, regulatory or other actions taken in response to this crisis, including any discontinuation of the euro as the shared currency among the eurozone nations, or the implementation of capital controls or the restructuring of financial institutions, the Funds euro-denominated investments may become difficult to value, the Fund may be unable to dispose of investments or repatriate investment proceeds, the Funds ability to operate its strategy in connection with euro-denominated securities may be significantly impaired and the value of the Funds euro-denominated investments may decline significantly and unpredictably.
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Illiquid Securities
The Fund may purchase illiquid securities. Illiquid securities are those that are not readily resalable. Securities whose disposition is restricted by federal securities laws may be considered illiquid. Securities will generally be considered illiquid if such securities cannot be disposed of within seven days in the ordinary course of business at approximately the price at which the Fund has valued the securities. Investment in illiquid securities involves the risk that the Fund may be unable to sell such a security at the desired time or at the price at which the Fund values the security. Also, the Fund may incur expenses, losses or delays in the process of registering restricted securities prior to resale. Rule 144A securities and Section 4(2) commercial paper are treated as illiquid, unless the Adviser or Subadvisers have determined, under guidelines established by the Board, that the particular issue is liquid. See the section Rule 144A Securities and Section 4(2) Commercial Paper for additional information on these instruments.
Inflation-Linked and Inflation-Indexed Securities
The Fund may invest in inflation-linked securities. Inflation-linked securities are fixed-income securities the principal values of which are adjusted periodically according to the rate of inflation. The principal amount of these securities increases with increases in the price index used as a reference value for the securities. In addition, the amounts payable as coupon interest payments increase when the price index increases because the interest amount is calculated by multiplying the principal amount (as adjusted) by a fixed coupon rate.
Although inflation-linked securities protect their holders from long-term inflationary trends, short-term increases in inflation may result in a decline in value. The values of inflation-linked securities generally fluctuate in response to changes to real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. If inflation were to rise at a rate faster than nominal interest rates, real interest rates might decline, leading to an increase in value of the inflation-linked securities. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in the value of inflation-linked securities. If inflation is lower than expected during a period the Fund holds inflation-linked securities, the Fund may earn less on such securities than on a conventional security. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in inflation-linked securities may not be protected to the extent that the increase is not reflected in the price index used as a reference for the securities. There can be no assurance that the price index used for an inflation-linked security will accurately measure the real rate of inflation in the prices of goods and services. Inflation-linked and inflation-indexed securities include Treasury Inflation-Protected Securities issued by the U.S. government (see the section U.S. Government Securities for additional information), but also may include securities issued by state, local and non-U.S. governments and corporations and supranational entities.
The Funds investments in inflation-indexed securities can cause the Fund to accrue income for U.S. federal income tax purposes without a corresponding receipt of cash; the Fund may be required to dispose of portfolio securities (including when not otherwise advantageous to do so) in order to obtain sufficient cash to meet its distribution requirements for treatment as a RIC under the Code.
Investment Companies
The Fund may invest in other investment companies. Investment companies, including exchange-traded funds such as iShares, SPDRs and VIPERs, are essentially pools of securities. Investing in other investment companies involves substantially the same risks as investing directly in the underlying securities, but may involve additional expenses at the investment company level, such as investment advisory fees and operating expenses. In some cases, investing in an investment company may involve the payment of a premium over the value of the assets held in that investment companys portfolio. In other circumstances, the market value of an investment companys shares may be less than the NAV per share of the investment company. As an investor in another investment company, the Fund will bear its ratable share of the investment companys expenses, including advisory fees, and the Funds shareholders will bear such expenses indirectly, in addition to similar fees and expenses of the Fund.
Despite the possibility of greater fees and expenses, investment in other investment companies may be attractive nonetheless for several reasons, especially in connection with foreign investments. Because of restrictions on direct
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investment by U.S. entities in certain countries, investing indirectly in such countries (by purchasing shares of another fund that is permitted to invest in such countries) may be the most practical and efficient way for the Fund to invest in such countries. In other cases, when the Funds Adviser desires to make only a relatively small investment in a particular country, investing through another fund that holds a diversified portfolio in that country may be more effective than investing directly in issuers in that country. In addition, it may be efficient for the Fund to gain exposure to particular market segments by investing in shares of one or more investment companies.
Exchange-Traded Funds. The Fund may invest in shares of exchange-traded funds (ETFs). An ETF is an investment company that is generally registered under the 1940 Act that holds a portfolio of securities designed to track the performance of a particular index. The index may be actively managed. ETFs sell and redeem their shares at NAV in large blocks (typically 50,000 of its shares or more) called creation units. Shares representing fractional interests in these creation units are listed for trading on national securities exchanges and can be purchased and sold in the secondary market in lots of any size at any time during the trading day. ETFs sometimes also refer to entities that are not registered under the 1940 Act that invest directly in commodities or other assets (e.g., gold bullion). Investments in ETFs involve certain inherent risks generally associated with investments in a broadly-based portfolio of securities, including risks that the general level of stock prices may decline, thereby adversely affecting the value of each unit of the ETF or other instrument. In addition, an ETF may not fully replicate the performance of its benchmark index because of the temporary unavailability of certain index securities in the secondary market or discrepancies between the ETF and the index with respect to the weighting of securities or number of stocks held.
Limitations on Investments in Other Investment Companies. The Funds investments in other investment companies are typically subject to limitations prescribed by the 1940 Act. The 1940 Act limitations currently provide, in part, that, unless an exception applies, the Fund may not purchase shares of an investment company if such a purchase would cause the Fund (a) to own in the aggregate more than 3% of the total outstanding voting stock of the investment company; (b) to have more than 5% of its total assets invested in the aggregate in the investment company; or (c) to have more than 10% of its total assets invested in the aggregate in all investment companies. Investments by the Fund may exceed these limitations, however, if permitted by applicable exemptive relief; for example, the Fund may invest in excess of the foregoing limitations in an unaffiliated ETF if the ETF has obtained exemptive relief from the Securities and Exchange Commission and both the ETF and the Fund adhere to the conditions in the exemptive relief.
Investments in Banks
The Fund may invest in certificates of deposit (certificates representing the obligation of a bank to repay funds deposited with it for a specified period of time), time deposits (non-negotiable deposits maintained in a bank for a specified period of time up to seven days at a stated interest rate), bankers acceptances (credit instruments evidencing the obligation of a bank to pay a draft drawn on it by a customer) and other securities and instruments issued by domestic banks, foreign branches of domestic banks, foreign subsidiaries of domestic banks and domestic and foreign branches of foreign banks. Banks are also expected to serve as counterparties on some of the Funds derivative contracts.
The Fund also may purchase U.S. dollar-denominated obligations issued by foreign branches of domestic banks or foreign branches of foreign banks (Eurodollar obligations) and domestic branches of foreign banks (Yankee dollar obligations).
Eurodollar and other foreign obligations involve special investment risks, including the possibility that (i) liquidity could be impaired because of future political and economic developments, (ii) the obligations may be less marketable than comparable domestic obligations of domestic issuers, (iii) a foreign jurisdiction might impose withholding taxes on interest income payable on those obligations, (iv) deposits may be seized or nationalized, (v) foreign governmental restrictions such as exchange controls may be adopted, which might adversely affect the payment of principal and interest on those obligations, (vi) the selection of foreign obligations may be more difficult because there may be less information publicly available concerning foreign issuers, (vii) there may be difficulties in enforcing a judgment against a foreign issuer, or (viii) the accounting, auditing and financial reporting standards, practices and requirements applicable to foreign issuers may differ from those applicable to domestic issuers. In addition, foreign banks are not subject to examination by U.S. government agencies or instrumentalities.
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The restrictions in this section will not apply to any investments that are not part of the portion of the Fund managed by Reich & Tang. For example, these restrictions will not limit which banks may serve as counterparties for the Funds derivative instruments.
Market Capitalizations
The Fund may invest in companies with small, medium or large market capitalizations. Large capitalization companies are generally large companies that have been in existence for a number of years and are well established in their market. Middle market capitalization companies are generally medium-sized companies that are not as established as large capitalization companies, may be more volatile and are subject to many of the same risks as smaller capitalization companies. The Fund may invest in companies with relatively small market capitalizations. Such investments may involve greater risk than is usually associated with more established companies. These companies often have sales and earnings growth rates that exceed those of companies with larger market capitalization. Such growth rates may in turn be reflected in more rapid share price appreciation. However, companies with smaller market capitalization often have limited product lines, markets or financial resources and may be dependent upon a relatively small management group. These securities may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of companies with larger market capitalization or market averages in general. To the extent that the Fund invests in companies with relatively small market capitalizations, the value of its stock portfolio may fluctuate more widely than broad market averages.
Money Market Instruments
As described in the Prospectus, the Fund may invest in money market instruments. Money market instruments are high-quality, short-term securities. The Fund may invest in instruments of lesser quality and do not have any minimum credit quality restriction. Money market instruments maturing in less than one year may yield less than obligations of comparable quality having longer maturities.
Although changes in interest rates can change the market value of a security, the Fund expects those changes to be minimal with respect to these securities, which may be purchased by the Fund for defensive purposes. The Funds money market investments may be issued by U.S. banks, foreign banks (including their U.S. branches) or foreign branches and subsidiaries of U.S. banks. Obligations of foreign banks may be subject to foreign economic, political and legal risks. Such risks include foreign economic and political developments, foreign governmental restrictions that may adversely affect payment of principal and interest on the obligations, foreign withholding and other taxes on interest income, difficulties in obtaining and enforcing a judgment against a foreign obligor, exchange control regulations (including currency blockage) and the expropriation or nationalization of assets or deposits. Foreign branches of U.S. banks and foreign banks are not necessarily subject to the same or similar regulatory requirements that apply to domestic banks. For instance, such branches and banks may not be subject to the types of requirements imposed on domestic banks with respect to mandatory reserves, loan limitations, examinations, accounting, auditing, record keeping and the public availability of information. Obligations of such branches or banks will be purchased only when Reich & Tang believes the risks are minimal. In addition, recently, many money market instruments previously thought to be highly liquid have become illiquid. If the Funds money market instruments become illiquid, the Fund may be unable to satisfy certain of its obligations or may only be able to do so by selling other securities at prices or times that may be disadvantageous to do so.
The Fund may invest in U.S. government securities that include all securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities (U.S. government securities). Some U.S. government securities are backed by the full faith and credit of the United States. U.S. government securities that are not backed by the full faith and credit of the United States are considered riskier than those that are.
The Fund expects that the assets invested by Reich & Tang will be invested principally in short-term money market obligations with maturities of 397 days or less, including bank certificates of deposit, time deposits, bankers acceptances, high-quality commercial paper, loan participation interests, securities issued or guaranteed by the U.S. government, state agencies or instrumentalities, and repurchase agreements calling for resale in 397 days or less
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backed by the foregoing securities. The maturities of variable rate demand instruments held in the Funds portfolio will be deemed to be the longer of the period required before the Fund is entitled to receive payment of the principal amount of the instrument through demand, or the period remaining until the next interest rate adjustment, although the stated maturities may be in excess of 397 days. Money market instruments maturing in less than one year may yield less than obligations of comparable quality having longer maturities. The Funds money market investments at the time of purchase (other than U.S. government securities (defined below) and repurchase agreements relating thereto) generally will be rated at the time of purchase in the two highest short-term rating categories as rated by a major credit agency or, if unrated, will be of comparable quality as determined by the Funds Adviser or Subadvisers. The relatively short maturity of obligations to be purchased by the Fund may result in frequent changes in the portfolio composition of the Fund. There are usually no brokerage commissions paid by the Fund in connection with the purchase of money market instruments. See the sections Portfolio Transactions and Brokerage and Investment Restrictions.
Although the Fund will usually invest a substantial portion of its assets in money market instruments, it is not a money market fund and, therefore, is not subject to the portfolio quality, maturity and NAV requirements applicable to money market funds. The Fund will not seek to maintain a stable NAV. The Fund also will not be required to comply with the rating restrictions applicable to money market funds, and will not necessarily sell an investment in cases where a securitys rating has been downgraded.
Considerations of liquidity, safety and preservation of capital may preclude the Fund from investing in money market instruments paying the highest available yield at a particular time. In addition, the Funds ability to trade money market securities may be constrained by the collateral and asset coverage requirements related to the Funds other investments. As a result, the Fund may need to buy or sell money market instruments at inopportune times. In addition, even though money market instruments are generally considered to be high-quality and a low-risk investment, recently a number of issuers of money market and money market-type instruments have experienced financial difficulties, leading in some cases to rating downgrades and decreases in the value of their securities. In addition, recently, many money market instruments previously thought to be highly liquid have become illiquid. If the Funds money market instruments become illiquid, the Fund may be unable to satisfy certain of its obligations or may only be able to do so by selling other securities at prices or times that may be disadvantageous to do so.
Mortgage Dollar Rolls
The Fund may enter into mortgage dollar rolls. A dollar roll involves the sale of a security by the Fund and its agreement to repurchase the instrument at a specified time and price, and may be considered a form of borrowing for some purposes. The Fund will designate on its records or segregate with its custodian bank assets determined to be liquid in an amount sufficient to meet its obligations under the transactions. A dollar roll involves potential risks of loss that are different from those related to the securities underlying the transactions. The Fund may be required to purchase securities at a higher price than may otherwise be available on the open market. Since the counterparty in the transaction is required to deliver a similar, but not identical, security to the Fund, the security that the Fund is required to buy under the dollar roll may be worth less than an identical security. There is no assurance that the Funds use of the cash that it receives from a dollar roll will provide a return that exceeds borrowing costs.
Mortgage-Related Securities
The Fund may invest in mortgage-related securities, such as Government National Mortgage Association (GNMA) or Federal National Mortgage Association (FNMA) certificates, which differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if the Fund purchases these assets at a premium, a faster-than-expected prepayment rate will tend to reduce yield to maturity, and a slower-than-expected prepayment rate may have the opposite effect of increasing yield to maturity. If the Fund purchases mortgage-related securities at a discount, faster-than-expected prepayments will tend to increase, and slower-than-expected prepayments will tend to reduce, yield to maturity. Prepayments, and resulting amounts available for reinvestment by the Fund, are likely to be greater during a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates. Accelerated prepayments on securities purchased at a premium may result in a loss of principal if the premium has not been fully
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amortized at the time of prepayment. Although these securities will decrease in value as a result of increases in interest rates generally, they are likely to appreciate less than other fixed-income securities when interest rates decline because of the risk of prepayments. In addition, an increase in interest rates would increase the inherent volatility of the Fund by increasing the average life of the Funds portfolio securities.
The value of some mortgage-backed or asset-backed securities in which the Fund invests may be particularly sensitive to changes in prevailing interest rates, and the ability of the Fund to successfully utilize these instruments may depend in part upon the ability of the Adviser to forecast interest rates and other economic factors correctly. The market for mortgage-backed, mortgage-related and asset-backed securities has recently experienced high volatility and a lack of liquidity. As a result, the value of many of these securities has significantly declined. There can be no assurance that these markets will become more liquid or less volatile, and it is possible that the value of these securities could decline further. The risk of non-payment is greater for mortgage-related securities that are backed by mortgage pools that contain subprime or Alt-A loans (loans made to borrowers with weakened credit histories, less documentation or with a lower capacity to make timely payments on their loans), but a level of risk exists for all loans. Market factors adversely affecting mortgage loan repayments may include a general economic downturn, high unemployment, a general slowdown in the real estate market, a drop in the market prices of real estate, or an increase in interest rates resulting in higher mortgage payments by holders of adjustable-rate mortgages. Securities issued by the GNMA and the FNMA and similar issuers also may be exposed to risks described under U.S. Government Securities.
The Fund also may gain exposure to mortgage-related securities through entering into derivative instruments related to this asset class. For example, the Fund may enter into derivative contracts on CMBX, which are indices made up of tranches of commercial mortgage-backed securities, each with different credit ratings. Utilizing CMBX, one can either gain synthetic risk exposure to a portfolio of such securities by selling protection or take a short position by buying protection. The protection buyer pays a monthly premium to the protection seller, and the seller agrees to cover any principal losses and interest shortfalls of the referenced underlying mortgage-backed securities. Derivative instruments related to mortgage-related securities are subject to the risks associated with mortgage-related securities generally, as well as the risks of derivative transactions. See the section Derivative Instruments above.
Preferred Stock
The Fund may invest in preferred stock. Preferred stock pays dividends at a specified rate and generally has preference over common stock in the payment of dividends and the liquidation of the issuers assets, but is junior to the debt securities of the issuer in those same respects. Unlike interest payments on debt securities, dividends on preferred stock are generally payable at the discretion of the issuers board of directors. Shareholders may suffer a loss of value if dividends are not paid. The market prices of preferred stocks are subject to changes in interest rates and are more sensitive to changes in the issuers creditworthiness than are the prices of debt securities. Under normal circumstances, preferred stock does not carry voting rights.
Private Placements
The Fund may invest in securities that are purchased in private placements. While private placements may offer opportunities for investment that are not otherwise available on the open market, these securities may be subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for these securities, especially under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the Fund could find it more difficult to sell the securities when its Adviser or Subadvisers believe that it is advisable to do so, or may be able to sell the securities only at prices lower than if the securities were more widely held. At times, it also may be more difficult to determine the fair value of the securities for purposes of computing the Funds NAV.
The absence of a trading market can make it difficult to ascertain a market value for illiquid investments such as private placements. Disposing of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for the Fund to sell the illiquid securities promptly at an acceptable price. The Fund may have to bear the extra expense of registering the securities for resale and the risk of substantial delay in effecting the registration. In addition, market quotations are typically less readily available for these securities. The
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judgment of the Adviser or Subadvisers may at times play a greater role in valuing these securities than in the case of unrestricted securities.
The Fund may be deemed to be an underwriter for purposes of the Securities Act when reselling privately-issued securities to the public. As such, the Fund may be liable to purchasers of the securities if the registration statement prepared by the issuer, or the prospectus forming a part of the registration statement, is materially inaccurate or misleading.
REITs
The Fund may invest in REITs. REITs are pooled investment vehicles that invest primarily in either real estate or real estate-related loans. REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds, or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended and changes in interest rates. REITs, the underlying assets of which are concentrated in properties used by a particular industry, such as health care, are also subject to risks associated with such industry. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the Code, and failing to maintain their exemptions from registration under the 1940 Act.
REITs (especially mortgage REITs) are also subject to interest rate risks, including prepayment risk. When interest rates decline, the value of a REITs investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REITs investment in fixed rate obligations can be expected to decline. If the REIT invests in adjustable rate mortgage loans the interest rates on which are reset periodically, yields on a REITs investments in such loans will gradually align themselves to reflect changes in market interest rates. This causes the value of such investments to fluctuate less dramatically in response to interest rate fluctuations than would investments in fixed rate obligations. REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than more widely held securities.
The Funds investment in a REIT may result in the Fund making distributions that constitute a return of capital to Fund shareholders for federal income tax purposes, or may require the Fund to accrue and distribute income not yet received. In addition, distributions by the Fund from REITs will not qualify for the corporate dividends-received deduction, or, generally, for treatment as qualified dividend income.
Real Estate Securities
The Fund may invest in securities of companies in the real estate industry, including REITs, and are, therefore, subject to the special risks associated with the real estate market and the real estate industry in general. Companies in the real estate industry are considered to be those that (i) have principal activity involving the development, ownership, construction, management or sale of real estate; (ii) have significant real estate holdings, such as hospitality companies, supermarkets and mining, lumber and paper companies; and/or (iii) provide products or services related to the real estate industry, such as financial institutions that make and/or service mortgage loans and manufacturers or distributors of building supplies. Securities of companies in the real estate industry are sensitive to factors such as changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use and rents, and the management skill and creditworthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws.
Repurchase Agreements
The Fund may enter into repurchase agreements, by which the Fund purchases a security and obtains a simultaneous commitment from the seller (a bank or, to the extent permitted by the 1940 Act, a recognized securities dealer) to repurchase the security at an agreed-upon price and date (usually seven days or less from the date of original purchase). The resale price is in excess of the purchase price and reflects an agreed-upon market interest rate
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unrelated to the coupon rate on the purchased security. Repurchase agreements are economically similar to collateralized loans by the Fund. Such transactions afford the Fund the opportunity to earn a return on temporarily available cash at relatively low market risk. The Fund does not have percentage limitations on how much of its total assets may be invested in repurchase agreements. In addition to using repurchase agreements as a principal investment strategy in connection with the portion of the Fund managed by Reich & Tang, the Fund may also use repurchase agreements for cash management and temporary defensive purposes. The Fund may invest in a repurchase agreement that does not produce a positive return to the Fund if the Adviser or Subadvisers believe it is appropriate to do so under the circumstances (for example, to help protect the Funds uninvested cash against the risk of loss during periods of market turmoil). While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the U.S. government, the obligation of the seller is not guaranteed by the U.S. government and there is a risk that the seller may fail to repurchase the underlying security. In such event, the Fund would attempt to exercise rights with respect to the underlying security, including possible disposition in the market. However, the Fund may be subject to various delays and risks of loss, including (i) possible declines in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto, (ii) possible reduced levels of income and lack of access to income during this period, and (iii) inability to enforce rights and the expenses involved in the attempted enforcement, for example, against a counterparty undergoing financial distress.
Reverse Repurchase Agreements and Other Borrowings
The Fund may enter into reverse repurchase agreements. In a reverse repurchase agreement the Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker or dealer, in return for cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed-upon rate. The ability to use reverse repurchase agreements may enable, but does not ensure the ability of, the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous. When effecting reverse repurchase agreements, assets of the Fund in a dollar amount sufficient to make payment of the obligations to be purchased are segregated on the Funds records at the trade date and maintained until the transaction is settled. Reverse repurchase agreements are economically similar to secured borrowings by the Fund.
Rule 144A Securities and Section 4(2) Commercial Paper
Rule 144A securities are privately offered securities that can be resold only to certain qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Fund may also purchase commercial paper issued under Section 4(2) of the Securities Act or similar debt obligations. Commercial paper is generally considered to be short-term unsecured debt of corporations. Investing in Rule 144A securities and Section 4(2) commercial paper could have the effect of increasing the level of the Funds illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. As noted above, Rule 144A securities and Section 4(2) commercial paper are treated as illiquid unless the Adviser or Subadvisers have determined, under guidelines established by the Board, that the particular issue is liquid. Under the guidelines, the Adviser considers such factors as: (1) the frequency of the trades and quotes for a security; (2) the number of dealers willing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the marketplace trades in the security.
Short-Term Trading
The Fund may, consistent with its investment objectives, engage in portfolio trading in anticipation of, or in response to, changing economic or market conditions and trends. These policies may result in higher turnover rates in the Funds portfolio, which may produce higher transaction costs and a higher level of taxable capital gains. Portfolio turnover considerations will not limit the Advisers or Subadvisers investment discretion in managing the Funds assets. The Fund anticipates that its portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions.
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Step-Coupon Securities
The Fund may invest in step-coupon securities. Step-coupon securities trade at a discount from their face value and pay coupon interest. The coupon rate is low for an initial period and then increases to a higher coupon rate thereafter. Market values of these types of securities generally fluctuate in response to changes in interest rates to a greater degree than conventional interest-paying securities of comparable term and quality. Under many market conditions, investments in such securities may be illiquid, making it difficult for the Fund to dispose of them or determine their current value.
Stripped Securities
The Fund may invest in stripped securities, which are usually structured with two or more classes that receive different proportions of the interest and principal distribution on a pool of U.S. government or foreign government securities or mortgage assets. In some cases, one class will receive all of the interest (the interest-only or IO class), while the other class will receive all of the principal (the principal-only or PO class). Stripped securities commonly have greater market volatility than other types of fixed-income securities. In the case of stripped mortgage securities, if the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to recoup fully its investments in IOs. Stripped mortgage securities may be illiquid. Stripped securities may be considered derivative securities, discussed in the section Derivative Instruments.
Structured Notes
The Fund may invest in a broad category of instruments known as structured notes. These instruments are debt obligations issued by industrial corporations, financial institutions or governmental or international agencies. Traditional debt obligations typically obligate the issuer to repay the principal plus a specified rate of interest. Structured notes, by contrast, obligate the issuer to pay amounts of principal or interest that are determined by reference to changes in some external factor or factors, or the principal and interest rate may vary from the stated rate because of changes in these factors. For example, the issuers obligations could be determined by reference to changes in the value of a commodity (such as gold or oil) or commodity index, a foreign currency, an index of securities (such as the S&P 500® Index) or an interest rate (such as the U.S. Treasury bill rate). In some cases, the issuers obligations are determined by reference to changes over time in the difference (or spread) between two or more external factors (such as the U.S. prime lending rate and the total return of the stock market in a particular country, as measured by a stock index). In some cases, the issuers obligations may fluctuate inversely with changes in an external factor or factors (for example, if the U.S. prime lending rate goes up, the issuers interest payment obligations are reduced). In some cases, the issuers obligations may be determined by some multiple of the change in an external factor or factors (for example, three times the change in the U.S. Treasury bill rate). In some cases, the issuers obligations remain fixed (as with a traditional debt instrument) so long as an external factor or factors do not change by more than the specified amount (for example, if the value of a stock index does not exceed some specified maximum), but if the external factor or factors change by more than the specified amount, the issuers obligations may be sharply reduced.
Structured notes can serve many different purposes in the management of the Fund. For example, they can be used to increase the Funds exposure to changes in the value of assets that the Fund would not ordinarily purchase directly (such as commodities or stocks traded in a market that is not open to U.S. investors). They can also be used to hedge the risks associated with other investments the Fund holds. For example, if a structured note has an interest rate that fluctuates inversely with general changes in a countrys stock market index, the value of the structured note would generally move in the opposite direction to the value of holdings of stocks in that market, thus moderating the effect of stock market movements on the value of the Funds portfolio as a whole.
Risks. Structured notes involve special risks. As with any debt obligation, structured notes involve the risk that the issuer will become insolvent or otherwise default on its payment obligations. This risk is in addition to the risk that the issuers obligations (and thus the value of the Funds investment) will be reduced because of adverse changes in the external factor or factors to which the obligations are linked. The value of structured notes will in many cases be more volatile (that is, will change more rapidly or severely) than the value of traditional debt instruments. Volatility
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will be especially high if the issuers obligations are determined by reference to some multiple of the change in the external factor or factors. Many structured notes have limited or no liquidity, so that the Fund would be unable to dispose of the investment prior to maturity. As with all investments, successful use of structured notes depends in significant part on the accuracy of the Advisers or Subadvisers analysis of the issuers creditworthiness and financial prospects, and of the Advisers or Subadvisers forecast as to changes in relevant economic and financial market conditions and factors. In instances where the issuer of a structured note is a foreign entity, the usual risks associated with investments in foreign securities (described above) apply. Structured notes may be considered derivative securities.
Supranational Entities
The Fund may invest in securities issued by supranational entities, such as the International Bank for Reconstruction and Development (commonly called the World Bank), the Asian Development Bank and the Inter-American Development Bank. The governmental members of these supranational entities are stockholders that typically make capital contributions to support or promote such entities economic reconstruction or development activities and may be committed to make additional capital contributions if the entity is unable to repay its borrowings. A supranational entitys lending activities may be limited to a percentage of its total capital, reserves and net income. There can be no assurance that the constituent governments will be able or willing to honor their commitments to those entities, with the result that the entity may be unable to pay interest or repay principal on its debt securities, and the Fund may lose money on such investments. Obligations of a supranational entity that are denominated in foreign currencies will also be subject to the risks associated with investments in foreign currencies, as described above in the section Foreign Currency Transactions.
U.S. Government Securities
The Fund may invest in some or all of the following U.S. government securities:
U.S. Treasury Bills Direct obligations of the U.S. Treasury that are issued in maturities of one year or less. No interest is paid on Treasury bills; instead, they are issued at a discount and repaid at full face value when they mature. They are backed by the full faith and credit of the U.S. government.
U.S. Treasury Notes and Bonds Direct obligations of the U.S. Treasury issued in maturities that vary between one and thirty years, with interest normally payable every six months. These obligations are backed by the full faith and credit of the U.S. government.
Treasury Inflation-Protected Securities (TIPS) Fixed-income securities whose principal value is periodically adjusted according to the rate of inflation. The interest rate on TIPS is fixed at issuance, but over the life of the bond this interest may be paid on an increasing or decreasing principal value that has been adjusted for inflation. Although repayment of the original bond principal upon maturity is guaranteed, the market value of TIPS is not guaranteed, and will fluctuate.
Ginnie Maes Debt securities issued by a mortgage banker or other mortgagee that represent an interest in a pool of mortgages insured by the Federal Housing Administration or the Rural Housing Service or guaranteed by the Veterans Administration. The GNMA guarantees the timely payment of principal and interest when such payments are due, whether or not these amounts are collected by the issuer of these certificates on the underlying mortgages. It is generally understood that a guarantee by GNMA is backed by the full faith and credit of the United States. Mortgages included in single family or multi-family residential mortgage pools backing an issue of Ginnie Maes have a maximum maturity of 30 years. Scheduled payments of principal and interest are made to the registered holders of Ginnie Maes (such as the Fund) each month. Unscheduled prepayments may be made by homeowners, or as a result of a default. Prepayments are passed through to the registered holder (such as the Fund, which reinvests any prepayments) of Ginnie Maes along with regular monthly payments of principal and interest.
Fannie Maes The FNMA is a government-sponsored corporation owned entirely by private stockholders that purchases residential mortgages from a list of approved seller/servicers, including state
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and federally chartered savings and loan associations, mutual funds savings banks, commercial banks, credit unions and mortgage banks. Fannie Maes are pass-through securities issued by FNMA that are guaranteed as to timely payment of principal and interest by FNMA, but these obligations are not backed by the full faith and credit of the U.S. government.
Freddie Macs The Federal Home Loan Mortgage Corporation (FHLMC) is a corporate instrumentality of the U.S. government. Freddie Macs are participation certificates issued by FHLMC that represent an interest in residential mortgages from FHLMCs National Portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but these obligations are not backed by the full faith and credit of the U.S. government.
Risks. U.S. government securities generally do not involve the credit risks associated with investments in other types of fixed-income securities, although, as a result, the yields available from U.S. government securities are generally lower than the yields available from corporate fixed-income securities. Like other debt securities, however, the values of U.S. government securities change as interest rates fluctuate. Fluctuations in the value of portfolio securities will not affect interest income on existing portfolio securities but will be reflected in the Funds NAV. Because the magnitude of these fluctuations will generally be greater at times when the Funds average maturity is longer, under certain market conditions the Fund may, for temporary defensive purposes, accept lower current income from short-term investments rather than investing in higher yielding long-term securities. Securities such as those issued by Fannie Mae and Freddie Mac are guaranteed as to the payment of principal and interest by the relevant entity (e.g., FNMA or FHLMC) but have not been backed by the full faith and credit of the U.S. government. Instead, they have been supported only by the discretionary authority of the U.S. government to purchase the agencys obligations. An event affecting the guaranteeing entity could adversely affect the payment of principal or interest or both on the security, and therefore, these types of securities should be considered to be riskier than U.S. government securities.
S&P downgraded its long-term sovereign credit rating on the United States from AAA to AA+ on August 5, 2011. The downgrade by S&P and other possible downgrades in the future may result in increased volatility or liquidity risk, higher interest rates and lower prices for U.S. government securities and increased costs for all kinds of debt. The value of the Funds shares may be adversely affected by S&Ps downgrade or any future downgrades of the U.S. governments credit rating given that the Fund may invest in U.S. government securities.
In September 2008, the U.S. Treasury Department placed FNMA and FHLMC into conservatorship. The companies remain in conservatorship, and the effect that this conservatorship will have on the companies debt and equity securities is unclear. On March 5, 2013, the conservator of FNMA and FHLMC announced a plan to merge the functions of FNMA and FHLMC into a common platform for the issuance of mortgage-related securities under a new government-sponsored entity. As part of this proposal, FNMA and FHMLC would be wound down and eventually eliminated. The potential effects of the plan, if any, on the mortgage-related securities market cannot be predicted. Although the U.S. government has recently provided financial support to FNMA and FHLMC, there can be no assurance that it will support these or other government-sponsored enterprises in the future. In addition, any such government support may benefit the holders of only certain classes of an issuers securities.
The values of TIPS generally fluctuate in response to changes in real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. If inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of TIPS. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of TIPS. If inflation is lower than expected during the period the Fund holds TIPS, the Fund may earn less on the TIPS than on a conventional bond. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in TIPS may not be protected to the extent that the increase is not reflected in the bonds inflation measure. There can be no assurance that the inflation index for TIPS will accurately measure the real rate of inflation in the prices of goods and services.
See the section Mortgage-Related Securities for additional information on these securities.
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Variable and Floating Rate Instruments
The Fund may purchase variable and floating rate instruments (which may include bank loans, which are discussed in the section Bank Loans, Loan Participations and Assignments above). These instruments may include variable amount master demand notes, which are unsecured demand notes that permit the indebtedness thereunder to vary in addition to providing for periodic adjustments in the interest rate. These instruments may also include leveraged inverse floating rate debt instruments, or inverse floaters. The interest rate of an inverse floater resets in the opposite direction from the market rate of interest on a security or interest to which it is related. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest, and is subject to many of the same risks as derivatives. The higher degree of leverage inherent in inverse floaters is associated with greater volatility in their market values. Certain of these investments may be illiquid. The absence of an active secondary market with respect to these investments could make it difficult for the Fund to dispose of a variable or floating rate note if the issuer defaulted on its payment obligation or during periods that the Fund is not entitled to exercise its demand rights, and the Fund could, for these or other reasons, suffer a loss with respect to such instruments.
When-Issued, Delayed Delivery and Forward Commitment Securities
To reduce the risk of changes in interest rates and securities prices, the Fund may purchase securities on a forward commitment or when-issued or delayed delivery basis, which means delivery and payment take place a number of days after the date of the commitment to purchase. The payment obligation and the interest rate receivable with respect to such purchases are fixed when the Fund enters into the commitment, but the Fund does not make payment until it receives delivery from the counterparty. The Adviser or Subadvisers will commit to purchase such securities only with the intention of actually acquiring the securities, but the Adviser or Subadvisers may sell these securities before the settlement date if it is deemed advisable.
Securities purchased on a forward commitment or when-issued or delayed delivery basis are subject to changes in value, generally changing in the same way, i.e., appreciating when interest rates decline and depreciating when interest rates rise, based upon the publics perception of the creditworthiness of the issuer and changes, real or anticipated, in the level of interest rates. Securities so purchased may expose the Fund to risks because they may experience such fluctuations prior to their actual delivery. Purchasing securities on a when-issued or delayed delivery basis can involve the additional risk that the yield available in the market when the delivery takes place actually may be higher than that obtained in the transaction itself. Purchasing securities on a forward commitment or when-issued or delayed delivery basis when the Adviser or Subadvisers are fully or almost fully invested may result in greater potential fluctuation in the value of the Funds net assets. In addition, there is a risk that securities purchased on a when-issued or delayed delivery basis may not be delivered and that the purchaser of securities sold by the Fund on a forward commitment basis will not honor its purchase obligation. In such cases, the Fund may incur a loss.
Zero-Coupon Securities
The Fund may invest in zero-coupon securities. Zero-coupon securities are debt obligations that do not entitle the holder to any periodic payments of interest either for the entire life of the obligation or for an initial period after the issuance of the obligations; the holder generally is entitled to receive the par value of the security at maturity. These securities are issued and traded at a discount from their face amounts. The amount of the discount varies depending on such factors as the time remaining until maturity of the securities, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of zero-coupon securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than are other types of securities having similar maturities and credit quality. The Funds investment in zero-coupon securities will require the Fund to accrue income without a corresponding receipt of cash; the Fund may be required to dispose of portfolio securities (including when not otherwise advantageous to do so) in order to obtain sufficient cash to meet its distribution requirements for treatment as a RIC under the Code.
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The Fund has the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders capital, the Adviser or Subadvisers may employ a temporary defensive strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, the Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and/or invest up to 100% of its assets in cash, high-quality debt securities or money market instruments of U.S. or foreign issuers. It is impossible to predict whether, when or for how long the Fund will employ temporary defensive strategies. The use of temporary defensive strategies may prevent the Fund from achieving its goal.
In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, the Fund may temporarily hold cash and may invest any portion of its assets in money market or other short-term high-quality instruments.
The Funds portfolio turnover rate for a fiscal year is calculated by dividing the lesser of purchases or sales of portfolio securities for the fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during the fiscal year, in each case excluding securities having maturity dates at acquisition of one year or less. High portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Fund, thereby decreasing the Funds total return. High portfolio turnover also may give rise to additional taxable income for the Funds shareholders, including through the realization of short term capital gains that are typically taxed to shareholders at ordinary income tax rates, and therefore can result in higher taxes for shareholders that hold their shares in taxable accounts. It is impossible to predict with certainty whether future portfolio turnover rates will be higher or lower than those experienced during past periods.
Generally, the Fund intends to invest for long-term purposes. However, the rate of portfolio turnover will depend upon market and other conditions, and it will not be a limiting factor when the Funds Adviser believes that portfolio changes are appropriate.
PORTFOLIO HOLDINGS INFORMATION
The Board has adopted policies to limit the disclosure of confidential portfolio holdings information and to ensure equal access to such information, except in certain circumstances as approved by the Board. These policies are summarized below. Generally, portfolio holdings information will not be disclosed until it is first posted on the Funds website at ngam.natixis.com. Generally, full portfolio holdings information will not be posted until it is aged for at least 7 days. Any holdings information that is released must clearly indicate the date of the information, and must state that due to active management, the Fund may or may not still invest in the securities listed. Portfolio characteristics, such as industry/sector breakdown, current yield, quality breakdown, duration, average price-earnings ratio and other similar information may be provided on a current basis. However, portfolio characteristics do not include references to specific portfolio holdings.
The Board has approved exceptions to the general policy on the sharing of portfolio holdings information as in the best interests of the Fund:
(1) | Disclosure of portfolio holdings posted on the Funds website, provided that information is shared no sooner than the next day following the day on which the information is posted; |
(2) | Disclosure to firms offering industry-wide services, provided that the firm has agreed in writing to maintain the confidentiality of the Funds portfolio holdings. Entities that receive information pursuant to this exception include Lipper (monthly disclosure of full portfolio holdings, provided 6 days after month-end) and FactSet (daily disclosure of full portfolio holdings, provided the next business day); |
(3) | Disclosure (subject to a written confidentiality provision) to Broadridge Financial Solutions, Inc. as part of the proxy voting recordkeeping services provided to the Fund; |
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(4) | Disclosure to employees of the Adviser, Subadvisers, principal underwriter, administrator, custodian, financial printer, Fund accounting agent, independent registered public accountants, Fund counsel and Independent Trustees counsel, as well as to broker-dealers executing portfolio transactions for the Fund, provided that such disclosure is made for bona fide business purposes; |
(5) | Disclosure to Natixis Global Asset Management (NGAM), in its capacity as the seed capital investor for the Fund, in order to satisfy certain reporting obligations to its parent company and for its own risk management purposes; provided that NGAM agrees to maintain its seed capital in the Fund for a set period and does not effect a redemption of Fund shares while in possession of information that is not publicly available to other investors in the Fund. NGAM and its parent utilize a third-party service provider, Aptimum Formation Développement (Aptimum), to assist with their analysis of risk. Any sharing of holdings information with Aptimum is subject to a confidentiality agreement; and |
(6) | Other disclosures made for non-investment purposes, but only if approved in writing in advance by an officer of the Fund. Such exceptions will be reported to the Board. |
With respect to items (2) through (5) above, disclosure is made pursuant to procedures that have been approved by the Board, and may be made by employees of the Funds Adviser, Subadvisers, administrator or custodian. With respect to (6) above, approval will be granted only when the officer determines that the Fund has a legitimate business reason for sharing the portfolio holdings information and the recipients are subject to a duty of confidentiality, including a duty not to trade on the information. As of the date of this Statement, the only entities that receive information pursuant to this exception are RR Donnelley (quarterly, or more frequently as needed, disclosure of full portfolio holdings) for the purposes of performing certain functions related to the production of the Funds semiannual financial statements, quarterly Form N-Q filings and other related items and Thomson Reuters (daily disclosure of full portfolio holdings) for the purpose of performing certain electronic reconciliations of portfolio holdings for the Fund. Although the Trust may enter into written confidentiality agreements, in other circumstances, such as those described in (4) above, the obligation to keep information confidential may be based on common law, professional or statutory duties of confidentiality. Common law, professional or statutory duties of confidentiality, including the duty not to trade on the information, may not be as clearly delineated and may be more difficult to enforce than contractual duties. The Funds officers determine on a case-by-case basis whether it is appropriate for the Fund to rely on such common law, professional or statutory duties. The Board exercises oversight of the disclosure of portfolio holdings by, among other things, receiving and reviewing reports from the Funds chief compliance officer regarding any material issues concerning the Funds disclosure of portfolio holdings or from officers of the Fund in connection with proposed new exceptions or new disclosures pursuant to item (6) above. Notwithstanding the above, there is no assurance that the Funds policies on the sharing of portfolio holdings information will protect the Fund from the potential misuse of holdings by individuals or firms in possession of that information.
Other registered investment companies that are advised or subadvised by the Funds Adviser or Subadvisers may be subject to different portfolio holdings disclosure policies, and neither the Adviser nor the Board exercises control over such policies or disclosure. In addition, separate account clients of the Adviser have access to their portfolio holdings and are not subject to the Funds portfolio holdings disclosure policies. Some of the funds that are advised or subadvised by the Adviser and some of the separate accounts managed by the Adviser have investment objectives and strategies that are substantially similar or identical to the Funds, and therefore potentially substantially similar, and in certain cases nearly identical, portfolio holdings as the Fund.
In addition, any disclosures of portfolio holdings information by the Fund, its Adviser or Subadvisers must be consistent with the anti-fraud provisions of the federal securities laws, the Funds, the Advisers and the Subadvisers fiduciary duty to shareholders, and the Funds code of ethics. The Funds policies expressly prohibit the sharing of portfolio holdings information if the Fund, its Adviser, its Subadvisers or any other affiliated party receives compensation or other consideration in connection with such arrangement. The term consideration includes any agreement to maintain assets in the Fund or in other funds or accounts managed by the Funds Adviser and/or Subadvisers or by any affiliated person of the Adviser and/or Subadvisers.
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The Trust is governed by the Board, which is responsible for generally overseeing the conduct of Fund business and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Funds activities, review contractual arrangements with companies that provide services to the Fund and review the Funds performance.
Trustees and Officers
The table below provides certain information regarding the Trustees and officers of the Trust. For the purposes of this table and for purposes of this Statement, the term Independent Trustee means those Trustees who are not interested persons, as defined in the 1940 Act, of the Trust. In certain circumstances, trustees are also required to have no direct or indirect financial interest in the approval of a matter being voted on in order to be considered independent for the purposes of the requisite approval. For purposes of this Statement, the term Interested Trustee means those Trustees who are interested persons, as defined in the 1940 Act, of the Trust. The following table provides information about the members of the Board, including information about their principal occupations during the past five years, information about other directorships held at public companies, and a summary of the experience, qualifications, attributes or skills that led to the conclusion that the Trustee should serve as such. Unless otherwise indicated, the address of all persons below is 399 Boylston Street, Boston, MA 02116.
Name and Year of Birth |
Position(s) Held with the Trust, Length of Time Served and Term of Office1 |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund and Other Directorships
Held Years |
Experience, for Board Membership | ||||
INDEPENDENT TRUSTEES | ||||||||
Charles D. Baker (1956) |
Trustee
From 2005 to 2009 and since 2011
Contract Review and Governance Committee Member |
Executive in Residence at General Catalyst Partners (venture capital and growth equity firm); formerly, President and Chief Executive Officer, Harvard Pilgrim Health Care (health care organization) | 43
Director, Athenahealth, Inc. (software company) |
Significant experience on the Board; executive experience (including president and chief executive officer of a health care organization and executive officer of a venture capital and growth equity firm) |
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Name and Year of Birth |
Position(s) Held with the Trust, Length of Time Served and Term of Office1 |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund and Other Directorships
Held Years |
Experience, for Board Membership | ||||
Daniel M. Cain (1945) |
Trustee
Since 1996
Chairman of the Contract Review and Governance Committee |
Chairman (formerly, President and Chief Executive Officer) of Cain Brothers & Company, Incorporated (investment banking) | 43
Director,
Sheridan |
Significant experience on the Board and on the board of other business organizations (including at a health care organization); experience in the financial industry (including roles as chairman and former chief executive officer of an investment banking firm) | ||||
Kenneth A. Drucker (1945) |
Trustee
Since 2008
Chairman of the Audit Committee |
Retired | 43
Formerly, Director, |
Significant experience on the Board and on the board of other business organizations (including at investment companies); executive experience (including as treasurer of an aerospace, automotive, and metal manufacturing corporation) | ||||
Edmond J. English3 (1953) |
Trustee
Since 2013
Contract Review and Governance Committee Member |
Chief Executive Officer of Bobs Discount Furniture (retail) | 43
Formerly,
Director, |
Significant experience on the board of other business organizations (including at a retail company and a bank); executive experience (including at a retail company) |
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Name and Year of Birth |
Position(s) Held with the Trust, Length of Time Served and Term of Office1 |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund and Other Directorships
Held Years |
Experience, for Board Membership | ||||
Wendell J. Knox (1948) |
Trustee
Since 2009
Audit Committee Member |
Director (formerly, President and Chief Executive Officer) of Abt Associates Inc. (research and consulting) | 43
Director, Eastern |
Significant experience on the Board and on the board of other business organizations (including at a commercial bank and at a property and casualty insurance firm); executive experience (including roles as president and chief executive officer of a consulting company) | ||||
Martin T. Meehan (1956) |
Trustee
Since 2012
Contract Review and Governance Committee Member |
Chancellor and faculty member, University of Massachusetts Lowell | 43
None |
Experience as Chancellor of the University of Massachusetts Lowell; experience on the board of other business organizations; government experience (including as a member of the U.S. House of Representatives); academic experience | ||||
Sandra O. Moose (1942) |
Chairperson of the Board since November 2005
Trustee
Since 1993
Ex officio member of the Audit Committee and Contract Review and Governance Committee |
President, Strategic Advisory Services (management consulting) | 43
Director,
Verizon |
Significant experience on the Board and on the board of other business organizations (including at an international power company and a specialty chemicals corporation); executive experience (including at a management consulting company) |
40
Name and Year of Birth |
Position(s) Held with the Trust, Length of Time Served and Term of Office1 |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund and Other Directorships
Held Years |
Experience, for Board Membership | ||||
Erik R. Sirri (1958) |
Trustee
Since 2009
Audit Committee Member |
Professor of Finance at Babson College; formerly, Director of the Division of Trading and Markets at the Securities and Exchange Commission | 43
None |
Experience on the Board; experience as Director of the Division of Trading and Markets at the Securities and Exchange Commission; academic experience; training as an economist | ||||
Peter J. Smail (1952) |
Trustee
Since 2009
Contract Review and Governance Committee Member |
Retired; formerly, President and Chief Executive Officer of Pyramis Global Advisors (investment management) | 43
None |
Experience on the Board; mutual fund industry and executive experience (including roles as president and chief executive officer for an investment adviser) | ||||
Cynthia L. Walker (1956) |
Trustee
Since 2005
Audit Committee Member |
Deputy Dean for Finance and Administration, Yale University School of Medicine; formerly, Executive Dean for Administration, Harvard Medical School | 43
None |
Significant experience on the Board; executive experience in a variety of academic organizations (including roles as dean for finance and administration) | ||||
INTERESTED TRUSTEES | ||||||||
Robert J. Blanding5 (1947) 555 California Street San Francisco, CA 94104 |
Trustee
Since 2003 |
President, Chairman, Director and Chief Executive Officer, Loomis, Sayles & Company, L.P. | 43
None |
Significant experience on the Board; continuing service as President, Chairman, and Chief Executive Officer of Loomis, Sayles & Company, L.P. |
41
Name and Year of Birth |
Position(s) Held with the Trust, Length of Time Served and Term of Office1 |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund and Other Directorships
Held Years |
Experience, for Board Membership | ||||
David L. Giunta6 (1965) |
Trustee
Since 2011
President and Chief Executive Officer Since 2008 |
President and Chief Executive Officer, NGAM Distribution Corporation, NGAM Advisors, L.P. and NGAM Distribution, L.P.; formerly President, Fidelity Charitable Gift Fund; and formerly, Senior Vice President, Fidelity Brokerage Company | 43
None |
Experience on the Board; continuing experience as President and Chief Executive Officer of NGAM Advisors, L.P. | ||||
John T. Hailer7 (1960) |
Trustee
Since 2000 |
President and Chief Executive Officer U.S. and Asia, Natixis Global Asset Management, L.P.; formerly, President and Chief Executive Officer, NGAM Distribution Corporation, NGAM Advisors L.P. and NGAM Distribution, L.P. | 43
None |
Significant experience on the Board; continuing experience as Chief Executive Officer U.S. and Asia, Natixis Global Asset Management, L.P. |
1 | Each trustee serves until retirement, resignation or removal from the Board. The current retirement age is 72. The position of Chairperson of the Board is appointed for a two-year term. Ms. Moose was appointed to serve an additional two-year term as the Chairperson of the Board on November 18, 2011. |
2 | The trustees of the Trust serve as trustees of a fund complex that includes all series of the Natixis Funds Trust I, Natixis Funds Trust II, Natixis Funds Trust IV and Gateway Trust (collectively, the Natixis Funds Trusts), Loomis Sayles Funds I and Loomis Sayles Funds II (collectively, the Loomis Sayles Funds Trusts), and Hansberger International Series (collectively, the Fund Complex). |
3 | Mr. English was appointed as a trustee effective January 1, 2013. |
4 | Mr. Meehan was appointed as a trustee effective July 1, 2012. |
5 | Mr. Blanding is deemed an interested person of the Trust because he holds the following positions with an affiliated person of the Trust: President, Chairman, Director and Chief Executive Officer of Loomis, Sayles & Company, L.P. |
6 | Mr. Giunta is deemed an interested person of the Trust because he holds the following positions with an affiliated person of the Trust: President and Chief Executive Officer of NGAM Distribution Corporation, NGAM Advisors, L.P. and NGAM Distribution, L.P. |
7 | Mr. Hailer is deemed an interested person of the Trust because he holds the following positions with an affiliated person of the Trust: President and Chief Executive Officer U.S. and Asia, Natixis Global Asset Management, L.P. |
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Name and Year of Birth |
Position(s) Held with the Trust |
Term of Office1 and Length of Time Served |
Principal Occupation(s) During Past 5 Years2 | |||
OFFICERS OF THE TRUST | ||||||
Coleen Downs Dinneen (1960) |
Secretary, Clerk and Chief Legal Officer | Since September 2004 | Executive Vice President, General Counsel, Secretary and Clerk (formerly, Senior Vice President, Deputy General Counsel, Assistant Secretary and Assistant Clerk), NGAM Distribution Corporation, NGAM Advisors, L.P. and NGAM Distribution, L.P. | |||
Russell L. Kane (1969) |
Chief Compliance Officer, Assistant Secretary and Anti-Money Laundering Officer |
Chief Compliance Officer since May 2006; Assistant Secretary since June 2004; and Anti-Money Laundering Officer since April 2007 | Chief Compliance Officer for Mutual Funds, Senior Vice President, Deputy General Counsel, Assistant Secretary and Assistant Clerk, NGAM Distribution Corporation, NGAM Advisors, L.P. and NGAM Distribution, L.P. | |||
Michael C. Kardok (1959) |
Treasurer, Principal Financial and Accounting Officer | Since October 2004 | Senior Vice President, NGAM Advisors, L.P. and NGAM Distribution, L.P. |
1 | Each officer of the Trust serves for an indefinite term in accordance with the Trusts current by-laws until the date his or her successor is elected and qualified, or until he or she sooner dies, retires, is removed or becomes disqualified. |
2 | Each person listed above holds the same position(s) with the Fund Complex. Previous positions during the past five years with NGAM Distribution, L.P., NGAM Advisors, L.P. or Loomis, Sayles & Company, L.P. are omitted, if not materially different from a trustees or officers current position with such entity. |
Qualifications of Trustees
The preceding tables provide an overview of the considerations that led the Board to conclude that each individual serving as a Trustee of the Trust should so serve. The current members of the Board have joined the Board at different points in time. Generally, no one factor was determinative in the original selection of an individual to join the Board. Among the factors the Board considered when concluding that an individual should serve on the Board were the following: (i) the individuals knowledge in matters relating to the mutual fund industry; (ii) any experience possessed by the individual as a director or senior officer of other public companies; (iii) the individuals educational background; (iv) the individuals reputation for high ethical standards and personal and professional integrity; (v) any specific financial, technical or other expertise possessed by the individual, and the extent to which such expertise would complement the Boards existing mix of skills and qualifications; (vi) the individuals perceived ability to contribute to the ongoing functions of the Board, including the individuals ability and commitment to attend meetings regularly and work collaboratively with other members of the Board; (vii) the individuals ability to qualify as an Independent Trustee for purposes of applicable regulations; and (viii) such other factors as the Board determined to be relevant in light of the existing composition of the Board and any anticipated vacancies or other transitions. Each Trustees professional experience and additional considerations that contributed to the Boards conclusion that an individual should serve on the Board are summarized in the tables above.
Leadership and Structure of the Board
The Board is led by the Chairperson of the Board, who is an Independent Trustee. The Board of Trustees of the Trust currently consists of thirteen trustees, ten of whom are Independent Trustees. The trustees have delegated significant oversight authority to the two standing committees of the Trust, the Audit Committee and Contract Review and Governance Committee, both of which consist solely of Independent Trustees. These committees meet separately and at times jointly, with the joint meetings intended to educate and involve all Independent Trustees in significant committee-level topics. As well as handling matters directly, the committees raise matters to the Board
43
for consideration. In addition to the oversight performed by the committees and the Board, the Chairperson of the Board and the chairpersons of each committee interact frequently with management regarding topics to be considered at Board and committee meetings as well as items arising between meetings. At least once a year the Board reviews its governance structure. The Board believes its leadership structure is appropriate and effective in that it allows for oversight at the committee or board level, as the case may be, while facilitating communications among the trustees and between the Board and Fund management.
The Contract Review and Governance Committee of the Trust consists solely of Trustees who are not employees, officers or directors of NGAM Advisors, the Distributor or their affiliates and considers matters relating to advisory, subadvisory and distribution arrangements, potential conflicts of interest between the Funds Adviser and the Trust, and governance matters relating to the Trust. During the fiscal year ended December 31, 2012, this committee held five meetings. The Contract Review and Governance Committee also makes nominations for Independent Trustee membership on the Board when necessary and considers recommendations from shareholders of the Fund that are submitted in accordance with the procedures by which shareholders may communicate with the Board. Pursuant to those procedures, shareholders must submit a recommendation for nomination in a signed writing addressed to the attention of the Board, c/o Secretary of the Funds, NGAM Advisors, L.P., 399 Boylston Street, 12th Floor, Boston, MA 02116. This written communication must (i) be signed by the shareholder, (ii) include the name and address of the shareholder, (iii) identify the name of the Fund, and (iv) identify the account number, class and number of shares held by the shareholder as of a recent date or the intermediary through which the shares are held. The recommendation must be received in a timely manner (and in any event no later than the date specified for receipt of shareholder proposals in any applicable proxy statement with respect to the Fund). A recommendation for trustee nomination shall be kept on file and considered by the Board for six (6) months from the date of receipt, after which the recommendation shall be considered stale and discarded. The recommendation must contain sufficient background information concerning the trustee candidate to enable a proper judgment to be made as to the candidates qualifications.
The Contract Review and Governance Committee has not established specific, minimum qualifications that must be met by an individual to be recommended for nomination as an Independent Trustee. When identifying an individual to potentially fill a vacancy on the Trusts Board, the Contract Review and Governance Committee may seek referrals from a variety of sources, including current trustees, management of the Trust, Fund counsel, and counsel to the trustees, as well as shareholders of the Fund in accordance with the procedures described above. In evaluating candidates for a position on the Board, the Contract Review and Governance Committee may consider a variety of factors, including (i) the nominees knowledge of the mutual fund industry; (ii) any experience possessed by the nominee as a director or senior officer of a financial services company or a public company; (iii) the nominees educational background; (iv) the nominees reputation for high ethical standards and personal and professional integrity; (v) any specific financial, technical or other expertise possessed by the nominee, and the extent to which such expertise would complement the Boards existing mix of skills and qualifications; (vi) the nominees perceived ability to contribute to the ongoing functions of the Board, including the nominees ability and commitment to attend meetings regularly and work collaboratively with other members of the Board; (vii) the nominees ability to qualify as an Independent Trustee for purposes of applicable regulations; and (viii) such other factors as the Committee may request in light of the existing composition of the Board and any anticipated vacancies or other transitions.
The Audit Committee of the Trust consists solely of Independent Trustees and considers matters relating to the scope and results of the Trusts audits and serves as a forum in which the independent registered public accounting firm can raise any issues or problems identified in an audit with the Board. The Audit Committee also reviews and monitors compliance with stated investment objectives and policies, SEC regulations as well as operational issues relating to the transfer agent, administrator, sub-administrator and custodian. In addition, the Audit Committee implements procedures for receipt, retention and treatment of complaints received by the Fund regarding its accounting, internal accounting controls and the confidential, anonymous submission by officers of the Fund or employees of certain service providers of concerns related to such matters. During the fiscal year ended December 31, 2012, this Committee held four meetings.
44
The current membership of each committee is as follows:
Audit Committee |
Contract Review and Governance Committee | |||
Kenneth A. Drucker Chairman |
Daniel M. Cain Chairman | |||
Wendell J. Knox |
Charles D. Baker | |||
Erik R. Sirri |
Edmond J. English | |||
Cynthia L. Walker |
Martin T. Meehan | |||
Peter J. Smail |
As chairperson of the Board, Ms. Moose is an ex officio member of both Committees.
The Boards Role in Risk Oversight of the Fund
The Boards role is one of oversight of the practices and processes of the Fund and its service providers, rather than active management of the Trust, including in matters relating to risk management. The Board seeks to understand the key risks facing the Fund, including those involving conflicts of interest; how Fund management identifies and monitors these risks on an ongoing basis; how Fund management develops and implements controls to mitigate these risks; and how Fund management tests the effectiveness of those controls. The Board cannot foresee, know, or guard against all risks, nor are the Trustees guarantors against risk.
Periodically, Fund officers provide the full Board with an overview of the enterprise risk assessment program in place at NGAM Advisors and the Distributor, which serve as the administrator of and principal underwriter to the Fund, respectively. Fund officers on a quarterly and annual basis also provide the Board (or one of its standing committees) with written and oral reports on regulatory and compliance matters, operational and service provider matters, organizational developments, product proposals, Fund and internal audit results, and insurance and fidelity bond coverage, along with a discussion of the risks and controls associated with these matters, and periodically make presentations to management on risk issues and industry best practices. Fund service providers, including the Adviser, Subadvisers, transfer agents and the custodian, periodically provide Fund management and/or the Board with information about their risk assessment programs and/or the risks arising out of their activities. The scope and frequency of these reports vary. Fund officers also communicate with the Trustees between meetings regarding material exceptions and other items germane to the Boards risk oversight function.
Pursuant to Rule 38a-1 under the 1940 Act, the Board has appointed a Chief Compliance Officer (CCO) who is responsible for administering the Funds compliance program, including monitoring and enforcing compliance by the Fund and its service providers with the federal securities laws. The CCO has an active role in daily Fund operations and maintains a working relationship with all relevant advisory, compliance, operations and administration personnel for the Funds service providers. On at least a quarterly basis, the CCO reports to the Independent Trustees on significant compliance program developments, including material compliance matters, and on an annual basis, the CCO provides the full Board with a written report that summarizes his review and assessment of the adequacy of the compliance programs of the Fund and its service providers. The CCO also periodically communicates with the Audit Committee members between its scheduled meetings.
Fund Securities Owned by the Trustees
As of the date of this Statement, the Fund had not yet publicly offered its shares and, therefore, the Trustees did not own shares of the Fund.
As of December 31, 2012, the trustees had the following ownership in the funds in the Fund Complex:
45
Independent Trustees
Dollar Range of Fund Shares1 |
Aggregate Dollar Range of Fund Shares in Fund Complex Overseen by Trustee | |
Charles D. Baker |
D | |
Daniel M. Cain2 |
E | |
Kenneth A. Drucker |
E | |
Edmond J. English3 |
E | |
Wendell J. Knox2 |
E | |
Martin T. Meehan4 |
C | |
Sandra O. Moose |
E | |
Erik R. Sirri |
E | |
Peter J. Smail |
E | |
Cynthia L. Walker2 |
E |
1 | A. None |
B. $1 10,000
C. $10,001 $50,000
D. $50,001 $100,000
E. over $100,000
2 | Amounts include economic value of notional investments held through the deferred compensation plan. |
3 | Edmond J. English was appointed trustee effective January 1, 2013. |
4 | Martin T. Meehan was appointed trustee effective July 1, 2012. |
Interested Trustees
Dollar Range of Fund Shares1 |
Aggregate Dollar Range of Fund Shares in Fund Complex Overseen by Trustee | |
Robert J. Blanding |
E | |
John T. Hailer |
E | |
David L. Giunta |
E |
1 | A. None |
B. $1 10,000
C. $10,001 $50,000
D. $50,001 $100,000
E. over $100,000
Trustee Fees
The Trust pays no compensation to its officers or to Trustees who are employees, officers or directors of NGAM Advisors, the Distributor, or their affiliates.
The Chairperson of the Board receives a retainer fee at the annual rate of $285,000. The Chairperson does not receive any meeting attendance fees for Board of Trustees meetings or committee meetings that she attends. Each Trustee who is not an employee, officer or director of NGAM Advisors, the Distributor or their affiliates (other than the Chairperson) receives, in the aggregate, a retainer fee at the annual rate of $115,000. Each Trustee who is not an employee, officer or director of NGAM Advisors, the Distributor or their affiliates also receives a meeting attendance fee of $10,000 for each meeting of the Board that he or she attends in person and $5,000 for each meeting of the Board that he or she attends telephonically. In addition, each committee chairman receives an additional retainer fee at the annual rate of $17,500. Each Contract Review and Governance Committee and Audit Committee member is compensated $6,000 for each Committee meeting that he or she attends in person and $3,000 for each committee meeting that he or she attends telephonically. These fees are allocated among the mutual fund portfolios in the Natixis Funds Trusts, Loomis Sayles Funds Trusts and Hansberger International Series based on a
46
formula that takes into account, among other factors, the relative net assets of each mutual fund portfolio.
The table below shows the amounts received by the Trustees for serving as a Trustee of the Trust, and also for serving as Trustees of the Natixis Funds Trusts, Loomis Sayles Funds Trusts and Hansberger International Series during the fiscal year ended December 31, 2012. The table also sets forth, as applicable, pension or retirement benefits accrued as part of fund expenses, as well as estimated annual retirement benefits:
Compensation Table
For the Fiscal Year Ended December 31, 2012
Aggregate Compensation from Natixis Funds Trust II1 |
Pension or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated Annual Benefits Upon Retirement |
Total Compensation from the Fund Complex2 |
|||||||||||||
INDEPENDENT TRUSTEES |
||||||||||||||||
Graham T. Allison, Jr.3 |
$ | 22,388 | $ | 0 | $ | 0 | $ | 164,000 | ||||||||
Charles D. Baker |
$ | 24,364 | $ | 0 | $ | 0 | $ | 180,000 | ||||||||
Daniel M. Cain |
$ | 26,220 | $ | 0 | $ | 0 | $ | 195,000 | ||||||||
Kenneth A. Drucker |
$ | 25,185 | $ | 0 | $ | 0 | $ | 193,000 | ||||||||
Edmond J. English4 |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Wendell J. Knox |
$ | 25,106 | $ | 0 | $ | 0 | $ | 186,000 | ||||||||
Martin T. Meehan5 |
$ | 10,012 | $ | 0 | $ | 0 | $ | 79,500 | ||||||||
Sandra O. Moose |
$ | 13,183 | $ | 0 | $ | 0 | $ | 265,000 | ||||||||
Erik R. Sirri |
$ | 24,364 | $ | 0 | $ | 0 | $ | 180,000 | ||||||||
Peter J. Smail |
$ | 24,364 | $ | 0 | $ | 0 | $ | 180,000 | ||||||||
Cynthia L. Walker |
$ | 25,106 | $ | 0 | $ | 0 | $ | 186,000 | ||||||||
INTERESTED TRUSTEES |
||||||||||||||||
Robert J. Blanding |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
David L. Giunta |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
John T. Hailer |
$ | 0 | $ | 0 | $ | 0 | $ | 0 |
1 | Amounts include payments deferred by Trustees for the fiscal year ended December 31, 2012, with respect to the Trust. The total amount of deferred compensation accrued for Natixis Funds Trust II as of December 31, 2012 for the Trustees is as follows: Allison ($245,111), Cain ($75,923), Knox ($69,538), Meehan ($5,202), Sirri ($62,571) and Walker ($84,427). |
2 | Total Compensation represents amounts paid during the fiscal year ended December 31, 2012 to a Trustee for serving on the Board of seven (7) trusts with a total of forty-four (44) funds as of December 31, 2012. |
3 | Mr. Allison retired from the Board of Trustees effective December 31, 2012. |
4 | Mr. English was appointed as a trustee effective January 1, 2013. |
5 | Mr. Meehan was appointed as a trustee effective July 1, 2012. |
The Natixis Funds Trusts and Loomis Sayles Funds Trusts do not provide pension or retirement benefits to Trustees, but have adopted a deferred payment arrangement under which each Trustee may elect not to receive fees from the funds on a current basis but to receive in a subsequent period an amount equal to the value that such fees would have had if they had been invested in a fund or funds selected by the Trustee on the normal payment date for such fees.
Management Ownership
As of the date of this Statement, the Fund had not yet publicly offered its shares and, therefore, the officers and Trustees of the Trust collectively owned less than 1% of the then outstanding shares of the Fund.
47
Code of Ethics
The Trust, the Adviser and Subadvisers, and the Distributor each have adopted a code of ethics under Rule 17j-1 of the 1940 Act. These codes of ethics permit the personnel of these entities to invest in securities, including securities that the Fund may purchase or hold. The codes of ethics are on public file with, and are available from the SECs EDGAR database which can be accessed through www.sec.gov.
Proxy Voting Policies
The Board of the Fund has adopted Proxy Voting Policy and Guidelines (the Guidelines) for the voting of proxies for securities held by the Fund. Under the Guidelines, decisions regarding the voting of proxies are to be made solely in the interest of the Fund and its shareholders.
NGAM Advisors. NGAM Advisors authority to vote client proxies is established by NGAM Advisors investment subadvisory agreement. As of the date of this Statement, NGAM Advisors retains proxy voting authority only with respect to the sleeve of the Fund that is managed by Active Investment Where it is authorized to vote proxies, NGAM Advisors endeavors to do so in accordance with the best economic interest of its clients. NGAM Advisors endeavors to resolve any conflicts of interest exclusively in the best economic interest of the clients. In order to minimize conflicts of interest, NGAM Advisors has contracted with Broadridge/Glass Lewis (Glass Lewis), an independent third party service provider, to vote NGAM Advisors client proxies. NGAM Advisors has a fiduciary responsibility to exercise proxy voting authority, when such authority is granted to it. Glass Lewis may maintain records, provide reports, develop models and research, and vote proxies in accordance with instructions and guidelines provided or approved by NGAM Advisors. These instructions and guidelines shall be consistent with the Proxy Voting Policy of NGAM Advisors, which generally votes for proposals that, in the judgment of NGAM Advisors, would serve to enhance shareholder value, and votes against proposals that, in the judgment of NGAM Advisors, would impair shareholder value. These instructions and guidelines from Glass Lewis direct Broadridge to vote for or against specific types of routine proposals, while generally reserving other non-routine proposals for NGAM Advisors to decide on a case-by-case basis. With respect to proposals to be decided by NGAM Advisors on a case-by-case basis, a designated member of the portfolio management team of NGAM Advisors has the responsibility to determine how the proxies should be voted and for directing the proxy voting agent, through other operational personnel of NGAM Advisors, to vote accordingly.
NGAM Advisors reviews its proxy voting policy on a periodic basis, usually annually. Additionally, on a periodic basis, NGAM Advisors reviews reports produced by Broadridge that summarize voting activity. Furthermore, an internal team of NGAM Advisors, which team is composed of legal, compliance, portfolio management, and operational personnel, also conducts periodic reviews of proxy voting activity and issues, if any, that may arise. Finally, compliance conducts a random sampling review of proxy ballots to ascertain whether votes are cast in compliance with NGAM Advisors proxy voting policy. Upon request, clients may obtain a full and complete copy of the NGAM Advisors proxy voting policy and a record of how their securities were voted.
AlphaSimplex. AlphaSimplex is responsible for voting proxies with respect to securities that are not in the portions of the Fund managed by Reich & Tang or NGAM Advisors. AlphaSimplex believes that proxy voting is an important right of shareholders and reasonable care and diligence must be undertaken to ensure that such rights are properly and timely exercised. However, AlphaSimplex expects that most of the securities in which it will invest on behalf of the Fund (e.g., futures) will not have voting rights, and therefore, AlphaSimplex does not expect to vote proxies for most of the securities held by the Fund. If AlphaSimplex does vote proxies with respect to the Funds investments, it will vote in a manner that is consistent with what it believes to be the best interests of the Fund.
Reich & Tang. Reich & Tang is responsible for voting proxies with respect to the portion of the Fund that it manages. Reich & Tang has adopted Proxy Voting Policies and Procedures that are designed to ensure that Reich & Tang votes proxies in the best interests of its clients. These policies and procedures also require that Reich & Tang identify and address any conflicts of interest between the firm and its clients. If a material conflict of interest exists, then Reich & Tang will determine whether voting in accordance with the guidelines set forth in the policies and procedures is in the best interests of the clients and, if not, it will take other appropriate action. Reich & Tang generally votes in favor of routine corporate housekeeping proposals, including the election of directors (where no
48
corporate governance issues are implicated), and against proposals that primarily benefit management. Generally, Reich & Tang will vote against proposals that make it more difficult to replace members of a board of directors.
INVESTMENT ADVISORY AND OTHER SERVICES
Information About the Organization and Ownership of the Adviser and Subadvisers
NGAM Advisors, formed in 1995, is a limited partnership indirectly owned by Natixis Global Asset Management, L.P. (Natixis US).
Natixis US is part of Natixis Global Asset Management, an international asset management group based in Paris, France, that is in turn owned by Natixis, a French investment banking and financial services firm. Natixis is principally owned by BPCE, Frances second largest banking group. BPCE is owned by banks comprising two autonomous and complementary retail banking networks consisting of the Caisse dEpargne regional savings banks and the Banque Populaire regional cooperative banks. The registered address of Natixis is 30, avenue Pierre Mendès France, 75013 Paris, France. The registered address of BPCE is 50, avenue Pierre Mendès France, 75013 Paris, France.
The 13 principal subsidiary or affiliated asset management firms of Natixis US collectively had $386.0 billion in assets under management or administration as of August 31, 2013.
Active Investment Advisors (Active Investment) is a division of NGAM Advisors that specializes in providing customized, actively managed index solutions in the separate account market. Active Investment serves as Subadviser to the Fund.
AlphaSimplex Group, LLC, located at One Cambridge Center, Cambridge, Massachusetts 02142, serves as Adviser to the Fund. The Adviser, a Delaware limited liability company founded in 1999, served as investment manager, adviser, or subadviser with respect to assets of $2.77 billion as of August 31, 2013. The Adviser currently acts as investment manager or subadviser of five registered investment companies and one privately-offered fund. AlphaSimplex, a registered investment adviser, is a subsidiary of Natixis US.
Reich & Tang Asset Management, LLC, located at 1411 Broadway, 28th Floor, New York, New York 10018, serves as Subadviser to the Fund. The Subadviser, a Delaware limited liability company founded in 1970, served as investment manager, adviser, or subadviser with respect to assets aggregating approximately $33.4 billion as of August 31, 2013, and currently acts as investment manager or subadviser of eleven registered investment companies of which it acts as administrator for five, and advises pension trusts, profit sharing trusts and endowments. Reich & Tang, a registered investment adviser, is also a subsidiary of Natixis US.
Advisory and Subadvisory Agreements
The Funds advisory agreement with its Adviser provides that the Adviser will furnish or pay the expenses of the Fund for office space, facilities and equipment, services of executive and other personnel of the Trust and certain administrative services. The Adviser may delegate certain administrative services to its affiliates. The Adviser is responsible for obtaining and evaluating such economic, statistical and financial data and information and performing such additional research as is necessary to manage the Funds assets in accordance with its investment objectives and policies.
The Fund pays all expenses not borne by the Adviser or Subadvisers including, but not limited to, the charges and expenses of custodian and transfer agents, independent registered public accountants and legal counsel for the Fund and the Trusts Independent Trustees, 12b-1 fees, all brokerage commissions and transfer taxes in connection with portfolio transactions, all taxes and filing fees, the fees and expenses for registration or qualification of their shares under federal and state securities laws, all expenses of shareholders and trustees meetings and of preparing, printing and mailing reports to shareholders and the compensation of trustees who are not directors, officers or employees of the Adviser, Subadvisers or their affiliates, other than affiliated registered investment companies. Certain expenses may be allocated differently among the Funds Class A and Class C shares, on the one hand, and Class Y shares, on the other hand. See the section Description of the Trust below.
49
The advisory agreement and subadvisory agreements of the Fund provide that they will continue in effect for two years from the date of execution and thereafter from year to year if their respective continuance is approved at least annually (i) by the Board or by vote of a majority of the outstanding voting securities of the Fund and (ii) by vote of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval.
The advisory agreements and subadvisory agreements of the Fund may be terminated without penalty by vote of the Board or by vote of a majority of the outstanding voting securities of the Fund, upon 60 days written notice, or by the Adviser upon 90 days written notice, and each terminates automatically in the event of its assignment (as defined in the 1940 Act). The subadvisory agreements also may be terminated by the Subadvisers upon 90 days notice, and automatically terminate upon termination of the advisory agreement.
The advisory agreement and subadvisory agreements of the Fund provide that the Adviser or Subadvisers shall not be subject to any liability in connection with the performance of their respective services thereunder in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of their obligations and duties.
The Adviser oversees the portfolio management services provided to the Fund by the Subadvisers. Subject to the review of the Board, the Adviser monitors the Subadvisers to assure that the Subadvisers are managing the applicable portions of the assets of the Fund consistently with the Funds investment objective and restrictions and applicable laws and guidelines, including, but not limited to, compliance with the diversification requirements set forth in the 1940 Act and Subchapter M of the Code. The Adviser will provide, or cause the Funds custodian to provide, information to the Subadvisers regarding the composition of assets of the Fund and the assets to be invested and reinvested by the Subadvisers. The Adviser does not determine which securities will be purchased or sold for the Fund with respect to the portions of the portfolio overseen by the Subadvisers.
The Adviser may terminate any subadvisory agreement without shareholder approval. In such case, the Adviser will either manage the Funds assets itself or, subject to the receipt of any necessary shareholder approvals, retain one or more Subadvisers to manage some or all of the Funds assets.
Distribution Agreements and Rule 12b-1 Plans
Under a separate agreement with the Fund, the Distributor serves as the principal distributor of each class of shares of the Fund. The Distributors principal business address is 399 Boylston Street, Boston, Massachusetts 02116. Under these agreements (the Distribution Agreements), the Distributor conducts a continuous offering and is not obligated to sell a specific number of shares. The Distributor bears the cost of making information about the Fund available through advertising and other means and the cost of printing and mailing the Prospectus to persons other than shareholders. The Fund pays the cost of registering and qualifying its shares under state and federal securities laws and distributing the Prospectus to existing shareholders.
The Distributor is paid by the Fund the service and distribution fees described in the Prospectus. The Distributor may, at its discretion, reallow the entire sales charge imposed on the sale of Class A and Class C shares of the Fund to investment dealers from time to time. The SEC is of the view that dealers receiving all or substantially all of the sales charge may be deemed underwriters of the Funds shares.
The Fund has adopted Rule 12b-1 plans (the Plans) for its Class A and Class C shares which, among other things, permit it to pay the Distributor monthly fees out of its net assets. Class Y shares have no such plans. These fees consist of a service fee and a distribution fee. Any such fees that are paid by a distributor to securities dealers are known as trail commissions. Pursuant to Rule 12b-1 under the 1940 Act, each Plan was approved by the shareholders of the Fund, and (together with the related Distribution Agreement) by the Board, including a majority of the Independent Trustees of the Trust.
Under the Plans, the Fund pays the Distributor a monthly service fee at an annual rate not to exceed 0.25% of the Funds average daily net assets attributable to the Class A and Class C shares. In the case of Class C shares, the Distributor retains the first years service fee of 0.25% assessed against such shares. For Class A and, after the first year, for Class C shares, the Distributor may pay up to the entire amount of this fee to securities dealers who are dealers of record with respect to the Funds shares, on a quarterly basis, unless other arrangements are made
50
between the Distributor and the securities dealer, for providing personal services to investors in shares of the Fund and/or the maintenance of shareholder accounts. This service fee will accrue to securities dealers of record immediately with respect to reinvested income dividends and capital gain distributions of the Funds Class A shares.
The service fee on Class A shares may be paid only to reimburse the Distributor for expenses of providing personal services to investors, including, but not limited to, (i) expenses (including overhead expenses) of the Distributor for providing personal services to investors in connection with the maintenance of shareholder accounts and (ii) payments made by the Distributor to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors and/or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith.
The Funds Class C shares also pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average net assets of the Funds Class C shares. The Distributor retains the 0.75% distribution fee assessed against Class C shares during the first year of investment. After the first year for Class C shares, the Distributor may pay up to the entire amount of this fee to securities dealers who are dealers of record with respect to the Funds shares, as distribution fees in connection with the sale of the Funds shares on a quarterly basis, unless other arrangements are made between the Distributor and the securities dealer. As stated in the Prospectus, investors will not be permitted to purchase $1,000,000 or more of Class C shares as a single investment per account.
Each Plan may be terminated by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of the relevant class of shares of the Fund. Each Plan may be amended by vote of the relevant Trustees, including a majority of the relevant Independent Trustees, cast in person at a meeting called for that purpose. Any change in any Plan that would materially increase the fees payable thereunder by the relevant class of shares of the Fund requires approval by a vote of the holders of a majority of such shares outstanding. The Trusts Trustees review quarterly a written report of such costs and the purposes for which such costs have been incurred. For so long as a Plan is in effect, selection and nomination of those Trustees who are Independent Trustees of the Trust shall be committed to the discretion of such Trustees.
Fees paid by Class A or Class C shares of the Fund may indirectly support sales and servicing efforts relating to shares of the other series of the Natixis Funds Trusts or the Loomis Sayles Funds Trusts. In reporting its expenses to the Trustees, the Distributor itemizes expenses that relate to the distribution and/or servicing of a single funds shares, and allocates other expenses among the relevant funds based on their relative net assets or relative sales. Expenses allocated to the Fund are further allocated among its classes of shares annually based on the relative sales of each class, except for any expenses that relate only to the sale or servicing of a single class.
The Distributor has entered into selling agreements with investment dealers, including affiliates of the Distributor, for the sale of the Funds shares. As described in more detail below, the Distributor, the Adviser and their affiliates may, at their expense, pay additional amounts to dealers who have selling agreements with the Distributor. Class Y shares of the Fund may be offered by registered representatives of certain affiliates who are also employees of Natixis US and may receive compensation from the Adviser with respect to sales of Class Y shares.
The Distribution Agreements may be terminated at any time on 60 days notice to the Distributor without payment of any penalty, by either vote of a majority of the outstanding voting securities or by vote of a majority of the Independent Trustees. The Distribution Agreements may be terminated at any time on 90 days, written notice to the Trust, without payment of any penalty.
The Distribution Agreements and the Plans will continue in effect for successive one-year periods, provided that each such continuance is specifically approved (i) by the vote of a majority of the Independent Trustees cast in person at a meeting called for that purpose and (ii) by the vote of the Board or by a vote of a majority of the outstanding securities of the Fund (or the relevant class, in the case of the Plans).
With the exception of the Distributor, its affiliated companies and those Trustees that are not Independent Trustees, no interested person of the Trust or any Trustee of the Trust had any direct or indirect financial interest in the operation of the Plans or any related agreement. Benefits to the Fund and its shareholders resulting from the Plans are believed to include (1) enhanced shareholder service, (2) asset retention, and (3) enhanced portfolio management
51
opportunities and bargaining position with third-party service providers and economies of scale arising from having asset levels higher than they would be if the Plans were not in place.
The Distributor also acts as principal distributor for Natixis Funds Trust I, Natixis Funds Trust IV, Loomis Sayles Funds I, Loomis Sayles Funds II, Gateway Trust and Hansberger International Series. The address of the Distributor is 399 Boylston Street, Boston, Massachusetts 02116.
The portion of the various fees and expenses for Class A and Class C shares that are paid (reallowed) to securities dealers are shown below:
ASG Tactical U.S. Market Fund
Class A
Cumulative Investment |
Maximum Sales Charge Paid by Investors (% of offering price) |
Maximum Reallowance or Commission (% of offering price) |
Maximum First Year Service Fee (% of net investment) |
Maximum First Year Compensation (% of offering price) |
||||||||||||
Less than $50,000 |
5.75 | % | 5.00 | % | 0.25 | % | 5.25 | % | ||||||||
$50,000 $99,999 |
4.50 | % | 4.00 | % | 0.25 | % | 4.25 | % | ||||||||
$100,000 $249,999 |
3.50 | % | 3.00 | % | 0.25 | % | 3.25 | % | ||||||||
$250,000 $499,999 |
2.50 | % | 2.15 | % | 0.25 | % | 2.40 | % | ||||||||
$500,000 $999,999 |
2.00 | % | 1.70 | % | 0.25 | % | 1.95 | % | ||||||||
Investments of $1 Million or More(1) |
| |||||||||||||||
First $3 million |
None | 1.00 | % | 0.25 | % | 1.25 | % | |||||||||
Excess over $3 million |
None | 0.50 | % | 0.25 | % | 0.75 | % | |||||||||
Investments with No Sales Charge (2) |
None | 0.00 | % | 0.25 | % | 0.25 | % |
(1) | Commissions are based on cumulative investments over the life of the account with no adjustment for redemptions, transfers or market declines. For example, if a shareholder has accumulated investments in excess of $3 million and subsequently redeems all or a portion of the account(s), purchases following the redemption will generate a dealer commission of 0.50%. |
(2) | Refers to any investments made by investors not subject to a sales charge as described in the Prospectus in the section How Sales Charges Are Calculated. |
Class C
Class C service fees are payable regardless of the amount of the Distributors related expenses. The portion of the various fees and expenses for Class C shares of the Fund that are paid to securities dealers are shown below:
Investment |
Maximum Front-End Sales Charge Paid by Investors (% of offering price) |
Maximum Reallowance or Commission (% of offering price) |
Maximum First Year Service Fee (% of net investment) |
Maximum First Year Compensation (% of offering price) |
||||||||||||
All amounts for Class C |
None | 1.00 | % | 0.00 | % | 1.00 | % |
As described in the Prospectus, each purchase or sale of shares is effected at the NAV next determined after an order is received, less any applicable sales charge. The sales charge is allocated between the investment dealer and the Distributor, as indicated in the tables above. The Distributor receives the contingent deferred sales charge (the CDSC). Proceeds from the CDSC on Class A and C shares are paid to the Distributor and are used by the Distributor to defray the expenses for services the Distributor provides the Trust. The Distributor may, at its discretion, pay (reallow) the entire sales charge imposed on the sale of Class A shares to investment dealers from time to time.
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For new amounts invested at NAV by an eligible governmental authority, the Distributor may, at its expense, pay investment dealers a commission of 0.025% of the average daily net assets of an account at the end of each calendar quarter for up to one year. These commissions are not payable if the purchase represents the reinvestment of redemption proceeds from any other Natixis Fund or if the account is registered in street name.
The Fund may pay fees to intermediaries such as banks, broker-dealers, financial advisors or other financial institutions for sub-administration, sub-transfer agency and other services, including, but not limited to, recordkeeping, shareholder or participant reporting or shareholder or participant recordkeeping (recordkeeping and processing-related services) associated with shareholders whose shares are held of record in omnibus, other group accounts (for example, 401(k) plans) or accounts traded through registered securities clearing agents. These fees are paid directly or indirectly by the Fund in light of the fact that other costs may be avoided by the Fund where the intermediary, not the Funds service providers, provides shareholder services to Fund shareholders. The intermediary may impose other account or service charges directly on account holders or participants. In addition, depending on the arrangements, the Funds Adviser and/or Distributor or their affiliates may, out of their own resources, compensate such financial intermediaries or their agents directly or indirectly for such recordkeeping and processing-related services. The services provided and related payments vary from firm to firm.
The Distributor, the Adviser and their affiliates may, out of their own resources, make additional payments to financial intermediaries who sell shares of the Fund. Such payments and compensation are in addition to any fees paid or reimbursed by the Fund. These payments may include: (i) full reallowance of the sales charge of Class A shares, (ii) additional compensation with respect to the sale and/or servicing of Class A, C and Y shares, (iii) payments based upon various factors, as described below, and (iv) financial assistance programs to firms who sell or arrange for the sale of Fund shares including, but not limited to, marketing and sales fees, expenses related to advertising or promotional activity and events, and shareholder record keeping, sub-transfer agency or miscellaneous administrative services. From its own profits and resources, the Distributor may, from time to time, make payments to qualified wholesalers, registered financial institutions and third-party marketers for marketing support services and/or retention of assets. Among others, the Distributor has agreed to make such payments for marketing support services to AXA Advisors, LLC. In addition to marketing and/or financial support payments described above, payment for travel, lodging and related expenses may be provided for attendance at Fund seminars and conferences, e.g., due diligence meetings held for training and educational purposes. The Distributor intends that the payment of these concessions and any other compensation offered will conform with state and federal laws and the rules of any self-regulatory organization, such as the Financial Industry Regulatory Authority (FINRA). The participation of such firms in financial assistance programs is at the discretion of the firm and the Distributor. The payments described in (iii) above may be based on sales (generally ranging from 0.05% to 0.25% of gross sales) and/or the amount of assets a financial intermediarys clients have invested in the Fund (at annual rates generally ranging from 0.05% to 0.35% of the value of the clients shares). The actual payment rates to a financial intermediary will depend upon how the particular arrangement is structured (e.g., solely asset-based fees, solely sales-based fees or a combination of both) and other factors such as the length of time assets have remained invested in the Fund, redemption rates and the willingness of the financial intermediary to provide access to its representatives for educational and marketing purposes. The payments to financial intermediaries described in this section and elsewhere in this Statement, which may be significant to the financial intermediaries, may create an incentive for a financial intermediary or its representatives to recommend or sell shares of the Fund or particular share class over other mutual funds or share classes. Additionally, these payments may result in the Funds inclusion on a sales list, including a preferred or select sales list, or in other sales programs. Investors should contact their financial representative for details about the payment the financial intermediaries may receive.
From time to time, the Funds service providers, or any of their affiliates, may also pay non-cash compensation to the sales representatives of financial intermediaries in the form of (i) occasional gifts; (ii) occasional meals, tickets or other entertainment; and/or (iii) sponsorship support of regional events of intermediaries.
Dealers may charge their customers a processing fee or service fee in connection with the purchase or redemption of fund shares. The amount and applicability of such a fee is determined and disclosed by each individual dealer to its customers. Processing or service fees typically are fixed, nominal dollar amounts and are in addition to the sales and other charges described in the Funds Prospectus and this Statement. Customers will be provided with specific information about any processing or service fees charged by their dealer.
53
The Fund is newly formed and thus has not allocated any commissions and sales charges as of the date of this Statement.
Administrative Services NGAM Advisors performs certain accounting and administrative services for the Fund, pursuant to an Administrative Services Agreement dated January 1, 2005, as amended from time to time (the Administrative Agreement). Under the Administrative Agreement, NGAM Advisors provides the following services to the Fund: (i) personnel that perform bookkeeping, accounting, internal auditing and financial reporting functions and clerical functions relating to the Fund, (ii) services required in connection with the preparation of registration statements and prospectuses, registration of shares in various states, shareholder reports and notices, proxy solicitation material furnished to shareholders of the Fund or regulatory authorities and reports and questionnaires for SEC compliance, (iii) the various registrations and filings required by various regulatory authorities, and (iv) consultation and legal advice on Fund-related matters.
Custodial Arrangements State Street Bank and Trust Company (State Street Bank), One Lincoln Street, Boston, Massachusetts 02111, serves as the custodian for the Trust. As such, State Street Bank holds in safekeeping certificated securities and cash belonging to the Fund and, in such capacity, is the registered owner of securities in book-entry form belonging to the Fund. Upon instruction, State Street Bank receives and delivers cash and securities of the Fund in connection with Fund transactions and collects all dividends and other distributions made with respect to Fund portfolio securities. State Street Bank also maintains certain accounts and records of the Trust and calculates the total NAV, total net income and NAV per share of the Fund on a daily basis.
Transfer Agency Services Pursuant to a contract between the Trust, on behalf of the Fund, and Boston Financial Data Services, Inc. (Boston Financial or the Transfer Agent), whose principal business address is 2000 Crown Colony Drive, Quincy, Massachusetts 02169, Boston Financial acts as shareholder servicing and transfer agent for the Fund and is responsible for services in connection with the establishment, maintenance and recording of shareholder accounts, including all related tax and other reporting requirements and the implementation of investment and redemption arrangements offered in connection with the sale of the Funds shares.
From time to time, the Fund, directly or indirectly through arrangements with the Adviser or Transfer Agent, may pay amounts to third parties that provide recordkeeping and other administrative services relating to the Fund to persons who beneficially own interests in the Fund, such as shareholders whose shares are held of record in omnibus, other group accounts (for example, 401(k) plans) or accounts traded through registered securities clearing agents. See the section Distribution Agreements and Rule 12b-1 Plans.
Independent Registered Public Accounting Firm The Trusts independent registered public accounting firm is PricewaterhouseCoopers, LLP, located at 125 High Street, Boston, MA 02110. The independent registered public accounting firm assists in the review of federal and state income tax returns, consults with the Trust as to matters of accounting and federal and state income taxation and will conduct an annual audit of the Funds financial statements.
Counsel to the Fund Ropes & Gray LLP, located at Prudential Tower, 800 Boylston Street, Boston, Massachusetts 02199, serves as counsel to the Fund.
54
PORTFOLIO MANAGEMENT INFORMATION
PORTFOLIO MANAGERS MANAGEMENT OF OTHER ACCOUNTS
As of August 31, 2013, the portfolio managers of the Fund managed other accounts in addition to managing the Fund. The following table provides information on the other accounts managed by each portfolio manager.
Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts | ||||||||||||||||||||||
Other Accounts Managed |
Advisory Fee is Based on Performance |
Other Accounts Managed |
Advisory Fee is Based on Performance |
Other Accounts Managed |
Advisory Fee is Based on Performance | |||||||||||||||||||
Name of Portfolio Manager (Firm) |
# of Accts |
Total Assets |
# of Accts |
Total Assets |
# of Accts |
Total Assets |
# of Accts |
Total Assets |
# of Accts |
Total Assets |
# of Accts |
Total Assets | ||||||||||||
Jeremiah H. Chafkin |
4 | $2.7 billion | 0 | $0 | 1 | $21 million |
1 | $21 million |
5 | $760 million* |
0 | $0 | ||||||||||||
Alexander D. Healy |
0 | $0 | 0 | $0 | 0 | $0 | 0 | $0 | 5 | $760 million* |
0 | $0 | ||||||||||||
Andrew W. Lo |
4 | $2.7 billion | 0 | $0 | 1 | $21 million |
1 | $21 million |
5 | $760 million* |
0 | $0 | ||||||||||||
Kevin H. Maeda |
1 | $31 million | 0 | $0 | 0 | $0 | 0 | $0 | 1,229 | $409 million |
0 | $0 | ||||||||||||
Robert S. Rickard |
5 | $14.7 billion | 0 | $0 | 2 | $1.8 billion |
0 | $0 | 0 | $0 | 0 | $0 | ||||||||||||
Serena V. Stone |
1 | $31 million | 0 | $0 | 0 | $0 | 0 | $0 | 1,229 | $409 million |
0 | $0 |
* | Includes notional value. |
Material Conflicts of Interest
Conflicts of interest may arise in the allocation of investment opportunities and the allocation of aggregated orders among the Fund and other accounts managed by a portfolio manager. A portfolio manager potentially could give favorable treatment to some accounts for a variety of reasons, including favoring larger accounts, accounts that pay higher fees, accounts that pay performance-based fees, accounts of affiliated companies and accounts in which the portfolio manager has an interest. Such favorable treatment could lead to more favorable investment opportunities or allocations for some accounts. The Adviser and Subadvisers have adopted policies and procedures to mitigate the effects of these conflicts. For more information on how the Adviser and Subadvisers allocate investment opportunities between the Fund and their other clients, see the section Allocation of Investment Opportunity Among the Fund and Other Investments Managed by the Adviser and/or Subadvisers in this Statement. Conflicts of interest also may arise to the extent a portfolio manager short sells a stock in one client account but holds that stock long in other accounts, including the Fund, or sells a stock for some accounts while buying the stock for others, and through the use of soft dollar arrangements, which are discussed in the section Portfolio Transactions and Brokerage.
55
Portfolio Managers Compensation
The following describes the structure of, and the method used to determine, the compensation of each of the above-listed portfolio managers as of December 31, 2012:
AlphaSimplex. All AlphaSimplex investment professionals, including portfolio managers, may receive compensation in three ways: salary, year-end bonuses, and supplemental bonuses. The bonus amounts are decided by the AlphaSimplex Compensation Committee. As a retention tool, AlphaSimplex has implemented a three-year deferral of 30% of bonus amounts for senior professionals.
NGAM Advisors (through Active Investment). Compensation for each of the portfolio managers consists of a fixed base salary plus variable bonus. Base salary is a fixed amount based on a combination of factors including industry experience, firm experience, job performance and market considerations. The variable bonus is based on a combination of firm performance (based on four factors financial profitability, gross sales, net sales and business development) and individual performance (based on individual performance assessed at least annually by the employees manager). Neither the base salary nor the variable bonus is directly tied to the performance of individual portfolios or mutual funds, nor is it tied to the value of assets under management. Certain personnel, including portfolio managers, are also eligible to participate in a supplemental bonus plan.
All employees of Active Investment are eligible to participate in the 401k plan and retirement plan of NGAM Advisors. NGAM Advisors provides a percentage of matching contributions to the 401k plan and fully covers the retirement plan, the latter being subject to a vesting schedule.
The portfolio managers manage accounts other than the Fund. Neither the base salary nor the variable bonus of the managers is dependent on assets in the Fund. However, a proportion of the total revenues generated from managing the Fund are included in the long-term, deferred compensation program.
Reich & Tang. Mr. Rickards compensation includes a fixed, annual base salary and an incentive bonus. Base salary amounts are determined by the compensation committee of the Subadviser (the Compensation Committee) based upon a number of factors, including the portfolio managers experience, overall performance, responsibilities and the competitive market place. Mr. Rickard receives a cash-based annual incentive bonus that is determined solely at the discretion of the Subadviser and approved by the Compensation Committee.
Portfolio Managers Ownership of Fund Shares
The Fund is newly formed and, as of the date of this Statement, none of the portfolio managers owned any shares of the Fund.
There are various reasons why a portfolio manager may not own shares of the Fund in the future. One reason is that the Funds respective investment objective and strategies may not match those of the portfolio managers personal investment objective. Also, the portfolio manager may invest in other funds or pooled investment vehicles or separate accounts managed by the portfolio manager in a similar style to the Fund. Administrative reasons (such as facilitating compliance with the Advisers or a Subadvisers code of ethics) also may explain why a portfolio manager may choose not to invest in the Fund.
Allocation of Investment Opportunity Among the Fund and Other Investments Managed by the Adviser and/or Subadvisers; Cross Relationships of Officers and Trustees
AlphaSimplex. AlphaSimplex manages other accounts using investment strategies that may or may not be similar to that of the Fund. A conflict of interest may exist in connection with AlphaSimplexs management of the Fund, on the one hand, and AlphaSimplexs management of other accounts, on the other hand. AlphaSimplex makes investment decisions for each account based on the clients investment objectives, policies, practices, cash flows, and other relevant investment considerations. Consequently, AlphaSimplex may purchase or sell securities or other instruments for one account and not for another account, and the performance of securities or other instruments purchased for one account may vary from the performance of securities or other instruments purchased for other accounts. Another conflict of interest may arise because accounts other than the Fund may have fee structures, such
56
as performance-based fees, that differ from those of the Fund. In addition, a potential conflict of interest may arise as a result of the Portfolio Managers day-to-day management of the Fund. Because of their roles in managing the Fund, AlphaSimplexs Portfolio Managers know the size, timing and possible market impact of Fund trades and this information could in theory be used to the detriment of the Fund. AlphaSimplex has adopted policies and procedures reasonably designed to allocate investment opportunities on a fair and equitable basis over time and to address conflicts of interest relating to the management of multiple accounts. Finally, AlphaSimplex has adopted trade allocation procedures that require equitable allocation of trade orders for a particular security among participating accounts. The implementation of these procedures is monitored by AlphaSimplexs Chief Compliance Officer.
NGAM Advisors (through Active Investment). NGAM Advisors may manage numerous accounts with similar or identical investment objectives or may manage accounts with different objectives that may trade in the same securities. Despite such similarities, portfolio decisions relating to clients investments and the performance resulting from such decisions will differ from client to client. NGAM Advisors will not necessarily purchase or sell the same securities at the same time or in the same proportionate amounts for all eligible clients. Further, in many instances, such as purchases of private placements or oversubscribed public offerings, it may not be possible or feasible to allocate a transaction pro rata to all eligible clients. Therefore, not all clients will necessarily participate in the same investment opportunities or participate on the same basis. In allocating investments among various clients (including in what sequence orders for trades are placed), however, NGAM Advisors will use its best business judgment and will take into account funds available to each client, the amount already committed by each client to a specific investment and the relative risks of the investment. It is NGAM Advisors policy to allocate to the extent practicable investment opportunities on a basis that NGAM Advisors in good faith believes is fair and equitable to each client over time.
Reich & Tang. Certain officers and employees of the Subadviser have responsibility for portfolio management of other advisory accounts and clients of the Subadviser (including other registered investment companies and accounts of affiliates of Reich & Tang) that may invest in securities in which the Fund also invests. If the Subadviser determines that an investment purchase or sale opportunity is appropriate and desirable for more than one advisory account, purchase and sale orders may be executed separately or may be combined and, to the extent practicable, allocated by Reich & Tang to the participating accounts. Where advisory accounts have competing interests in a limited investment opportunity, the Subadviser will allocate investment opportunities based on a number of considerations, including cash availability and/or liquidity requirements, including time the competing accounts have had funds available for investment or have had securities available for sale, investment objectives and restrictions, an accounts participation in other opportunities, tax considerations and relative size of portfolio holdings of the same or comparable securities. It is Reich & Tangs policy to allocate over a period of time, to the extent practicable, investment opportunities to each client on a fair and equitable basis relative to its other clients. The Trustees are of the view that the benefits of retaining Reich & Tang as Subadviser to the Fund outweigh the disadvantages, if any, that may result from participating in such transactions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing orders for the purchase and sale of equity securities, the Adviser or Subadvisers select only brokers that they believe are financially responsible, will provide efficient and effective services in executing, clearing and settling an order and will charge commission rates that, when combined with the quality of the foregoing services, will produce the best price and execution for the transaction. This does not necessarily mean that the lowest available brokerage commission, if any, will be paid. However, the commissions charged are believed to be competitive with generally prevailing rates. The Adviser or Subadvisers will use their best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions, if any, paid on transactions by reference to such data. In making such evaluation, factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. The Adviser or Subadvisers may place orders for the Fund which, combined with orders for the Advisers/Subadvisers other clients, may impact the price of the relevant security. This could cause the Fund to obtain a worse price on the transaction than would otherwise be the case if the orders were placed in smaller amounts or spread out over a longer period of time.
57
Subject to the overriding objective of obtaining the best possible execution of orders, the Adviser or Subadvisers may allocate brokerage transactions to affiliated brokers. Any such transactions will comply with Rule 17e-1 under the 1940 Act. In order for the affiliated broker to effect portfolio transactions for the Fund, the commissions, fees or other remuneration received by the affiliated broker must be reasonable and fair compared to the commissions, fees and other remuneration paid to other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period. Furthermore, the Board, including a majority of the Independent Trustees, has adopted procedures that are reasonably designed to provide that any commissions, fees or other remuneration paid to an affiliated broker are consistent with the foregoing standard.
Transactions on stock, option, and futures exchanges involve the payment of negotiated brokerage commissions. In the case of securities traded in the OTC market, there is generally no stated commission but the price usually includes an undisclosed commission or mark-up.
AlphaSimplex
In arranging for the purchase and sale of clients portfolio securities, AlphaSimplex takes numerous factors into consideration. These include any legal restrictions, such as those imposed under the securities laws and the Employee Retirement Income Security Act of 1974, and any client-imposed restrictions. Within these constraints, AlphaSimplex will employ or deal with members of the securities exchanges and other brokers and dealers as may in its judgment implement the policy of seeking best execution (i.e., prompt and reliable execution at the most favorable prices obtainable under the prevailing market conditions) of portfolio transactions. It is not AlphaSimplexs current practice to enter into soft dollar arrangements but AlphaSimplex does consider all services when executing transactions with a broker. As such, AlphaSimplex may utilize research and other products that provide lawful and appropriate assistance to AlphaSimplex in carrying out its investment-making responsibilities, as permitted under the safe harbor of Section 28(e) of the Securities and Exchange Act of 1934. As long as it is lawful and appropriate to do so, AlphaSimplex may use this research and data in its investment advisory capacities with other clients. Clients may obtain other services from brokers in connection with investment transactions with brokers. Such services will be limited to services that would otherwise be a client expense.
In determining the abilities of a broker or dealer to obtain best execution of portfolio transactions, while the lowest price may be one factor, AlphaSimplex will consider all relevant factors, including the execution capabilities required by the transactions; the ability and willingness of the broker or dealer to facilitate the accounts portfolio transactions by participating therein for its own account; the importance to the account of speed, efficiency, and confidentiality; the brokers or dealers apparent familiarity with sources from or to whom particular securities might be purchased or sold; the reputation and perceived soundness of the broker or dealer; and other matters relevant to the selection of a broker or dealer for portfolio transactions for any account. AlphaSimplex will not adhere to any rigid formula in making the selection of the applicable broker or dealer for portfolio transactions, but will weigh a combination of the preceding factors.
AlphaSimplex has no duty or obligation to seek in advance competitive bidding for the most favorable commission rate applicable to any particular portfolio transaction or to select any broker on the basis of its purported or posted commission rate, but will endeavor to be aware of the current level of the charges of eligible brokers and to minimize the expense incurred for effecting portfolio transactions to the extent consistent with the interests and policies of the accounts. Although AlphaSimplex generally seeks competitive commission rates, it will not necessarily pay the lowest commission or commission equivalent. Transactions may involve specialized services on the part of the broker or dealer involved and thereby entail higher commissions or their equivalents than would be the case with other transactions requiring more routine services.
Certain customers of AlphaSimplex may also be customers of broker-dealers through which AlphaSimplex may utilize executing and/or clearing brokerage services. Although AlphaSimplex may execute or clear through these broker-dealers, AlphaSimplex is under no obligation to do so.
Portfolio transactions for each client account are generally completed independently, except when AlphaSimplex is in the position of buying or selling the same security for a number of its clients under the same conditions (e.g., limit prices) at approximately the same time. Because of market fluctuations, the prices obtained on such transactions within a single day may vary substantially. In such a case, some clients would receive the benefit of the more-
58
favorable prices while others would not. In order to more equitably allocate the effects of such market fluctuations, AlphaSimplex has adopted the following aggregation procedures. For purposes of aggregating client orders for futures contracts and forward contracts for all clients, each client that participates in an aggregated order will participate in that order based on the price received and the inception date of the clients account. The account with the oldest inception date will always receive the highest fill prices and the account with the most recent inception date will receive the lowest fill prices. Any advantages the oldest accounts may receive on the sell orders are theoretically offset by the disadvantages on the buy orders. For purposes of aggregating client orders for all other securities for all clients, each client that participates in an aggregated order will participate at the average price for all AlphaSimplexs transactions in that security on a given business day and transaction costs will be shared pro rata based on each clients participation in the transaction. If the aggregated order is partially filled, it will be allocated among clients pro rata.
NGAM Advisors (through Active Investment)
In placing securities trades with brokers or dealers, NGAM Advisors primary policy is to execute all purchase and sales at the most favorable prices consistent with best execution. Best price, giving effect to brokerage commissions, if any, and other transaction costs, is normally an important factor in this decision, but the selection also takes into account the quality of brokerage services, including such factors as execution capability, willingness to commit capital, financial stability, and clearance and settlement capability. The reasonableness of brokerage commissions paid by client accounts over which NGAM Advisors has discretion to choose the broker is evaluated on an on-going basis. This policy governs the selection of brokers and dealers and the market in which a transaction is executed.
It is NGAM Advisors current policy not to receive products or services in return for client commission dollars. However, in the future, NGAM Advisors may revise its policies and receive so-called soft-dollar products or services that provide lawful assistance to NGAM Advisors in its investment decision-making process in accordance with applicable federal securities laws.
NGAM Advisors may advise accounts that have similar investment objectives and investment opportunities which are suitable for more than one such account. Where advisory accounts have competing interests in a limited investment opportunity, NGAM Advisors generally allocates purchase and sale opportunities on a basis that it, in good faith, believes is fair and equitable to such eligible client over time. In making such allocations, NGAM Advisors may consider, among other things, the relative time that the competing accounts have had funds available for investment, the relative amount of available funds, relative cash requirements for the competing accounts and the time that the competing accounts have had investments available for sale.
NGAM Advisors may, but need not, aggregate or bunch orders for funds for which it has investment discretion in circumstances in which NGAM Advisors believes that bunching will result in a more favorable overall execution. Where appropriate and practicable, NGAM Advisors may bunch a clients trades with trades of other clients and with trades of pooled vehicles in which NGAM Advisors personnel have a beneficial interest pursuant to an allocation process NGAM Advisors in good faith considers to be fair and equitable to all clients over time.
Reich & Tang
With respect to the portion of the Funds assets managed by Reich & Tang, the purchases and sales of portfolio securities are usually principal transactions. Portfolio securities are generally purchased directly from the issuer, from banks and financial institutions or from an underwriter or market maker for the securities. There are usually no brokerage commissions paid for such purchases and the Fund does not currently anticipate paying brokerage commissions. Should the Fund pay a brokerage commission on a particular transaction, the Fund would seek to effect the transaction at the most favorable available combination of best execution and lowest commission. Purchases from underwriters of portfolio securities include a commission or concession paid by the issuer to the underwriter, and purchases from dealers serving as market makers include the spread between the bid and ask price.
No portfolio transactions are executed with Reich & Tang or its affiliates acting as principal. In addition, the Fund will not buy bankers acceptances, certificates of deposit or commercial paper from Reich & Tang or its affiliates. Reich & Tang does not earn soft dollars when trading in fixed-income securities. When trading equity securities,
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Reich & Tang may earn soft dollars through its regular trading. Reich & Tangs receipt of brokerage and research products may be a factor in its selection of a broker or dealer to execute transactions for the Fund where Reich & Tang believes that the broker or dealer will provide the best execution of the transactions. Such brokerage and research services may be paid for with Reich & Tangs own assets or may, in connection with transactions in securities effected for client accounts for which Reich & Tang exercises investment discretion, be paid for with client commissions.
The frequency of transactions and their allocation to various dealers is determined by Reich & Tang in its best judgment and in a manner deemed to be in the best interest of shareholders of the Fund. The primary consideration is prompt execution of orders in an effective manner at the most favorable price.
Investment decisions for the Fund will be made independently from those for any other accounts or investment companies that may be or become managed by Reich & Tang or its affiliates. If, however, the Fund and other investment companies or accounts managed by Reich & Tang are contemporaneously engaged in the purchase or sale of the same security, the transactions may be averaged as to price and allocated equitably to each account. In some cases, this policy might adversely affect the price paid or received by the Fund or the size of the position obtainable for the Fund. In addition, when purchases or sales of the same security for the Fund and for other investment companies managed by Reich & Tang occur contemporaneously, the purchase or sale orders may be aggregated in order to obtain any price advantages available to large denomination purchasers or sellers.
General
Subject to procedures adopted by the Board, the Funds brokerage transactions may be executed by brokers that are affiliated with Natixis US or the Adviser or Subadvisers. Any such transactions will comply with Rule 17e-1 under the 1940 Act, or other applicable restrictions as permitted by the SEC pursuant to exemptive relief or otherwise.
Under the 1940 Act, persons affiliated with the Trust are prohibited from dealing with the Trusts funds as a principal in the purchase and sale of securities. Since transactions in the OTC market usually involve transactions with dealers acting as principals for their own accounts, affiliated persons of the Trust may not serve as the Funds dealer in connection with such transactions.
To the extent permitted by applicable law, and in all instances subject to the foregoing policy of best execution, the Adviser may allocate brokerage transactions to broker-dealers (including affiliates of the Distributor) that have entered into arrangements in which the broker-dealer allocates a portion of the commissions paid by the Fund toward the reduction of the Funds expenses.
It is expected that the portfolio transactions in fixed-income securities will generally be with issuers or dealers on a net basis without a stated commission. Securities firms may receive brokerage commissions on transactions involving options, futures and options on futures and the purchase and sale of underlying securities upon exercise of options. The brokerage commissions associated with buying and selling options may be proportionately higher than those associated with general securities transactions.
The Declaration of Trust of Natixis Funds Trust II permits the Trustees to issue an unlimited number of full and fractional shares of each series. Each share of the Fund represents an equal proportionate interest in the Fund with each other share of the Fund and is entitled to a proportionate interest in the dividends and distributions from the Fund. The Declaration of Trust further permits the Board to divide the shares of each series into any number of separate classes, each having such rights and preferences relative to other classes of the same series as the Board may determine. When you invest in the Fund, you acquire freely transferable shares of beneficial interest that entitle you to receive dividends as determined by the Board and to cast a vote for each share you own at shareholder meetings. The shares of the Fund do not have any preemptive rights. Upon termination of the Fund, whether pursuant to liquidation of the Trust or otherwise, shareholders of each class of the Fund are entitled to share pro rata in the net assets attributable to that class of shares of the Fund available for distribution to shareholders. The Declaration of Trust also permits the Board to charge shareholders directly for custodial, transfer agency and servicing expenses.
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The shares of the Fund are divided into three classes: Class A, Class C and Class Y. As described in its Prospectus, Class Y shares are available for purchase only by certain eligible investors and have higher minimum purchase requirements than Class A and Class C shares. All expenses of the Fund (including advisory fees) are borne by its Class A, Class C and Class Y shares on a pro rata basis, except for 12b-1 fees, which are borne only by Class A and Class C and may be charged at a separate rate to each such class. The multiple class structure could be terminated should certain IRS rulings or SEC regulatory positions be rescinded or modified.
The assets received by each class of the Fund for the issue or sale of its shares and all income, earnings, profits, losses and proceeds therefrom, subject only to the rights of the creditors, are allocated to, and constitute the underlying assets of, that class of the Fund. The underlying assets of each class of the Fund are segregated and are charged with the expenses with respect to that class of the Fund and with a share of the general expenses of the Fund and Trust. Any general expenses of the Trust that are not readily identifiable as belonging to a particular class of the Fund are allocated by or under the direction of the Trustees in such manner as the Trustees determine to be fair and equitable. While the expenses of the Trust are allocated to the separate books of account of each series of the Trust, certain expenses may be legally chargeable against the assets of all of the series in the Trust.
The Declaration of Trust also permits the Board, without shareholder approval, to subdivide the Fund or series or class of shares into various sub-series or sub-classes with such dividend preferences and other rights as the Trustees may designate. The Board may also, without shareholder approval, establish one or more additional series or classes or, with shareholder approval, merge two or more existing series or classes. Shareholders investments in such an additional or merged series would be evidenced by a separate series of shares (i.e., a new fund).
The Declaration of Trust provides for the perpetual existence of the Trust. The Trust or the Fund, however, may be terminated at any time by vote of at least two-thirds of each series of the Trust entitled to vote. In addition, the Fund may be terminated at any time by vote of at least two-thirds of the outstanding shares of the Fund. Similarly, any class within the Fund may be terminated by vote of at least two-thirds of the outstanding shares of such class. The Declaration of Trust further provides that the Board may also, without shareholder approval, terminate the Trust or Fund upon written notice to its shareholders.
Shareholders of the Fund are entitled to one vote for each full share held (with fractional votes for each fractional share held) and may vote (to the extent provided therein) on the election of Trustees and the termination of the Trust and on other matters submitted to the vote of shareholders.
Shareholders of Natixis Funds Trust II have identical voting rights to each other. All classes of shares of the Fund have identical voting rights, except that each class of shares has exclusive voting rights on any matter submitted to shareholders that relates solely to that class, and has separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class. On any matters submitted to a vote of shareholders, all shares of the Trust then entitled to vote shall, except as otherwise provided in the Trusts by-laws, be voted in the aggregate as a single class without regard to series or class of shares, except (1) when required by the 1940 Act, or when the Trustees shall have determined that the matter affects one or more series or class of shares materially differently, shares shall be voted by individual series or class and (2) when the matter affects only the interest of one or more series or classes, only shareholders of such series or class shall be entitled to vote thereon. Consistent with the current position of the SEC, shareholders of all series and classes vote together, irrespective of series or class, on the election of Trustees and the selection of the Trusts independent registered public accounting firm, but shareholders of each series vote separately on most other matters requiring shareholder approval, such as certain changes in investment policies of that series or the approval of the investment advisory and subadvisory agreements relating to that series, and shareholders of each class within a series vote separately as to the Rule 12b-1 plan (if any) relating to that class.
There will normally be no meetings of shareholders for the purpose of electing trustees except that, in accordance with the 1940 Act, (i) the Trust will hold a shareholders meeting for the election of trustees at such time as less than a majority of the Trustees holding office have been elected by shareholders, and (ii) if there is a vacancy on a Board, such vacancy may be filled only by a vote of the shareholders unless, after filling such vacancy by other means, at
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least two-thirds of the Trustees holding office shall have been elected by the shareholders. In addition, Trustees may be removed from office by a written consent signed by the holders of two-thirds of the outstanding shares and filed with the Trusts custodian or by a vote of the holders of two-thirds of the outstanding shares at a meeting duly called for that purpose.
Upon written request by a minimum of ten holders of shares having held their shares for a minimum of six months and having an NAV of at least $25,000 or constituting at least 1% of the outstanding shares, whichever is less, stating that such shareholders wish to communicate with the other shareholders for the purpose of obtaining the signatures necessary to demand a meeting to consider removal of a trustee, the Trust has undertaken to provide a list of shareholders or to disseminate appropriate materials (at the expense of the requesting shareholders).
Except as set forth above, the Trustees shall continue to hold office and may appoint successor trustees. Shareholder voting rights are not cumulative.
The affirmative vote of a majority of shares of the Trust voted (assuming a quorum is present in person or by proxy) is required to amend a Declaration of Trust if such amendment (1) affects the power of shareholders to vote, (2) amends the section of the Declaration of Trust governing amendments, (3) is one for which a vote is required by law or by the Trusts registration statement, or (4) is submitted to the shareholders by the Trustees. If one or more new series of the Trust is established and designated by the Trustees, the shareholders having beneficial interests in the other funds shall not be entitled to vote on matters exclusively affecting such new series, such matters including, without limitation, the adoption of or any change in the investment objectives, policies or restrictions of the new series and the approval of the investment advisory contracts of the new series. Similarly, the shareholders of the new series shall not be entitled to vote on any such matters as they affect the other funds.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust provides for indemnification out of the Funds property for all loss and expense of any shareholder held personally liable for the obligations of the Fund by reason of owning shares of such Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which the disclaimer is inoperative and the Fund itself would be unable to meet its obligations.
The Declaration of Trust further provides that the Board will not be liable for errors of judgment or mistakes of fact or law. However, nothing in the Declaration of Trust protects a trustee against any liability to which the trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. The by-laws of the Trust provide for indemnification by the Trust of Trustees and officers of the Trust, except with respect to any matter as to which any such person did not act in good faith in the reasonable belief that his or her action was in the best interests of the Trust. Such persons may not be indemnified against any liability to the Trust or the Trusts shareholders to whom he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. The Trust offers only its own funds shares for sale, but it is possible that the Trust might become liable for any misstatements in a prospectus that relate to another Trust.
The procedures for purchasing shares of the Fund are summarized in the Prospectus. All purchases made by check should be in U.S. dollars and made payable to Natixis Funds.
Shares may also be purchased either in writing, by phone, by wire, by electronic funds transfer using Automated Clearing House (ACH) or by exchange, as described in the Prospectus, or through firms that are members of FINRA and that have selling agreements with the Distributor. For purchase of Fund shares by mail, the trade date is the day of receipt of the check in good order by the transfer agent so long as it is received by the close of regular trading of the NYSE on a day when the NYSE is open. For purchases through the ACH system, the shareholders
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bank or credit union must be a member of the ACH system and the shareholder must have approved banking information on file. With respect to shares purchased by wire or through the ACH system, shareholders should bear in mind that the transactions may take two or more days to complete. Banks may charge a fee for transmitting funds by wire.
You may also use Natixis Funds Personal Access Line® (800-225-5478, press 1) or Natixis Funds website (ngam.natixis.com) to purchase Fund shares. For more information, see the section Shareholder Services in this Statement.
At the discretion of the Distributor, bank trust departments or trust companies may also be eligible for investment in Class Y shares at a reduced minimum, subject to certain conditions including a requirement to meet the minimum investment balance within a specified time period. Please contact the Distributor at 800-225-5478 for more information. At the discretion of the Distributor, clients of NGAM Advisors may purchase, at NAV, Class A shares of Natixis Funds that do not offer Class Y shares.
Shareholders of the Fund in Class Y may be permitted to open an account without an initial investment and then wire funds into the account once established. These shareholders will still be subject to the investment minimums as detailed in the Prospectus of the Fund.
The procedures for redemption of shares of the Fund are summarized in its Prospectus. As described in the Prospectus, a CDSC may be imposed on certain redemptions of Class A and C shares. For purposes of the CDSC, an exchange of shares from one Fund to another Fund is not considered a redemption or a purchase. For federal income tax purposes, however, such an exchange is considered a sale and a purchase and, therefore, would be considered a taxable event on which you may recognize a gain or loss. In determining whether a CDSC is applicable to a redemption of Class A or Class C shares, the calculation will be determined in the manner that results in the lowest rate being charged. The charge will not be applied to dollar amounts representing an increase in the NAV of shares since the time of purchase or reinvested distributions associated with such shares. Unless you request otherwise at the time of redemption, the CDSC is deducted from the redemption, not the amount remaining in the account.
The Fund will only accept medallion signature guarantees bearing the STAMP2000 Medallion imprint. However, a medallion signature guarantee may not be required if the proceeds of the redemption do not exceed $100,000 and the proceeds check is made payable to the registered owner(s) and mailed to the record address, or if the proceeds are going to a bank on file. Please contact the Fund at 800-225-5478 with any questions regarding when a medallion signature guarantee is required.
If you select the telephone redemption service in the manner described in the next paragraph, shares of the Fund may be redeemed by calling toll-free 800-225-5478. A wire fee may be deducted from the proceeds if you elect to receive the funds wired to your bank on record. Telephone redemption requests must be received by the close of regular trading on the NYSE. Requests made after that time or on a day when the NYSE is closed will receive the next business days closing price. The proceeds of a telephone withdrawal will normally be sent within three business days following receipt of a proper redemption request, although it may take longer.
A shareholder automatically receives access to the ability to redeem shares by telephone following the completion of the Fund application, which is available at ngam.natixis.com or from your investment dealer. When selecting the service, a shareholder may have the withdrawal proceeds sent to his or her bank, in which case the shareholder must designate a bank account on his or her application or Service Options Form to which the redemption proceeds should be sent as well as provide a check marked VOID and/or a deposit slip that includes the routing number of his or her bank. Any change in the bank account so designated may be made by furnishing to Boston Financial or your investment dealer a completed Service Options Form, which may require a medallion signature guarantee or a Signature Validation Program Stamp. Telephone redemptions by ACH or wire may only be made if the designated bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. If the account is with a savings bank, it must have only one correspondent bank that is a member of the System. The Fund, the Distributor, Boston Financial (the Funds transfer agent) and State Street Bank (the Funds custodian) are
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not responsible for the authenticity of withdrawal instructions received by telephone, although they will apply established verification procedures. Boston Financial, as agreed to with the Fund, will employ reasonable procedures to confirm that your telephone instructions are genuine, and if it does not, it may be liable for any losses due to unauthorized or fraudulent instructions. Such verification procedures include, but are not limited to, requiring a form of personal identification prior to acting on an investors telephone instructions and recording an investors instructions.
Shares purchased by check or through ACH may not be available immediately for redemption to the extent the check or ACH transaction has not cleared. The Fund may withhold redemption proceeds for ten days when redemptions are made within ten calendar days of purchase by check or through ACH.
The redemption price will be the NAV per share (less any applicable CDSC) next determined after the redemption request and any necessary special documentation is received by the transfer agent or your investment dealer in proper form. Payment normally will be made by the Fund within seven days thereafter. However, in the event of a request to redeem shares for which the Fund has not yet received good payment, the Fund reserves the right to withhold payments of redemption proceeds if the purchase of shares was made by a check which was deposited within ten calendar days prior to the redemption request (unless the Fund is aware that the check has cleared).
The CDSC may be waived on redemptions made from IRA accounts due to attainment of age 59 1/2 for IRA shareholders who established accounts prior to January 3, 1995. The CDSC may also be waived on redemptions made from IRA accounts due to death, disability, return of excess contribution, required minimum distributions at age 70 1/2 (waivers apply only to amounts necessary to meet the required minimum amount based on assets held within the Fund), certain withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually of the value of the account, and redemptions made from the account to pay custodial fees. The CDSC may also be waived on redemptions within one year following the death of (i) the sole shareholder of an individual account, (ii) a joint tenant where the surviving joint tenant is the deceaseds spouse or (iii) the beneficiary of a Uniform Gifts to Minors Act, Uniform Transfer to Minors Act or other custodial account. If the account is transferred to an account registered in the name of the deceaseds estate, the CDSC will be waived on any redemption occurring within one year of death. If shares are not redeemed within one year of the death, they will remain subject to the applicable CDSC when redeemed from the transferees account. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
The CDSC may be waived on redemptions made from 403(b)(7) custodial accounts due to attainment of age 59 1/2 for shareholders who established custodial accounts prior to January 3, 1995. The CDSC may also be waived on redemptions made from 403(b)(7) custodial accounts due to death or disability.
The CDSC may also be waived on redemptions necessary to pay plan participants or beneficiaries from qualified retirement plans under Section 401 of the Code, including profit sharing plans, money purchase plans, 401(k) and custodial accounts under Section 403(b)(7) of the Code. Distributions necessary to pay plan participants and beneficiaries include payment made due to death, disability, separation from service, normal or early retirement as defined in the plan document, loans from the plan and hardship withdrawals, return of excess contributions, required minimum distributions at age 70 1/2 (waivers only apply to amounts necessary to meet the required minimum amount), certain withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually of the value of your account, and redemptions made from qualified retirement accounts or Section 403(b)(7) custodial accounts necessary to pay custodial fees.
A CDSC will apply in the event of plan level transfers, including transfers due to changes in investment where assets are transferred outside of Natixis Funds, including IRA and 403(b)(7) participant-directed transfers of assets to other custodians (except for the reasons given above) or qualified transfers of assets due to trustee-directed movement of plan assets due to merger, acquisition or addition of additional funds to the plan.
In order to redeem shares electronically through the ACH system, a shareholders bank or credit union must be a member of the ACH system and the shareholder must have a completed, approved ACH application on file. In addition, the telephone or online request must be received no later than the close of the NYSE. Upon receipt of the required information, the appropriate number of shares will be redeemed and the monies forwarded to the bank designated on the shareholders application through the ACH system. The redemption will be processed the day the
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telephone call or online request is made and the monies generally will arrive at the shareholders bank within three business days. The availability of these monies will depend on the individual banks rules.
The Fund will normally redeem shares for cash; however, the Fund reserves the right to pay the redemption price wholly or partly in kind, if NGAM Advisors determines it to be advisable and in the interest of the remaining shareholders of the Fund. The redemptions in kind will be selected by the Adviser in light of the Funds objective and will not generally represent a pro rata distribution of each security held in the Funds portfolio. If portfolio securities are distributed in lieu of cash, the shareholder will normally incur brokerage commissions upon subsequent disposition of any such securities. However, the Fund has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is obligated to redeem shares solely in cash for any shareholder during any 90-day period up to the lesser of $250,000 or 1% of the total NAV of the Fund at the beginning of such period.
The Fund does not currently impose any redemption charge other than the CDSC imposed by the Funds Distributor, as described in the Prospectus. The Board reserves the right to impose additional charges at any time. A redemption constitutes a sale of shares for U.S. federal income tax purposes on which the investor may realize a long- or short-term capital gain or loss. See also the section Taxes.
The Fund reserves the right to suspend account services or refuse transaction requests if the Fund receives notice of a dispute between registered owners or of the death of a registered owner or the Fund suspects a fraudulent act. If the Fund refuses a transaction request because it receives notice of a dispute, the transaction will be processed at the NAV next determined after the Fund receives notice that the dispute has been settled or a court order has been entered adjudicating the dispute. If the Fund determines that its suspicion of fraud or belief that a dispute existed was mistaken, the transaction will be processed as of the NAV next determined after the transaction request was first received in good order.
Reinstatement Privilege (Class A Shares Only)
The Prospectus describes redeeming shareholders reinstatement privileges for Class A shares. In order to exercise the reinstatement privilege, you must provide a new investment check made payable to Natixis Funds and written notice to Natixis Funds (directly or through your financial representative) within 120 days of your redemption. The reinstatement or exchange will be made at NAV next determined after receipt of the notice and the new investment check in good order and will be limited to the amount of the redemption proceeds.
Even though an account is reinstated, the redemption will constitute a sale for U.S. federal income tax purposes. Investors who reinstate their accounts by purchasing shares of the Fund should consult with their tax advisers with respect to the effect of the wash sale rule if a loss is realized at the time of the redemption.
Open Accounts
A shareholders investment is automatically credited to an open account maintained for the shareholder by Boston Financial. Following each additional investment or redemption from the account initiated by an investor (with the exception of systematic investment plans), a shareholder will receive a confirmation statement disclosing the current balance of shares owned and the details of recent transactions in the account. After the close of each calendar year, the Fund will send each shareholder a statement providing account information which may include federal tax information on dividends and distributions paid to the shareholder during the year. This statement should be retained as a permanent record.
The open account system provides for full and fractional shares expressed to three decimal places and, by making the issuance and delivery of stock certificates unnecessary, eliminates problems of handling and safekeeping, and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed certificates. Certificates will not be issued or honored for any class of shares.
The costs of maintaining the open account system are paid by the Fund and no direct charges are made to shareholders. Although the Fund has no present intention of making such direct charges to shareholders, they each
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reserve the right to do so. Shareholders will receive prior notice before any such charges are made.
Minimum Balance Policy
The Funds minimum balance policy is described in the Prospectus.
Automatic Investment Plans
Subject to the Funds investor eligibility requirements, investors may automatically invest in additional shares of the Fund on a monthly basis by authorizing the Distributor to draw checks on an investors bank account. The checks are drawn under the Investment Builder Program, a program designed to facilitate such periodic payments, and are forwarded to Boston Financial for investment in the Fund. A plan in Class A and Class C shares may be opened with an initial investment of $1,000 or the fund minimum for Class Y shares or more and thereafter regular monthly checks of $50 or more will be drawn on the investors account. (Shareholders with accounts participating in Natixis Funds Investment Builder Program prior to May 1, 2005 may continue to make subsequent purchases of $25 or more into those accounts). The reduced minimum initial investment pursuant to an automatic investment plan for Class A and Class C shares is referred to in the Prospectus. A Service Options Form must be completed to open an automatic investment plan and may be obtained by calling the Fund at 800-225-5478 or your investment dealer or by visiting the Funds website at ngam.natixis.com.
This program is voluntary and may be terminated at any time by Boston Financial upon notice to existing plan participants. The Investment Builder Program plan may be discontinued at any time by the investor by written notice to Boston Financial, which must be received at least five business days prior to any payment date. The plan may be discontinued by State Street Bank at any time without prior notice if any check is not paid upon presentation or by written notice to the shareholder at least thirty days prior to any payment date. The Fund is under no obligation to notify shareholders as to the nonpayment of any check.
Retirement Plans and Other Plans Offering Tax Benefits
The federal tax laws provide for a variety of retirement plans offering tax benefits. These plans may be funded with shares of the Fund or with certain other investments. The plans include H.R. 10 (Keogh) plans for self-employed individuals and partnerships, individual retirement accounts (IRAs), corporate pension trust and profit sharing plans, including 401(k) plans and retirement plans for public school systems and certain tax-exempt organizations.
The minimum initial investment available to retirement plans and other plans offering tax benefits is referred to in the Prospectus. For these plans, initial investments in the Fund for Class A and Class C shares must be at least $1,000 for IRAs and Keogh plans using the Natixis Funds prototype document and $500 for Coverdell Education Savings Accounts and at least $100 for any subsequent investments. There is no initial or subsequent investment minimum for SIMPLE IRAs using the Natixis Funds prototype documents. Income dividends and capital gain distributions must be reinvested (unless the investor is over age 59 1/2 or disabled). These types of accounts may be subject to fees. Plan documents and further information can be obtained from the Distributor.
Certain retirement plans may also be eligible to purchase Class Y shares. See the Prospectus relating to Class Y shares.
Systematic Withdrawal Plans (All Classes)
An investor owning the Funds shares having a value of $10,000 or more at the current public offering price may establish a Systematic Withdrawal Plan (a Plan) providing for periodic payments of a fixed or variable amount. An investor may terminate the plan at any time. A form for use in establishing such a plan is available from Boston Financial or your investment dealer. Withdrawals may be paid to a person other than the shareholder if a Medallion signature guarantee is provided. Please consult your investment dealer or the Fund.
A shareholder under a Plan may elect to receive payments monthly, quarterly, semiannually or annually for a fixed amount of not less than $50 or a variable amount based on (1) the market value of a stated number of shares, (2) a specified percentage of the accounts market value or (3) for Natixis sponsored IRA accounts only, a specified
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number of years for liquidating the account (e.g., a 20-year program of 240 monthly payments would be liquidated at a monthly rate of 1/240, 1/239, 1/238, etc.). The initial payment under a variable payment option may be $50 or more.
In the case of shares subject to a CDSC, the amount or percentage you specify may not, on an annualized basis, exceed 10% of the value, as of the time you make the election, of your account with the Fund with respect to which you are electing the Plan. No CDSC applies to redemptions pursuant to the Plan.
Income dividends and capital gain distributions will be reinvested (without a sales charge in the case of Class A shares) based upon the NAV determined as of the close of regular trading on the NYSE on the ex-dividend date.
Since withdrawal payments represent proceeds from the liquidation of shares, withdrawals may reduce and possibly exhaust the value of the account, particularly in the event of a decline in NAV. Accordingly, a shareholder should consider whether a Plan and the specified amounts to be withdrawn are appropriate under the circumstances. The Fund and the Distributor make no recommendations or representations in this regard. It may be appropriate for a shareholder to consult a tax adviser before establishing such a plan. See the sections Redemptions and Taxes for certain information as to U.S. federal income taxes.
It may be disadvantageous for a shareholder to purchase on a regular basis additional Fund shares with a sales charge while redeeming shares under a Plan. Accordingly, the Fund and the Distributor do not recommend additional investments in Class A shares by a shareholder who has a withdrawal plan in effect and who would be subject to a sales load on such additional investments. Natixis Funds may modify or terminate this program at any time.
Because of statutory restrictions this Plan may not be available to pension or profit-sharing plans and IRA plans that have State Street Bank as trustee. Different documentation may be required.
Dividend Diversification Program
You may also establish a Dividend Diversification Program, which allows you to have all dividends and any other distributions automatically invested in shares of the same class of another Natixis Fund, subject to the investor eligibility requirements of that other Fund and to state securities law requirements. Shares will be purchased based upon the selected Funds NAV (without a sales charge or CDSC) determined as of the close of regular trading on the NYSE on the ex-dividend date for each dividend or distribution. A dividend diversification account must be registered to the same shareholder as the distributing Fund account and, if a new account in the purchased Fund is being established, the purchased Funds minimum investment requirements must be met. Before establishing a Dividend Diversification Program into any other Natixis Fund, you must obtain and carefully read a copy of that Funds Prospectus.
Exchange Privilege
A shareholder may exchange Class A, Class C and Class Y shares of the Fund for shares of the same class of a Natixis Fund or series of Loomis Sayles Funds I or Loomis Sayles Funds II that offers that class (subject to the investor eligibility requirements, if any, of the fund into which the exchange is being made and any other limits on the sales of or exchanges into that fund) on the basis of relative NAVs at the time of the exchange without any sales charge. An exchange of shares in one fund for shares of another fund is a taxable event on which gain or loss may be recognized. When an exchange is made from the Class A or Class C shares of the Fund to the same class of shares of another fund, the shares received by the shareholder in the exchange will have the same age characteristics as the shares exchanged. The age of the shares determines the expiration of the CDSC. If you own Class Y shares, you may exchange those shares for Class Y shares of other funds, for Institutional Class shares of any series of Loomis Sayles Funds I or Loomis Sayles Funds II that offers Institutional Class shares. Shareholders who hold their shares through certain financial intermediaries may not be eligible to convert their Class A shares to Class Y shares. These options are summarized in the Funds Prospectus. An exchange may be effected, provided that neither the registered name nor address of the accounts is different by (1) a telephone request to the Fund at 800-225-5478, (2) a written exchange request to the Natixis Funds, P.O. Box 219579, Kansas City, MO 64121-9579 or (3) visiting our website at ngam.natixis.com. You must acknowledge receipt of a current Prospectus for the Fund
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before an exchange for the Fund can be effected. The minimum amount for an exchange is the minimum amount to open an account or the total NAV of your account, whichever is less.
Accounts participating in or moving into wrap-fee programs or held through a registered investment adviser may exchange Class A shares of a fund for Class Y shares of the same fund and may also exchange Class C shares of a fund for Class A shares or Class Y shares of the same fund. Any account with an outstanding CDSC liability will be assessed the CDSC before converting to either Class A or Class Y shares. Accounts converting from Class C shares to Class A shares will not be subject to any Class A sales charges as a result of the initial conversion or any subsequent purchases of Class A shares in such accounts. In order to exchange shares, a representative of the wrap-fee program or registered investment adviser must follow the procedures set forth by the Distributor.
Class A shares of a fund acquired by Trustees, former Trustees, employees of affiliates of the Natixis Funds, individuals who are affiliated with any Natixis Fund (including spouses, parents, children, siblings, grandparents, grandchildren and in-laws of those mentioned) and Natixis affiliate employee benefit plans (collectively, Natixis affiliated shareholders) may be exchanged for Class Y shares of the same fund without payment of a CDSC. An exchange of shares for shares of a different class in the same fund generally should not be a taxable event for the exchanging shareholder.
In certain limited circumstances, accounts participating in wrap fee programs or held through a registered investment adviser may exchange Class Y shares of the Fund for Class A shares of the same Fund. Class Y shares may be converted to Class A shares of the same Fund if the Class Y shares are held in an investment option or program that no longer permits the use of Class Y shares in that option or program or if the shareholder otherwise becomes ineligible to participate in Class Y shares. Exchanges from Class Y shares to Class A shares will not be subject to an initial sales charge; however, future purchases may be subject to a sales charge, if applicable. A representative of the wrap fee program or a registered investment adviser must provide a completed cross-share exchange form and written notice to the Distributor indicating that a Class Y shareholder is eligible for conversion to Class A shares prior to any such exchange. An exchange of shares for shares of a different class in the same fund generally should not be a taxable event for the exchanging shareholder.
Due to operational limitations at your financial intermediary, your ability to exchange between shares classes of the same fund may be limited. Please consult your financial representative for more information.
All exchanges are subject to the eligibility requirements of the Fund into which you are exchanging and any other limits on sales of or exchanges into the Fund. The exchange privilege may be exercised only in those states where shares of such Fund may be legally sold. The Fund reserves the right to suspend or change the terms of exchanging shares. The Fund and the Distributor reserve the right to refuse or limit any exchange order for any reason, including if the transaction is deemed not to be in the best interests of the Funds other shareholders or possibly disruptive to the management of the Fund.
Before requesting an exchange into any other Natixis Fund or series of Loomis Sayles Funds I or Loomis Sayles Funds II, please read its prospectus carefully. Subject to the applicable rules of the SEC, the Board reserves the right to modify the exchange privilege at any time. Except as otherwise permitted by SEC rule, shareholders will receive at least 60 days advance notice of any material change to the exchange privilege.
Automatic Exchange Plan
As described in the Prospectus, a shareholder may establish an Automatic Exchange Plan under which shares of the Fund are automatically exchanged each month for shares of the same class of one or more of the other funds. Registration on all accounts must be identical. The Fund minimum of the new fund must be met in connection with each investment. The two dates each month on which exchanges may be made are the 15th and 28th (or the first business day thereafter if either the 15th or the 28th is not a business day) until the account is exhausted or until Boston Financial is notified in writing to terminate the plan. Exchanges may be made in amounts of $100 or more. The Service Options Form may be used to establish an Automatic Exchange Plan and is available from Boston Financial, your financial representative or by visiting our website at ngam.natixis.com.
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Restrictions on Buying, Selling and Exchanging Shares
As stated in the Funds Prospectus, the Fund and the Distributor reserve the right to reject any purchase or exchange order for any reason. When a purchase or exchange order is rejected, the Fund or the Distributor will send notice to the prospective investor or the investors financial intermediary promptly after receipt of the rejected order.
Broker Trading Privileges
The Distributor may, from time to time, enter into agreements with one or more brokers or other intermediaries to accept purchase and redemption orders for Fund shares until the close of regular trading on the NYSE (normally, 4:00 p.m., Eastern Time on each day that the NYSE is open for trading); such purchase and redemption orders will be deemed to have been received by the Fund when the authorized broker or intermediary accepts such orders; and such orders will be priced using the Funds NAV next computed after the orders are placed with and accepted by such brokers or intermediaries. Any purchase and redemption orders received by a broker or intermediary under these agreements will be transmitted daily to the Fund no later than the time specified in such agreement; but, in any event, no later than market open, Eastern Time, following the day that such purchase or redemption orders are received by the broker or intermediary.
Transcript Requests
Transcripts of account transactions will be provided, free of charge, at the shareholders request.
Self-Servicing Your Account with Natixis Funds Personal Access Line® and Website
Natixis Funds shareholders may access account information, including share balances and recent account activity online, by visiting our website at ngam.natixis.com. Transactions may also be processed online for certain accounts (restrictions may apply). Such transactions include purchases, redemptions and exchanges, and shareholders are automatically eligible for these features. Natixis Funds has taken measures to ensure the security of shareholder accounts, including the encryption of data and the use of personal identification (PIN) numbers. In addition, you may restrict these privileges from your account by calling Natixis Funds at 800-225-5478, or writing to us at P.O. Box 219579, Kansas City, MO 64121-9579. More information regarding these features may be found on our website at ngam.natixis.com.
Investor activities through these mediums are subject to the terms and conditions outlined in the following Natixis Funds Online and Telephonic Customer Agreement. This agreement is also posted on our website. The initiation of any activity through the Natixis Funds Personal Access Line® or website at ngam.natixis.com by an investor shall indicate agreement with the following terms and conditions:
Natixis Funds Online and Telephonic Customer Agreement
NOTE: ACCESSING OR REQUESTING ACCOUNT INFORMATION OR TRANSACTIONS THROUGH THIS SITE CONSTITUTES AND SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE FOLLOWING TERMS AND CONDITIONS.
The accuracy, completeness and timeliness of all mutual fund information provided is the sole responsibility of the mutual fund company that provides the information. No party that provides a connection between this website and a mutual fund or its transfer agency system can verify or ensure the receipt of any information transmitted to or from a mutual fund or its transfer agent, or the acceptance by, or completion of any transaction with, a mutual fund.
The online acknowledgments or other messages that appear on your screen for transactions entered do not mean that the transactions have been received, accepted or rejected by the mutual fund. These acknowledgments are only an indication that the transactional information entered by you has either been transmitted to the mutual fund, or that it cannot be transmitted. It is the responsibility of the mutual fund to confirm to you that it has received the information and accepted or rejected a transaction. It is the responsibility of the mutual fund to deliver to you a current prospectus, confirmation statement and any other documents or information required by applicable law.
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NO TRANSACTION SHALL BE DEEMED ACCEPTED UNTIL YOU RECEIVE A WRITTEN CONFIRMATION FROM THE NATIXIS FUNDS.
You are responsible for reviewing all mutual fund account statements received by you in the mail in order to verify the accuracy of all mutual fund account information provided in the statement and transactions entered through this site. You are also responsible for promptly notifying the mutual fund of any errors or inaccuracies relating to information contained in, or omitted from, your mutual fund account statements, including errors or inaccuracies arising from the transactions conducted through this site.
TRANSACTIONS ARE SUBJECT TO ALL REQUIREMENTS, RESTRICTIONS AND FEES AS SET FORTH IN THE PROSPECTUS OF THE SELECTED FUND.
THE CONDITIONS SET FORTH IN THIS AGREEMENT EXTEND NOT ONLY TO TRANSACTIONS TRANSMITTED VIA THE INTERNET BUT TO TELEPHONIC TRANSACTIONS INITIATED THROUGH THE NATIXIS FUNDS PERSONAL ACCESS LINE®.
You are responsible for the confidentiality and use of your personal identification numbers, account numbers, social security numbers and any other personal information required to access the site or transmit telephonically. Any individual that possesses the information required to pass through all security measures will be presumed to be you. All transactions submitted by an individual presumed to be you will be solely your responsibility.
You agree that Natixis Funds does not have the responsibility to inquire as to the legitimacy or propriety of any instructions received from you or any person believed to be you, and is not responsible or liable for any losses that may occur from acting on such instructions.
Natixis Funds is not responsible for incorrect data received via the internet or telephonically from you or any person believed to be you. Transactions submitted over the internet and telephonically are solely your responsibility and Natixis Funds makes no warranty as to the correctness, completeness or accuracy of any transmission. Similarly, Natixis Funds bears no responsibility for the performance of any computer hardware, software or the performance of any ancillary equipment and services such as telephone lines, modems or internet service providers.
The processing of transactions over this site or telephonically will involve the transmission of personal data including social security numbers, account numbers and personal identification numbers. While Natixis Funds has taken reasonable security precautions including data encryption designed to protect the integrity of data transmitted to and from the areas of our website that relate to the processing of transactions, we disclaim any liability for the interception of such data.
You agree to immediately notify Natixis Funds if any of the following occurs:
1. | You do not receive confirmation of a transaction submitted via the internet or telephonically within five (5) business days. |
2. | You receive confirmation of a transaction of which you have no knowledge and which was not initiated or authorized by you. |
3. | You transmit a transaction for which you do not receive a confirmation number. |
4. | You have reason to believe that others may have gained access to your personal identification number (PIN) or other personal data. |
5. | You notice an unexplained discrepancy in account balances or other changes to your account, including address changes, and banking instructions on any confirmations or statements. |
Any costs incurred in connection with the use of the Natixis Funds Personal Access Line® or the Natixis Funds internet site including telephone line costs and internet service provider costs are solely your responsibility.
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Similarly, Natixis Funds makes no warranties concerning the availability of internet services or network availability. Natixis Funds reserves the right to suspend, terminate or modify the internet capabilities offered to shareholders without notice.
YOU HAVE THE ABILITY TO RESTRICT INTERNET AND TELEPHONIC ACCESS TO YOUR ACCOUNTS BY NOTIFYING NATIXIS FUNDS OF YOUR DESIRE TO DO SO.
Written notifications to Natixis Funds should be sent to:
All account types excluding SIMPLE IRAs:
Natixis Funds
P. O. Box 219579
Kansas City, MO 64121-9579
Notification may also be made by calling 800-225-5478 during normal business hours.
Simple IRA shareholders please use:
Natixis Funds
P. O. Box 8705
Boston, MA 02266-8705
Notification may also be made by calling 800-813-4127 during normal business hours.
The method for determining the public offering price and NAV per share is summarized in the Prospectus.
The total NAV of each class of shares of the Fund (the excess of the assets of such Fund attributable to such class over the liabilities attributable to such class) is determined at the close of regular trading (normally 4:00 p.m., Eastern Time) on each day that the NYSE is open for trading. The Fund will not price its shares on the following holidays: New Years Day, Martin Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Equity securities (including closed-end investment companies and exchange-traded funds), exchange-traded notes, rights and warrants for which market quotations are readily available are valued at market value, as reported by independent pricing services recommended by the Adviser or Subadvisers and approved by the Board. Such independent pricing services generally use the securitys last sale price on the exchange or market where the security is primarily traded or, if there is no reported sale during the day, the closing bid price. Securities traded on the NASDAQ Global Select Market, NASDAQ Global Market and NASDAQ Capital Market are valued at the NASDAQ Official Closing Price (NOCP), or if lacking an NOCP, at the most recent bid quotations on the applicable NASDAQ Market. In some foreign markets, an official close price and a last sales price may be available from the foreign exchange or market. In those cases, the official close price will be used to value equity securities. Debt securities (other than short-term obligations purchased with an original or remaining maturity of sixty days or less) and unlisted equity securities are generally valued on the basis of evaluated bids furnished to the Fund by an independent pricing service recommended by the Adviser or Subadvisers and approved by the Board, which service determines valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Senior loans are priced at bid prices supplied by an independent pricing service, if available. Broker-dealer bid quotations may also be used to value debt and equity securities and senior loans where an independent pricing service does not price a security or where an independent pricing service does not provide a reliable price for the security. Domestic exchange-traded single equity option contracts (including options on exchange-traded funds) are valued at the mean of the National Best Bid and Offer quotations. Options on futures contracts are valued using the current settlement price. Other exchange-traded options (i.e., options on domestic indices, foreign securities, currencies and other financial contracts) are valued at the average of the closing bid and ask quotations. Currency options are priced at the mid price (between the bid price and the ask price) supplied by an independent pricing service, if available. Swaptions are valued based on mid prices (between the bid price and the ask price) supplied by an independent pricing service. Other OTC options contracts (including currency options and swaptions not priced through an independent pricing
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service) are valued based on quotations obtained from broker-dealers. These quotations will be either the bid for a long transaction or the ask for a short transaction. Interest rate swaps are valued based on prices supplied by an independent pricing service, if available, or quotations obtained from broker-dealers. Commodity index total return swaps are valued based on the closing price of the reference asset that is supplied by an independent pricing service, if available, or quotations from a broker-dealer. Futures are valued at the most recent settlement price. Forward foreign currency contracts are valued at interpolated prices determined from information provided by an independent pricing service. Investments in other open-end investment companies are valued at their reported NAV each day. Short-term obligations purchased with an original or a remaining maturity of sixty days or less are valued at amortized cost, which approximates market value. Securities and other instruments for which current market quotations are not readily available and all other assets are valued at fair value as determined in good faith by the Adviser or Subadvisers using consistently applied procedures under the general supervision of the Board.
Generally, trading in foreign government securities and other fixed-income securities, as well as trading in equity securities or other instruments in markets outside the United States, is substantially completed each day at various times prior to the close of the NYSE. Securities or other instruments traded on a foreign exchange will be valued at their market price on the non-U.S. exchange. The value of other securities or other instruments principally traded outside the United States will be computed as of the completion of substantial trading for the day on the markets on which such securities or other instruments principally trade. Securities or other instruments principally traded outside the United States will generally be valued several hours before the close of regular trading on the NYSE, generally 4:00 p.m., Eastern Time, when the Fund computes the NAV of its shares. Occasionally, events affecting the value of securities or other instruments principally traded outside the United States may occur between the completion of substantial trading of such securities or other instruments for the day and the close of the NYSE, which events will not be reflected in the computation of the Funds NAV. If it is determined pursuant to procedures adopted by the Board that events materially affecting the value of the Funds securities or other instruments have occurred during such period, then these securities or other instruments may be fair valued at the time the Fund determines its NAV by or pursuant to procedures adopted by the Board. When fair valuing its securities or other instruments, the Fund may, among other things, use modeling tools or other processes that may take into account factors such as securities or other instruments market activity and/or significant events that occur after the close of the foreign market and before the time the Funds NAV is calculated.
Because of fair value pricing, securities or other instruments may not be priced on the basis of quotations from the primary market in which they are traded but rather may be priced by another method that the Board believes is more likely to result in a price that reflects fair value. The Fund may also value securities or other instruments at fair value or estimate its value pursuant to procedures adopted by the Board in other circumstances such as when extraordinary events occur after the close of the relevant market but prior to the close of the NYSE. This may include situations relating to a single issuer (such as a declaration of bankruptcy or a delisting of the issuers securities or other instruments from the primary market on which it has traded) as well as events affecting the securities markets in general (such as market disruptions or closings and significant fluctuations in U.S. and/or foreign markets).
Trading in some of the portfolio securities or other instruments of the Fund takes place in various markets outside the United States on days and at times other than when the NYSE is open for trading. Therefore, the calculation of this Funds NAV does not take place at the same time as the prices of many of its portfolio securities or other instruments are determined, and the value of this Funds portfolios may change on days when this Fund is not open for business and its shares may not be purchased or redeemed.
The per share NAV of a class of the Funds shares is computed by dividing the number of shares outstanding into the total NAV attributable to such class. The public offering price of a Class A share of the Fund is the NAV per share plus a sales charge as set forth in the Funds Prospectus.
The following special purchase plans are summarized in the Prospectus and are described in greater detail below. Investors should note that in many cases, the broker, and not the Fund, is responsible for ensuring that the investor receives current discounts.
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If you invest in Class A shares through a financial intermediary, it is the responsibility of the financial intermediary to ensure you obtain the proper breakpoint discount. In order to reduce your sales charge, it will be necessary at the time of purchase to inform the Distributor and your financial intermediary, in writing, of the existence of other accounts in which there are holdings eligible to be aggregated to meet sales load breakpoints. If the Distributor is not notified that you are eligible for a reduced sales charge, the Distributor will be unable to ensure that the reduction is applied to the investors account. You may be required to provide certain records and information, such as account statements, with respect to all of your accounts which hold Fund shares, including accounts with other financial intermediaries, and your family members and other related parties accounts, in order to verify your eligibility for the reduced sales charge.
Cumulative Purchase Discount
The Fund shareholder may make an initial or an additional purchase of Class A shares and be entitled to a discount on the sales charge payable on that purchase. This discount will be available if the shareholders total investment in the Fund reaches the breakpoint for a reduced sales charge in the table in the section How Sales Charges Are Calculated Class A Shares in the Prospectus. The total investment is determined by adding the amount of the additional purchase, including sales charges, to the current public offering price of all series and classes of shares of the Natixis Funds held by the shareholder in one or more accounts. If the total investment exceeds the breakpoint, the lower sales charge applies to the entire additional investment even though some portion of that additional investment is below the breakpoint to which a reduced sales charge applies.
Letter of Intent
A Letter of Intent (a Letter), which can be effected at any time, is a privilege available to investors that reduces the sales charge on investments in Class A shares. Ordinarily, reduced sales charges are available for single purchases of Class A shares only when they reach certain breakpoints (e.g., $50,000, $100,000, etc.). By signing a Letter, a shareholder indicates an intention to invest enough money in Class A shares within 13 months to reach a breakpoint. If the shareholders intended aggregate purchases of all series and classes of the Trust and other Natixis Funds over a defined 13-month period will be large enough to qualify for a reduced sales charge, the shareholder may invest the smaller individual amounts at the public offering price calculated using the sales load applicable to the 13-month aggregate investment.
A Letter is a non-binding commitment, the amount of which may be increased, decreased or canceled at any time. The effective date of a Letter is the date it is received in good order by the Funds transfer agency.
Purchases made within 90 days of the establishment of the Letter may be used towards meeting the Letter of Intent. The Rights of Accumulation (ROA) credit is the value of all shares held as of the effective date of the Letter based on the public offering price computed on such date.
The cumulative purchase discount, described above, permits the aggregate value at the current public offering price of Class A shares of any accounts with the Trust held by a shareholder to be added to the dollar amount of the intended investment under a Letter, provided the shareholder lists them on the account application.
The Funds transfer agent will hold in escrow shares with a value at the current public offering price of 5% of the aggregate amount of the intended investment. The amount in escrow will be released when the commitment stated in the Letter is completed. If the shareholder does not purchase shares in the amount indicated in the Letter, the shareholder agrees to remit to the Funds transfer agent the difference between the sales charge actually paid and that which would have been paid had the Letter not been in effect, and authorizes the Funds transfer agent to redeem escrowed shares in the amount necessary to make up the difference in sales charges. Reinvested dividends and distributions are not included in determining whether the Letter has been completed.
Combining Accounts
For purposes of determining the sales charge applicable to a given purchase, a shareholder may elect to combine the purchase and the shareholders total investment (calculated at the current public offering price) in all series and classes of the Natixis Funds with the purchases and total investment of the shareholders spouse, parents, children,
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siblings, grandparents, grandchildren and in-laws of those previously mentioned, single trust estates, individual fiduciary accounts and sole proprietorships or any other group of individuals acceptable to the Distributor. If the combined value of the purchases and total investments exceeds a sales charge breakpoint as disclosed in the Prospectus, the lower sales charge applies to the entire amount of the purchase, even though some portion of that investment is below the breakpoint to which a reduced sales charge applies.
For certain retirement plans, the Distributor may, in its discretion, combine the purchases and total investment of all qualified participants in the same retirement plan for purposes of determining the availability of a reduced sales charge.
Purchases and total investments of individuals may not be combined with purchases and total investments of the retirement plan accounts described in the preceding paragraph for the purpose of determining the availability of a reduced sales charge. Only the purchases and total investments in tax-qualified retirement plans or other employee benefit plans in which the shareholder is the sole participant may be combined with individual accounts for purposes of determining the availability of a reduced sales charge.
Clients of the Adviser
Investment advisory clients of NGAM Advisors and the Adviser may invest in Class Y shares of the Fund below the minimums stated in the Class Y Prospectus. No front-end sales charge or CDSC applies to investments of $25,000 or more in Class A shares of the Fund by (1) clients of the Adviser to any series of the Trust or another Natixis Fund; any director, officer or partner of a client of the Adviser to any series of the Trust or another Natixis Fund; or the spouse, parents, children, siblings, in-laws, grandparents or grandchildren of the foregoing; (2) any individual who is a participant in a Keogh or IRA Plan under a prototype of the Adviser to any series of the Trust or another Natixis Fund if at least one participant in the plan qualifies under category (1) above; and (3) an individual who invests through an IRA and is a participant in an employee benefit plan that is a client of the Adviser to any series of the Trust or another Natixis Fund. Any investor eligible for this arrangement should so indicate in writing at the time of the purchase.
Eligible Governmental Authorities
There is no sales charge or CDSC related to investments in Class A shares by any state, county or city or any instrumentality, department, authority or agency thereof that has determined that the Fund is a legally permissible investment and that is prohibited by applicable investment laws from paying a sales charge or commission in connection with the purchase of shares of any registered investment company.
Investment Advisory Accounts
Class A shares of the Fund may be purchased at NAV by investment advisers, financial planners or other intermediaries who place trades for their own accounts or the accounts of their clients and who charge a management, consulting or other fee for their services; clients of such investment advisers, financial planners or other intermediaries who place trades for their own accounts if the accounts are linked to the master account of such investment adviser, financial planner or other intermediary on the books and records of the broker or agent; and retirement and deferred compensation plans and trusts used to fund those plans, including, but not limited to, those defined in Sections 401(a), 403(b), 401(k) and 457 of the Code and rabbi trusts. Investors may be charged a fee if they effect transactions through a broker or agent.
Certain Broker-Dealers and Financial Services Organizations
Class A shares of the Fund also may be purchased at NAV through certain broker-dealers or financial services organizations without any transaction fee. Such organizations may also receive compensation paid by NGAM Advisors, or its affiliates out of their own assets (as described in the section Distribution Agreements and Rule 12b-1 Plans), or be paid indirectly by the Fund in the form of servicing, distribution or transfer agent fees.
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Certain Retirement Plans
Class A shares of the Fund are available at NAV for investments by participants in certain employer-sponsored retirement plans. The availability of this pricing may depend upon the policies and procedures of your specific intermediary; consult your financial adviser.
Bank Trust Departments or Trust Companies
Class A shares of the Fund are available at NAV for investments by non-discretionary and non-retirement accounts of bank trust departments or trust companies, but are unavailable if the trust department or institution is part of an organization not principally engaged in banking or trust activities.
The reduction or elimination of the sales charges in connection with special purchase plans described above reflects the absence or reduction of expenses associated with such sales.
As described in the Prospectus, it is the policy of the Fund to pay shareholders at least annually according to the schedule specified in the Funds Prospectus, as dividends, all or substantially all of its net investment income and to distribute annually all or substantially all of its net realized long-term capital gains, if any, after offsetting any capital loss carryovers.
Ordinary income dividends and capital gain distributions are reinvested based upon the NAV determined as of the close of the NYSE on the ex-dividend date for each dividend or distribution. Shareholders, however, may elect to receive their ordinary income dividends or capital gain distributions, or both, in cash. The election may be made at any time by submitting a written request directly to Natixis Funds, contacting Natixis Funds at 1-800-225-5478 or visiting ngam.natixis.com to change your distribution option. In order for a change to be in effect for any dividend or distribution, it must be received by the Fund on or before the record date for such dividend or distribution.
If you elect to receive your dividends in cash and the dividend checks sent to you are returned as undeliverable to the Fund, your cash election will automatically be changed and your future dividends will be reinvested. No interest will accrue on amounts represented by uncashed dividend or redemption checks.
As required by federal law, federal tax information regarding Fund distributions will be furnished to each shareholder for each calendar year early in the succeeding year.
The following discussion of U.S. federal income tax consequences of investment in the Fund is based on the Code, U.S. Treasury regulations, and other applicable authorities, all as of the date of this Statement. These authorities are subject to change by legislative or administrative action, possibly with retroactive effect. The following discussion is only a summary of some of the important U.S. federal tax considerations generally applicable to investments in the Fund. There may be other tax considerations applicable to particular shareholders. Shareholders should consult their own tax advisers regarding their particular situations and the possible application of foreign, state and local tax laws.
Taxation of the Fund
The Fund has elected and intends to qualify each year for the special tax treatment accorded to RICs under Subchapter M of the Code. In order to so qualify, the Fund must, among other things: (i) derive at least 90% of its gross income in each taxable year from (a) dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies, and (b) net income derived from interests in qualified publicly traded partnerships (QPTPs, defined below); (ii) diversify its holdings so that at the end of each quarter of the Funds taxable year (a) at least 50% of the market value of the Funds total assets consists of cash and cash items, U.S. government
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securities, securities of other RICs, and other securities limited generally, with respect to any one issuer, to no more than 5% of the value of the Funds total assets and 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of the Funds total assets is invested (1) in the securities (other than those of the U.S. government or other RICs) of any one issuer or of two or more issuers that the Fund controls and that are engaged in the same, similar or related trades or businesses, or (2) in the securities of one or more QPTPs; and (iii) distribute with respect to each taxable year at least 90% of the sum of its investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paid generally taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses, in each case determined with reference to any capital loss carryforwards) and net tax-exempt interest income, if any, for such year.
In general, for purposes of the 90% gross income requirement described in (i) above, income derived by the Fund from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership that would be qualifying income if realized by the Fund. However, 100% of the net income derived from an interest in a QPTP (a partnership (a) interests in which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof, and (b) that derives less than 90% of its income from the qualifying income described in (i)(a) above) will be treated as qualifying income. In general, such entities will be treated as partnerships for federal income tax purposes because they meet the passive income requirement under Code section 7704(c)(2). In addition, although in general the passive loss rules of the Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to an interest in a QPTP.
For purposes of the diversification requirements set forth in (ii) above, the term outstanding voting securities of an issuer includes the equity securities of a QPTP. Also for purposes of the diversification requirements in (ii) above, identification of the issuer (or, in some cases, issuers) of the Fund investment can depend on the terms and conditions of that investment. In some cases, identification of the issuer (or issuers) is uncertain under current law, and an adverse determination or future guidance by the IRS with respect to identification of the issuer for a particular type of investment may adversely affect the Funds ability to satisfy the diversification requirements.
Assuming that it qualifies for treatment as a RIC, the Fund will not be subject to federal income tax on income that is distributed to its shareholders in a timely manner in the form of dividends (including Capital Gain Dividends, defined below). If the Fund were to fail to satisfy the income, diversification or distribution requirements described above, the Fund could in some cases cure such failure, including by paying a fund-level tax, paying interest, making additional distributions or disposing of certain assets. If the Fund were ineligible to or did not cure such a failure for any year, or if the Fund otherwise were to fail to qualify as a RIC accorded special tax treatment, the Fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net long-term capital gains, would be taxable to shareholders as ordinary income. Some portions of such distributions may be eligible for the dividends-received deduction in the case of corporate shareholders and may be eligible to be treated as qualified dividend income in the case of shareholders taxed as individuals, provided in both cases that the shareholder meets certain holding period and other requirements in respect of the Funds shares (as described below). In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying for the special tax treatment accorded to RICs under the Code.
The Fund intends to distribute at least annually to its shareholders all or substantially all of its investment company taxable income (computed without regard to the dividends-paid deduction). If the Fund retains any investment company taxable income, it will be subject to tax at regular corporate rates on the amount retained. The Fund also intends to distribute annually all or substantially all of its net capital gain and to make appropriate Capital Gain Dividend (as defined below) designations. If the Fund retains any net capital gain, it will be subject to tax at regular corporate rates on the amount retained, but may designate the retained amount as undistributed capital gains in a timely notice to its shareholders who then in turn (i) will be required to include in income for federal income tax purposes, as long-term capital gains, their respective shares of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the tax paid by the Fund on such undistributed amount against their federal income tax liabilities, if any, and to claim refunds on properly-filed U.S. federal income tax returns to the extent the credit exceeds such liabilities. In this event, for federal income tax purposes, the tax basis of shares owned by a shareholder of the Fund will be increased by an amount equal to the difference between the amount of undistributed capital gains included in the shareholders gross income under clause (i) of the preceding sentence and the tax
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deemed paid by the shareholder under clause (ii) of the preceding sentence. The Fund is not required to, and there can be no assurance that the Fund will, make this designation if it retains all or a portion of its net capital gain in a taxable year.
In determining its net capital gain, including in connection with determining the amount available to support a Capital Gain Dividend, its taxable income and its earnings and profits, a RIC may elect to treat any post-October capital loss (defined as the greatest of net capital loss, net long-term capital loss, or net short-term capital loss, in each case attributable to the portion of the taxable year after October 31 (or a later date if the Fund is eligible to elect and so elects)) and certain late-year ordinary losses (generally, (i) net ordinary losses from the sale, exchange or other taxable disposition of property attributable to the portion of the taxable year after October 31 (or a later date if the Fund makes the election referred to above), plus (ii) other net ordinary losses attributable to the portion of the taxable year, if any, after December 31) as if incurred in the succeeding taxable year.
Capital losses in excess of capital gains (net capital losses) are not permitted to be deducted against the Funds net investment income. Instead, potentially subject to certain limitations, the Fund may carry net capital losses from any taxable year forward to offset capital gains in future years, thereby reducing the amount the Fund would otherwise be required to distribute in such future years to qualify for the special tax treatment accorded RICs and avoid a fund-level tax. The Fund may carry net capital losses forward to one or more subsequent taxable years without expiration. The Fund must apply such carryforwards first against gains of the same character. The Funds available capital loss carryovers (if any) will be set forth in its annual shareholder report for each fiscal year.
If the Fund fails to distribute in a calendar year at least an amount equal to the sum of 98% of its ordinary income for such year and 98.2% of its capital gain net income for the one-year period ending October 31 of such year (or a later date, if the Fund makes the election referred to in the second preceding paragraph) plus any retained amount from the prior year, the Fund will be subject to a nondeductible 4% excise tax on the undistributed amounts. For purposes of the required excise tax distribution, ordinary gains and losses from the sale, exchange or other taxable disposition of property that would be taken into account after October 31 (or a later date, if the Fund makes the election referred to above) are treated as arising on January 1 of the following calendar year. Also for purposes of the excise tax, the Fund will be treated as having distributed any amount on which it has been subject to corporate income tax in the taxable year ending within the calendar year. The Fund generally intends to make distributions sufficient to avoid imposition of the 4% excise tax, although there can be no assurance that it will be able to do so.
Taxation of Fund Distributions
Distributions of investment income are generally taxable as ordinary income to the extent of the Funds earnings and profits. Taxes on distributions of capital gains are determined by how long the Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares. In general, the Fund will recognize long-term capital gain or loss on assets it has owned (or is deemed to have owned) for more than one year, and short-term capital gain or loss on investments it has owned (or is deemed to have owned) for one year or less. Distributions of net capital gain (that is, the excess of net long-term capital gains over net short-term capital losses, in each case with reference to any capital loss carryforwards) that are properly reported by the Fund as capital gain dividends (Capital Gain Dividends) will generally be taxable to a shareholder receiving such distributions as long-term capital gain includible in net capital gain and taxed to individuals at reduced rates. Distributions of the excess of net short-term capital gain over net long-term capital loss will generally be taxable to a shareholder receiving such distributions as ordinary income. Distributions from capital gains are generally made after applying any available capital loss carryforwards.
Fund distributions are taxable to shareholders as described herein even if they are paid from income or gains earned by the Fund before a shareholders investment (and thus were included in the price the shareholder paid for his or her shares). Distributions are taxable whether shareholders receive them in cash or in additional shares.
Distributions declared and payable by the Fund during October, November or December to shareholders of record on a date in any such month and paid by the Fund during the following January generally will be treated for federal income tax purposes as paid by the Fund and received by shareholders on December 31 of the year in which distributions are declared rather than the calendar year in which they are received.
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Qualified dividend income received by an individual will be taxed at the reduced rates applicable to long-term capital gain. In order for some portion of the dividends received by the Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Funds shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the U.S. (with the exception of dividends paid on stock of such a foreign corporation that is readily tradable on an established securities market in the U.S.) or (b) treated as a PFIC (as defined below). Income derived from investments in derivatives, fixed-income securities and REITs generally is not eligible for treatment as qualified dividend income.
In general, distributions of investment income properly reported by the Fund as derived from qualified dividend income will be treated as qualified dividend income in the hands of a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to the Funds shares.
If the aggregate qualified dividends received by the Fund during a taxable year are 95% or more of its gross income (excluding net long-term capital gain over net short-term capital loss), then 100% of the Funds dividends (other than dividends properly reported as Capital Gain Dividends) are eligible to be treated as qualified dividend income.
Dividends of net investment income received by corporate shareholders of the Fund will generally qualify for the 70% dividends-received deduction available to corporations to the extent they are properly reported as being attributable to the amount of eligible dividends received by the Fund from domestic corporations for the taxable year. A dividend received by the Fund will not be treated as an eligible dividend (1) if it has been received with respect to any share of stock that the Fund has held for less than 46 days during the 91-day period beginning on the date which is 45 days before the date on which such share becomes ex-dividend with respect to such dividend (less than 91 days during the 181-day period beginning 90 days before such date in the case of certain preferred stock) or (2) to the extent that the Fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Moreover, the dividends-received deduction may be disallowed or reduced (1) if the corporate shareholder fails to satisfy the foregoing requirements with respect to its shares of the Fund or (2) otherwise by application of the Code (for example, the dividends-received deduction is reduced in the case of a dividend received on debt-financed portfolio stock generally stock acquired with borrowed funds).
Any distribution of income that is attributable to (i) income received by the Fund in lieu of dividends with respect to securities on loan pursuant to a securities lending transaction or (ii) dividend income received by the Fund on securities it temporarily purchased from a counterparty pursuant to a repurchase agreement that, for federal tax purposes, is treated as a loan by the Fund, will generally not constitute qualified dividend income to individual shareholders or be eligible for the dividends-received deduction for corporate shareholders.
Section 1411 of the Code generally imposes a 3.8% tax on the net investment income of certain individuals whose income exceeds certain threshold amounts, and of certain trusts and estates under similar rules. The details of the implementation of this tax and of the calculation of net investment income, among other issues, are currently unclear and remain subject to future guidance. For these purposes, net investment income generally includes, among other things, (i) distributions paid by the Fund of net investment income, other than exempt-interest dividends, and capital gains as described above, and (ii) any net gain from the sale, exchange or other taxable disposition of Fund shares. Shareholders are advised to consult their tax advisers regarding the possible implications of this additional tax on their investment in the Fund.
If the Fund makes a distribution in excess of its current and accumulated earnings and profits in any taxable year, the excess distribution will be treated as a return of capital to the extent of a shareholders tax basis in his or her
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shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces a shareholders basis in his or her shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by the shareholder of such shares.
Sale, Exchange or Redemption of Shares
A sale, exchange or redemption of Fund shares will generally give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise, the gain or loss on the taxable disposition of Fund shares will generally be treated as short-term capital gain or loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any Capital Gain Dividends received (or deemed received) by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed under the Codes wash sale rules if other substantially identical shares of the Fund are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Upon the redemption or exchange of Fund shares, the Fund or, in the case of shares purchased through a financial intermediary, the financial intermediary may be required to provide you and the IRS with cost basis and certain other related tax information about the Fund shares you redeemed or exchanged. See the Funds Prospectus for more information.
Foreign Taxation
Income received by the Fund from investments in securities of foreign issuers may be subject to foreign withholding and other taxes. This will decrease the Funds yield on securities subject to such taxes. Tax treaties between certain countries and the U.S. may reduce or eliminate such taxes. The Fund generally does not expect that shareholders will be entitled to claim a credit or deduction with respect to such foreign taxes incurred by the Fund.
Tax Implications of Certain Fund Investments
Options, Futures, Forward Contracts, Swap Agreements and Hedging Transactions. The tax treatment of certain futures contracts that may be entered into by the Fund as well as listed non-equity options that may be written or purchased by the Fund on U.S. exchanges (including options on futures contracts, broad-based equity indices and debt securities) will be governed by Section 1256 of the Code (Section 1256 Contracts). Gains or losses on Section 1256 Contracts generally are considered 60% long-term and 40% short-term capital gains or losses (60/40 gains or losses) although certain foreign currency gains and losses from such contracts may be treated as ordinary in character, as described below. Also, any Section 1256 Contracts held by the Fund at the end of each taxable year (and, for purposes of the 4% excise tax, on certain other dates as prescribed under the Code) are marked to market with the result that unrealized gains or losses are treated as though they were realized and the resulting gain or loss is treated as 60/40 or ordinary gain or loss, as applicable.
The Funds investments in futures contracts, forward contracts, options, straddles, swap agreements, and options on swaps and foreign currencies, derivatives, as well as any of its other hedging, short sale, or similar transactions, may be subject to one or more special tax rules (including the mark-to-market, constructive sale, notional principal contract, straddle, wash sale and short sale rules). These rules may affect whether gains and losses recognized by the Fund are treated as ordinary or capital or as short-term or long-term, accelerate the recognition of income to the Fund, defer losses to the Fund, or cause adjustments in the holding periods of the Funds securities. These rules, therefore, could affect the amount, timing and/or character of distributions to shareholders. Moreover, because the tax rules applicable to these types of transactions are in some cases uncertain under current law, an adverse determination or future guidance by the IRS with respect to these rules (which determination or guidance could be retroactive) may affect whether the Fund has made sufficient distributions, and otherwise satisfied the relevant requirements, to maintain its qualification as a RIC and avoid a fund-level tax.
In general, option premiums received by the Fund are not immediately included in the income of the Fund. Instead, the premiums are recognized when the option contract expires, the option is exercised by the holder, or the Fund transfers or otherwise terminates the option (e.g., through a closing transaction). If a call option written by the Fund
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is exercised and the Fund sells or delivers the underlying stock, the Fund generally will recognize capital gain or loss equal to (a) the sum of the strike price and the option premium received by the Fund minus (b) the Funds basis in the stock. Such gain or loss generally will be short-term or long-term depending upon the holding period of the underlying stock. If securities are purchased by the Fund pursuant to the exercise of a put option written by it, the Fund generally will subtract the premium received for purposes of computing its cost basis in the securities purchased. Gain or loss arising in respect of a termination of the Funds obligation under an option other than through the exercise of the option and related sale or delivery of the underlying stock will be short-term gain or loss depending on whether the premium income received by the Fund is greater or less than the amount paid by the Fund (if any) in terminating the transaction. Thus, for example, if an option written by the Fund expires unexercised, the Fund generally will recognize short-term gain equal to the premium received.
Certain covered call writing activities of the Fund may trigger the U.S. federal income tax straddle rules of Section 1092 of the Code, requiring that losses be deferred and holding periods be tolled on offsetting positions in options and stocks deemed to constitute substantially similar or related property. Options on single stocks that are not deep in the money may give rise to qualified covered calls, which generally are not subject to the straddle rules; the holding period on stock underlying qualified covered calls that are in the money although not deep in the money will be suspended during the period that such calls are outstanding. Thus, the straddle rules and the rules governing qualified covered calls could cause gains that would otherwise constitute long-term capital gains to be treated as short-term capital gains, and distributions that would otherwise constitute qualified dividend income or qualify for the dividends-received deduction to fail to satisfy the holding period requirements and therefore to be taxed as ordinary income or to fail to qualify for the 70% dividends-received deduction, as the case may be.
The Funds investments in certain derivatives and foreign currency-denominated instruments, and the Funds transactions in foreign currencies and hedging activities, may produce a difference between its book income and the sum of its taxable income and net tax-exempt income (if any). If the Funds book income is less than the sum of its taxable income and net tax-exempt income (if any), the Fund could be required to make distributions exceeding book income to qualify as a RIC that is accorded special tax treatment and avoid a fund-level tax. If the Funds book income exceeds the sum of its taxable income, including net realized capital gains, and net tax-exempt income (if any), the distribution (if any) of such excess will be treated as (i) a dividend to the extent of the Funds remaining earnings and profits (including earnings and profits arising from tax-exempt income, if any), (ii) thereafter, as a return of capital to the extent of the recipients basis in the shares, and (iii) thereafter, as gain from the sale or exchange of a capital asset.
Foreign Currency Transactions. Gain or loss on foreign currency denominated debt securities and on certain other financial instruments, such as forward currency contracts and currency swaps, that is attributable to fluctuations in exchange rates occurring between the date of acquisition and the date of settlement or disposition of such securities or instruments may be treated under Section 988 of the Code as ordinary income or loss. The Fund may elect out of the application of Section 988 of the Code with respect to the tax treatment of each of its foreign currency forward contracts to the extent that (i) such contract is a capital asset in the hands of the Fund and is not part of a straddle transaction and (ii) the Fund makes an election by the close of the day the contract is entered into to treat the gain or loss attributable to such contract as capital gain or loss.
The Funds forward contracts may qualify as Section 1256 contracts under the Code if the underlying currencies are currencies for which there are futures contracts that are traded on and subject to the rules of a qualified board or exchange. However, a forward currency contract that is a Section 1256 contract would, absent an election out of Section 988 of the Code as described in the preceding paragraph, be subject to Section 988. Accordingly, although such a forward currency contract would be marked-to-market annually like other Section 1256 contracts, the resulting gain or loss would be ordinary. If the Fund were to elect out of Section 988 with respect to forward currency contracts that qualify as Section 1256 contracts, the tax treatment generally applicable to Section 1256 contracts, as described above, would apply to those forward currency contracts: that is, the contracts would be marked-to-market annually and gains and losses with respect to the contracts would be treated as 60/40 gain or loss. If the Fund were to elect out of Section 988 with respect to any of its forward currency contracts that do not qualify as Section 1256 contracts, such contracts will not be marked to market annually and the Fund will recognize short-term or long-term capital gain or loss depending on the Funds holding period therein. The Fund may elect out of Section 988 with respect to all, some or none of its forward currency contracts.
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Investments in Other RICs. If the Fund receives dividends from another investment company that qualifies as a RIC, and the investment company reports such dividends as qualified dividend income, then the Fund is permitted in turn to report a portion of its distributions as qualified dividend income, provided the Fund meets holding period and other requirements with respect to shares of the investment company.
If the Fund receives dividends from another investment company that qualifies as a RIC and the investment company reports such dividends as eligible for the dividends-received deduction, then the Fund is permitted in turn to report its distributions derived from those dividends as eligible for the dividends-received deduction as well, provided the Fund meets holding period and other requirements with respect to shares of the investment company.
Partnerships and other pass-through structures. To the extent the Fund invests in entities that are treated as partnerships (other than QPTPs, as defined above), trusts, or other pass-through structures for U.S. federal income tax purposes, all or a portion of any income and gains from such entities could constitute non-qualifying income to the Fund for purposes of the 90% gross income requirement described above. For example, income that the Fund derives from indirect investments, through such entities, in certain commodity-linked instruments generally will not or may not be considered qualifying income for the purposes of the 90% gross income requirement. In such cases, the Funds investments in such entities could be limited by its intention to qualify as a RIC, and could bear on its ability to so qualify. Income from such entities may be allocated to the Fund on a gross, rather than net, basis, for purposes of the 90% gross income requirement.
Investments in Exchange-Traded Notes. The timing and character of income or gains arising from exchange-traded notes can be uncertain. An adverse determination or future guidance by the IRS (which determination or guidance could be retroactive) may affect the funds ability to qualify for treatment as a RIC and to avoid a fund-level tax.
Certain Investments in REITs, REMICs and TMPs. The Fund may invest in REITs. An investment by the Fund in REIT equity securities may result in the Fund receiving cash in excess of the REITs earnings; if the Fund distributes these amounts, such distributions could constitute a return of capital to Fund shareholders for federal income tax purposes. Investments in REIT equity securities may require the Fund to accrue and distribute income not yet received. To generate sufficient cash to make the required distributions, the Fund may be required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would have continued to hold. Dividends received by the Fund from a REIT will not qualify for the corporate dividends-received deduction and generally will not constitute qualified dividend income.
The Fund may invest directly or indirectly (including through a REIT) in residual interests in real estate mortgage investment conduits (REMICs) (including by investing in residual interests in CMOs with respect to which an election to be treated as a REMIC is in effect) or equity interests in taxable mortgage pools (TMPs). Under a notice issued by the IRS in October 2006 and Treasury regulations that have yet to be issued but may apply retroactively, a portion of the Funds income (including income allocated to the Fund from a REIT or other pass-through entity) that is attributable to a residual interest in a REMIC or an equity interest in a TMP (referred to in the Code as an excess inclusion) will be subject to federal income tax in all events. This notice also provides, and the regulations are expected to provide, that excess inclusion income of a RIC will generally be allocated to shareholders of the RIC in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related interest directly. As a result, to the extent the Fund invests in such interests, it may not be a suitable investment for charitable remainder trusts (CRTs), as noted below.
In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income (UBTI) to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on UBTI, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on such income and (iii) in the case of a non-U.S. shareholder, will not qualify for any reduction in U.S. federal withholding tax. See Tax-Exempt Shareholders below for a discussion of the special tax consequences that may result where a tax-exempt entity invests in a RIC that recognizes excess inclusion income. The Fund does not intend to invest in REITs in which a substantial portion of the assets will consist of residual interests in REMICs or equity interests in TMPs.
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Special Rules for Debt Obligations. Some debt obligations with a fixed maturity date of more than one year from the date of issuance (and zero-coupon debt obligations with a fixed maturity date of more than one year from the date of issuance) will be treated as debt obligations that are issued originally at a discount. Generally, the amount of the OID is treated as interest income and is included in the Funds income (and required to be distributed by the Fund) over the term of the debt security, even though payment of that amount is not received until a later time, upon partial or full repayment or disposition of the debt security. In addition, payment-in-kind securities will give rise to income which is required to be distributed and is taxable even though the Fund holding the security receives no interest payment in cash on the security during the year.
Some debt obligations with a fixed maturity date of more than one year from the date of issuance that are acquired by the Fund in the secondary market may be treated as having market discount. Very generally, market discount is the excess of the stated redemption price of a debt obligation (or in the case of an obligation issued with OID, its revised issue price) over the purchase price of such obligation. Generally, any gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the accrued market discount on such debt security. Alternatively, the Fund may elect to accrue market discount currently, in which case the Fund will be required to include the accrued market discount in the Funds income (as ordinary income) and thus distribute it over the term of the debt security, even though payment of that amount is not received until a later time, upon partial or full repayment or disposition of the debt security. The rate at which the market discount accrues, and thus is included in the Funds income, will depend upon which of the permitted accrual methods the Fund elects.
Some debt obligations with a fixed maturity date of one year or less from the date of issuance may be treated as having OID or, in certain cases, acquisition discount (very generally, the excess of the stated redemption price over the purchase price). The Fund will be required to include the OID or acquisition discount in income (as ordinary income) and thus distribute it over the term of the debt security, even though payment of that amount is not received until a later time, upon partial or full repayment or disposition of the debt security. The rate at which OID or acquisition discount accrues, and thus is included in the Funds income, will depend upon which of the permitted accrual methods the Fund elects.
If the Fund holds the foregoing kinds of securities, it may be required to pay out as an income distribution each year an amount which is greater than the total amount of cash interest the Fund actually received. Such distributions may be made from the cash assets of the Fund or, if necessary, by disposition of portfolio securities including at a time when it may not be advantageous to do so. These dispositions may cause the Fund to realize higher amounts of short-term capital gains (generally taxed to shareholders at ordinary income tax rates) and, in the event the Fund realizes net capital gains from such transactions, its shareholders may receive a larger Capital Gain Dividend than if the Fund had not held such securities.
Certain High-Yield Discount Obligations. A portion of the interest paid or accrued on certain high-yield discount obligations in which the Fund may invest may be treated as a dividend for purposes of the corporate dividends-received deduction. In such cases, if the issuer of the high-yield discount obligations is a domestic corporation, dividend payments by the Fund to corporate shareholders may be eligible for the dividends-received deduction to the extent of the deemed dividend portion of such accrued interest.
Securities Purchased at a Premium. Very generally, where the Fund purchases a bond at a price that exceeds the redemption price at maturity that is, at a premium the premium is amortizable over the remaining term of the bond. In the case of a taxable bond, if the Fund makes an election applicable to all such bonds it purchases, which election is irrevocable without consent of the IRS, the Fund reduces the current taxable income from the bond by the amortized premium and reduces its tax basis in the bond by the amount of such offset; upon the disposition or maturity of such bonds, the Fund is permitted to deduct any remaining premium allocable to a prior period. In the case of a tax-exempt bond, tax rules require the Fund to reduce its tax basis by the amount of amortized premium.
Higher-Risk Securities. The Fund may invest in below investment-grade fixed-income securities, including debt obligations of issuers not currently paying interest or that are in default. Investments in debt obligations that are at risk of, or in default, present special tax issues for the Fund. Tax rules are not entirely clear about issues such as whether and to what extent the Fund should recognize market discount on such a debt obligation, when the Fund may cease to accrue interest, original issue discount or market discount, when and to what extent the Fund may take
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deductions for bad debts or worthless securities and how the Fund should allocate payments received on obligations in default between principal and income. These and other related issues will be addressed by the Fund when, as and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a RIC and does not become subject to U.S. federal income or excise tax.
Passive Foreign Investment Companies. An equity investment by the Fund in certain passive foreign investment companies (PFICs) could potentially subject the Fund to U.S. federal income tax (including interest charges) on distributions received from the PFIC or on proceeds received from a disposition of shares in the PFIC. This tax cannot be eliminated by making distributions to Fund shareholders. However, the Fund may make certain elections to avoid the imposition of that tax. For example, the Fund may elect to mark the gains (and to a limited extent losses) in its holdings in a PFIC to the market as though the Fund had sold and repurchased its holdings in the PFIC on the last day of the Funds taxable year. Such gains and losses are treated as ordinary income and loss. The Fund also may in certain cases elect to treat a PFIC as a qualified electing fund (i.e., make a QEF election), in which case the Fund will be required to include in its income annually its share of the PFICs income and net capital gains, regardless of whether it receives any distribution from the PFIC.
The mark-to-market and QEF elections may accelerate the recognition of income (without the receipt of cash) and increase the amount required to be distributed by the Fund to avoid taxation. Making either of these elections therefore may require the Fund to liquidate investments (including when it is not advantageous to do so) to meet its distribution requirements, which also may accelerate the recognition of gain and affect the Funds total return. Because it is not always possible to identify a foreign corporation as a PFIC, the Fund may incur the tax and interest charges described above in some instances. Dividends paid by PFICs generally will not be eligible to be treated as qualified dividend income.
Tax-Exempt Shareholders
Income of a RIC that would be UBTI if earned directly by a tax-exempt entity will not generally be attributed as UBTI to a tax-exempt shareholder of that RIC. Notwithstanding this blocking effect, a tax-exempt shareholder may realize UBTI by virtue of its investments in the Fund if shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Code Section 514(b).
A tax-exempt shareholder may also recognize UBTI if the Fund recognizes excess inclusion income derived from direct or indirect investments in residual interests in REMICs or equity interests in TMPs, as described above, if the amount of such income recognized by the Fund exceeds the Funds investment company taxable income (after taking into account deductions for dividends paid by the Fund). Furthermore, any investment in residual interests of a CMO that has elected to be treated as a REMIC can create complex tax consequences, especially if the Fund has state or local governments or other tax-exempt organizations as shareholders.
In addition, special tax consequences apply when CRTs invest in RICs that invest directly or indirectly in residual interests in REMICs or equity interests in TMPs. Under legislation enacted in December 2006, if a CRT (defined in Section 664 of the Code) realizes any UBTI for a taxable year, a 100% excise tax is imposed on such UBTI. Under IRS guidance issued in October 2006, a CRT will not recognize UBTI as a result of investing in a fund that recognizes excess inclusion income. Rather, if at any time during any taxable year a CRT (or one of certain other tax-exempt shareholders, such as the United States, a state or political subdivision, or an agency or instrumentality thereof, and certain energy cooperatives) is a record holder of a share in a fund that recognizes excess inclusion income, then the fund will be subject to a tax on the portion of its excess inclusion income for the taxable year that is allocable to such shareholders at the highest federal corporate income tax rate. To the extent permitted under the 1940 Act, the Fund may elect to specially allocate any such tax to the applicable CRT (or other shareholder), and thus reduce such shareholders distributions for the year by the amount of the tax that relates to such shareholders interest in the Fund. The extent to which this IRS guidance remains applicable in light of the December 2006 legislation is unclear. CRTs and other tax-exempt investors are urged to consult their tax advisers concerning the consequences of investing in the Fund.
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Backup Withholding
The Fund generally is required to withhold and remit to the U.S. Treasury a percentage of the taxable distributions and redemption proceeds paid to any individual shareholder who fails to properly furnish the Fund with a correct taxpayer identification number (TIN), who has under-reported dividend or interest income, or who fails to certify to the Fund that he or she is not subject to such withholding. The backup withholding rules may also apply to distributions that are properly reported as exempt-interest dividends. The backup withholding tax rate is currently 28%.
Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholders U.S. federal income tax liability, provided the appropriate information is furnished to the IRS.
Non-U.S. Shareholders
Capital Gain Dividends generally will not be subject to withholding of U.S. federal income tax. Absent a specific statutory exemption, dividends other than Capital Gain Dividends paid by the Fund to a shareholder that is not a United States person within the meaning of the Code (a Foreign Person) generally are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a Foreign Person directly, would not be subject to withholding.
Effective for taxable years of the Fund beginning before January 1, 2014, in general and subject to certain limitations, the Fund is not required to withhold any amounts (i) with respect to distributions attributable to U.S. source interest income of types similar to those that would not be subject to U.S. federal income tax if earned directly by an individual Foreign Person, to the extent such distributions are properly reported by the Fund as interest-related dividends, and (ii) with respect to distributions of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly reported by the Fund as short-term capital gain dividends. It is currently unclear whether Congress will extend these exemptions for distributions with respect to taxable years of a RIC beginning on or after January 1, 2014, or what the terms of such an extension would be. The Fund is permitted to choose not to report potentially eligible distributions as interest-related or short-term capital gain dividends and/or treat such dividends, in whole or in part, as ineligible for these exemptions from withholding.
In the case of shares held through an intermediary, the intermediary may withhold even if the Fund reports all or a portion of a payment as an interest-related or short-term capital gain dividend to shareholders. Foreign Persons should contact their intermediaries regarding the application of these rules to their accounts.
If a beneficial holder of Fund shares who or which is a Foreign Person has a trade or business in the United States, and Fund dividends received by such holder are effectively connected with the conduct of such trade or business, the dividends will be subject to U.S. federal net income taxation at regular income tax rates.
A beneficial holder of Fund shares who or which is a Foreign Person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on a sale or redemption of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale, redemption or Capital Gain Dividend, and certain other conditions are met, or (iii) the special rules relating to gain attributable to the sale or exchange of U.S. real property interests (USRPIs) apply to the Foreign Persons sale of shares of the Fund or to the Capital Gain Dividend the Foreign Person received (as described below).
Special rules would apply if the Fund were either a U.S. real property holding corporation (USRPHC) or would be a USRPHC but for the operation of certain exceptions to the definition thereof. Very generally, a USRPHC is a domestic corporation that holds USRPIs the fair market value of which equals or exceeds 50% of the sum of the fair market values of the corporations USRPIs, interests in real property located outside the United States, and other
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trade or business assets. USRPIs are generally defined as any interest in U.S. real property and any interest (other than solely as a creditor) in a USRPHC or, very generally, an entity that has been a USRPHC in the last five years.
If the Fund were a USRPHC or would be a USRPHC but for the exceptions referred to above, under a special look-through rule, any distributions by the Fund to a Foreign Person (including, in certain cases, distributions made by the Fund in redemption of its shares) attributable to gains realized by the Fund on the disposition of USRPIs or to distributions received by the Fund from a lower-tier RIC or REIT that the Fund is required to treat as USRPI gain in its hands, generally would be subject to U.S. tax withholding. In addition, such distributions could result in the Foreign Person being required to file a U.S. tax return and pay tax on the distributions at regular U.S. federal income tax rates. The consequences to a Foreign Person, including the rate of such withholding and character of such distributions (e.g., as ordinary income or USRPI gain), would vary depending upon the extent of the Foreign Persons current and past ownership of the Fund. On and after January 1, 2014, the special look-through rule described above for distributions by the Fund (which treatment applies only if the Fund is either a USRPHC or would be a USRPHC but for the operation of the exceptions referred to above) applies only to those distributions that, in turn, are attributable directly or indirectly to distributions received by the Fund from a lower-tier REIT, unless Congress enacts legislation providing otherwise.
In addition, if the Fund were a USRPHC or, very generally, had been one in the last five years, it would be required to withhold U.S. tax on the proceeds of a share redemption by a greater-than-5% shareholder that is a Foreign Person, in which case such Foreign Person generally would also be required to file U.S. tax returns and pay any additional taxes due in connection with the redemption. Prior to January 1, 2014, no withholding is generally required with respect to amounts paid in redemption of shares of the Fund if the Fund is a USRPHC that is considered to be domestically controlled or, in certain limited cases, if the Fund (whether or not domestically controlled) holds substantial investments in RICs that are domestically controlled USRPHCs. This exemption from withholding for redemptions will expire for redemptions made on or after January 1, 2014, unless Congress enacts legislation providing otherwise.
The Fund generally does not expect that it will be a USRPHC or would be a USRPHC but for the operation of certain of the special exceptions referred to above.
Foreign Persons should consult their tax advisers concerning the tax consequences of ownership of shares of the Fund, including the certification and filing requirements imposed on foreign investors in order to qualify for an exemption from the backup withholding tax described above or a reduced rate of withholding provided by treaty.
Certain Additional Reporting and Withholding Requirements
The Foreign Account Tax Compliance Act (FATCA) generally requires the Fund to obtain information sufficient to identify the status of each of its shareholders under FATCA. If a shareholder fails to provide this information or otherwise fails to comply with FATCA, the Fund may be required to withhold under FATCA at a rate of 30% with respect to that shareholder on dividends (other than exempt-interest dividends), including Capital Gain Dividends, and the proceeds of the sale, redemption or exchange of Fund shares. If a payment by the Fund is subject to FATCA withholding, the Fund is required to withhold even if such payment would otherwise be exempt from withholding under the rules applicable to Foreign Persons described above (e.g., Capital Gain Dividends and short-term capital gain and interest-related dividends); depending on the nature of the distribution, such withholding would begin as early as July 1, 2014.
Each prospective investor is urged to consult its tax adviser regarding the applicability of FATCA and any other reporting requirements with respect to the prospective investors own situation, including investments through an intermediary.
Other Tax Matters
Special tax rules apply to investments through defined contribution plans and other tax-qualified plans. Shareholders should consult their tax advisers to determine the suitability of shares of the Fund as an investment through such plans and the precise effect of such an investment on their particular tax situations.
85
Dividends, distributions and gains from the sale of Fund shares may be subject to state, local and foreign taxes. Shareholders are urged to consult their tax advisers regarding specific questions as to federal, state, local and, where applicable, foreign taxes.
If a shareholder recognizes a loss with respect to the Funds shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is proper. Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
Yield and Total Return
The Fund may advertise the yield and total return of each class of its shares. The Funds yield and total return will vary from time to time depending upon market conditions, the composition of its portfolio and operating expenses of the Trust allocated to the Fund. These factors, possible differences in the methods used in calculating yield and total return and the tax-exempt status of distributions should be considered when comparing the Funds yield and total return to yields and total returns published for other investment companies and other investment vehicles. Yield and total return should also be considered relative to changes in the value of the Funds shares and to the relative risks associated with the investment objectives and policies of the Fund. Yields and total returns do not take into account any applicable sales charges or CDSC. Yield and total return may be stated with or without giving effect to any expense limitations in effect for the Fund. For those funds that present yields and total returns reflecting an expense limitation or waiver, the yield would have been lower if no limitation or waiver were in effect. Yields and total returns will generally be higher for Class A shares than for Class C shares, because of the higher levels of expenses borne by the Class C shares. Because of its lower operating expenses, Class Y shares of the Fund can be expected to achieve a higher yield and total return than the same Funds Class A and Class C shares.
The Fund may also present one or more distribution rates for each class in its sales literature. These rates will be determined by annualizing the classs distributions from net investment income and net short-term capital gain over a recent 12-month, 3-month or 30-day period and dividing that amount by the maximum offering price or the NAV. If the NAV, rather than the maximum offering price, is used to calculate the distribution rate, the rate will be higher.
At any time in the future, yield and total return may be higher or lower than past yields or total return, and there can be no assurance that any historical results will continue.
Investors in the Fund are specifically advised that share prices, expressed as the NAVs per share, will vary just as yield and total return will vary. An investors focus on the yield of the Fund to the exclusion of the consideration of the share price of the Fund may result in the investors misunderstanding the total return he or she may derive from the Fund.
Benchmark Comparisons
Performance information for a fund with over one calendar year of performance history will be included in the Prospectus (in the section Risk/Return Bar Chart and Table in such funds Fund Summary), along with the performance of an appropriate benchmark index. Because index comparisons are generally calculated as of the end of each month, index performance information under the Since Inception, Life of Fund or Life of Class headings in the Prospectus for funds with less than ten years of performance history may not be coincident with the inception date of the fund (or class, as applicable). In such instances, index performance is generally presented from the month-end nearest to the inception date of the fund (or class, as applicable).
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This document may contain references to third-party copyrights, indexes, and trademarks, each of which is the property of its respective owner. Such owner is not affiliated with Natixis Global Asset Management or any of its related or affiliated companies (collectively NGAM) and does not sponsor, endorse or participate in the provision of any NGAM services, funds or other financial products.
The index information contained herein is derived from third parties and is provided on an as is basis. The user of this information assumes the entire risk of use of this information. Each of the third-party entities involved in compiling, computing or creating index information, disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to such information.
The Fund is newly formed and has not yet issued financial statements.
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DESCRIPTION OF SECURITIES RATINGS
Standard & PoorsA brief description of the applicable rating symbols of Standard & Poors and their meanings (as published by Standard & Poors) follows:
Issue Credit Rating Definitions
A Standard & Poors issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion reflects Standard & Poors view of the obligors capacity and willingness to meet its financial commitments as they come due, and may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default.
Issue credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations considered short-term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 daysincluding commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings.
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on Standard & Poors analysis of the following considerations:
| Likelihood of paymentcapacity and willingness of the obligor to meet its financial commitment on an obligation 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. |
Issue ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
AAA
An obligation rated AAA has the highest rating assigned by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is extremely strong.
AA
An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligors capacity to meet its financial commitment on the obligation is very strong.
A
An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligors capacity to meet its financial commitment on the obligation is still strong.
A-1
BBB
An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC, CC, and C
Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB
An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligors inadequate capacity to meet its financial commitment on the obligation.
B
An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitment on the obligation.
CCC
An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC
An obligation rated CC is currently highly vulnerable to nonpayment.
C
A C rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the C rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance with the instruments terms or when preferred stock is the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
D
An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due, unless Standard & Poors believes that such payments will be made within five business days, irrespective of any grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized. An obligations rating is lowered to D upon completion of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
A-2
Plus (+) or minus ()
The ratings from AA to CCC may be modified by the addition of a plus (+) or minus () sign to show relative standing within the major rating categories.
NR
This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poors does not rate a particular obligation as a matter of policy.
Short-Term Issue Credit Ratings
A-1
A short-term obligation rated A-1 is rated in the highest category by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligors capacity to meet its financial commitment on these obligations is extremely strong.
A-2
A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligors capacity to meet its financial commitment on the obligation is satisfactory.
A-3
A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B
A short-term obligation rated B is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties which could lead to the obligors inadequate capacity to meet its financial commitments.
C
A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D
A short-term obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due, unless Standard & Poors believes that such payments will be made within any stated grace period. However, any stated grace period longer than five business days will be treated as five business days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
SPUR (Standard & Poors Underlying Rating)
A SPUR rating is a rating of a stand-alone capacity of an issue to pay debt service on a credit-enhanced debt issue, without giving effect to the enhancement that applies to it. These ratings are published only at the request of the debt issuer/obligor with the designation SPUR to distinguish them from the credit-enhanced rating that applies to the debt issue. Standard & Poors maintains surveillance of an issue with a published SPUR.
Municipal Short-Term Note Ratings Definitions
A Standard & Poors U.S. municipal note rating reflects Standard & Poors opinion about the liquidity factors and market access risks unique to the notes. Notes due in three years or less will likely receive a note rating. Notes
A-3
with an original maturity of more than three years will most likely receive a long-term debt rating. In determining which type of rating, if any, to assign, Standard & Poors analysis will review the following considerations:
| Amortization schedulethe larger the final maturity relative to other maturities, the more likely it will be treated as a note; and |
| Source of paymentthe more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note. |
Note rating symbols are as follows:
SP-1
Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is 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.
Dual Ratings
Dual ratings may be assigned to debt issues that have a put option or demand feature. The first component of the rating addresses the likelihood of repayment of principal and interest as due, and the second component of the rating addresses only the demand feature. The first component of the rating can relate to either a short-term or long-term transaction and accordingly use either short-term or long-term rating symbols. The second component of the rating relates to the put option and is assigned a short-term rating symbol (for example, AAA/A-1+ or A-1+/A-1). With U.S. municipal short-term demand debt, the U.S. municipal short-term note rating symbols are used for the first component of the rating (for example SP-1+/A-1+).
Active Qualifiers (Currently applied and/or outstanding)
i
This suffix is used for issues in which the credit factors, terms, or both, that determine the likelihood of receipt of payment of interest are different from the credit factors, terms or both that determine the likelihood of receipt of principal on the obligation. The i suffix indicates that the rating addresses the interest portion of the obligation only. The i suffix will always be used in conjunction with the p suffix, which addresses likelihood of receipt of principal. For example, a rated obligation could be assigned ratings of AAAp NRi indicating that the principal portion is rated AAA and the interest portion of the obligation is not rated.
L
Ratings qualified with L apply only to amounts invested up to federal deposit insurance limits.
p
This suffix is used for issues in which the credit factors, the terms, or both, that determine the likelihood of receipt of payment of principal are different from the credit factors, terms or both that determine the likelihood of receipt of interest on the obligation. The p suffix indicates that the rating addresses the principal portion of the obligation only. The p suffix will always be used in conjunction with the i suffix, which addresses likelihood of receipt of interest. For example, a rated obligation could be assigned ratings of AAAp NRi indicating that the principal portion is rated AAA and the interest portion of the obligation is not rated.
A-4
pi
Ratings with a pi suffix are based on an analysis of an issuers published financial information, as well as additional information in the public domain. They do not, however, reflect in-depth meetings with an issuers management and therefore may be based on less comprehensive information than ratings without a pi suffix. Ratings with a pi suffix are reviewed annually based on a new years financial statements, but may be reviewed on an interim basis if a major event occurs that may affect the issuers credit quality.
preliminary
Preliminary ratings, with the prelim qualifier, may be assigned to obligors or obligations, including financial programs, in the circumstances described below. Assignment of a final rating is conditional on the receipt by Standard & Poors of appropriate documentation. Standard & Poors reserves the right not to issue a final rating. Moreover, if a final rating is issued, it may differ from the preliminary rating.
| Preliminary ratings may be assigned to obligations, most commonly structured and project finance issues, pending receipt of final documentation and legal opinions. |
| Preliminary ratings are assigned to Rule 415 Shelf Registrations. As specific issues, with defined terms, are offered from the master registration, a final rating may be assigned to them in accordance with Standard & Poors policies. |
| Preliminary ratings may be assigned to obligations that will likely be issued upon the obligors emergence from bankruptcy or similar reorganization, based on late-stage reorganization plans, documentation and discussions with the obligor. Preliminary ratings may also be assigned to the obligors. These ratings consider the anticipated general credit quality of the reorganized or post-bankruptcy issuer as well as attributes of the anticipated obligation(s). |
| Preliminary ratings may be assigned to entities that are being formed or that are in the process of being independently established when, in Standard & Poors opinion, documentation is close to final. Preliminary ratings may also be assigned to these entities obligations. |
| Preliminary ratings may be assigned when a previously unrated entity is undergoing a well-formulated restructuring, recapitalization, significant financing or other transformative event, generally at the point that investor or lender commitments are invited. The preliminary rating may be assigned to the entity and to its proposed obligation(s). These preliminary ratings consider the anticipated general credit quality of the obligor, as well as attributes of the anticipated obligation(s), assuming successful completion of the transformative event. Should the transformative event not occur, Standard & Poors would likely withdraw these preliminary ratings. |
| A preliminary recovery rating may be assigned to an obligation that has a preliminary issue credit rating. |
sf
The (sf) suffix is assigned to all issues and issuers to which a regulation, such as the European Union Regulation on Credit Rating Agencies, requires the assignment of an additional symbol which distinguishes a structured finance instrument or obligor (as defined in the regulation) from any other instrument or obligor. The addition of this suffix to a credit rating does not change the definition of that rating or our opinion about the issues or issuers creditworthiness.
t
This symbol indicates termination structures that are designed to honor their contracts to full maturity or, should certain events occur, to terminate and cash settle all their contracts before their final maturity date.
A-5
unsolicited
The u identifier and unsolicited designation are unsolicited ratings assigned at the initiative of Standard & Poors and not at the request of the issuer or its agents.
Inactive Qualifiers (No longer applied or outstanding)
* |
This symbol indicated continuance of the ratings is contingent upon Standard & Poors receipt of an executed copy of the escrow agreement or closing documentation confirming investments and cash flows. Discontinued use in August 1998.
c
This qualifier was used to provide additional information to investors that the bank may terminate its obligation to purchase tendered bonds if the long-term credit rating of the issuer is below an investment-grade level and/or the issuers bonds are deemed taxable. Discontinued use in January 2001.
pr
The letters pr indicate that the rating is provisional. A provisional rating assumes the successful completion of the project financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful, timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of or the risk of default upon failure of such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
q
A q suffix indicates that the rating is based solely on quantitative analysis of publicly available information. Discontinued use in April 2001.
r
The r modifier was assigned to securities containing extraordinary risks, particularly market risks, which are not covered in the credit rating. The absence of an r modifier should not be taken as an indication that an obligation will not exhibit extraordinary non-credit related risks. Standard & Poors discontinued the use of the r modifier for most obligations in June 2000 and for the balance of obligations (mainly structured finance transactions) in November 2002.
Local Currency and Foreign Currency Risks
Country risk considerations are a standard part of Standard & Poors analysis for credit ratings on any issuer or issue. Currency of repayment is a key factor in this analysis. An obligors capacity to repay foreign currency obligations may be lower than its capacity to repay obligations in its local currency due to the sovereign governments own relatively lower capacity to repay external versus domestic debt. These sovereign risk considerations are incorporated in the debt ratings assigned to specific issues. Foreign currency issuer ratings are also distinguished from local currency issuer ratings to identify those instances where sovereign risks make them different for the same issuer.
Standard & Poors Disclaimers
The analyses, including ratings, of Standard & Poors and its affiliates (together, Standard & Poors) are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or make any investment decisions. Standard & Poors assumes no obligation to update any information following publication. Users of ratings or other analyses should not rely on them in making any investment decision. Standard & Poors opinions and analyses do not address the suitability of any security. Standard & Poors does not act as a fiduciary or an investment advisor except where registered as such. While Standard & Poors has obtained information from sources it believes to be reliable, Standard & Poors does not
A-6
perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Ratings and other opinions may be changed, suspended, or withdrawn at any time.
Moodys Investors Service, Inc.A brief description of the applicable Moodys Investors Service, Inc. (Moodys) rating symbols and their meanings (as published by Moodys) follows:
Long-Term Obligation Ratings
Moodys long-term ratings are opinions of the relative credit risk of financial obligations with an original maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised. Such ratings use Moodys Global Scale and reflect both the likelihood of default and any financial loss suffered in the event of default.
Moodys Long-Term Rating Definitions:
Aaa
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A
Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Baa
Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Ba
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B
Obligations rated B are considered speculative and are subject to high credit risk.
Caa
Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
C
Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
Note: Moodys appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
A-7
Long-Term Issuer Ratings
Long-Term Issuer Ratings are opinions of the ability of entities to honor long-term senior unsecured financial obligations and contracts. Moodys expresses Long-Term Issuer Ratings on its long-term global scale.
Hybrid Indicator (hyb)
The hybrid indicator (hyb) is appended to all long-term ratings of hybrid securities issued by banks, insurers, finance companies, and securities firms. By their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment if such an omission occurs. Hybrid securities may also be subject to contractually allowable write-downs of principal that could result in impairment. Together with the hybrid indicator, the long-term obligation rating assigned to a hybrid security is an expression of the relative credit risk associated with that security.
Medium-Term Note Program Ratings
Moodys assigns provisional ratings to medium-term note (MTN) programs and definitive ratings to the individual debt securities issued from them (referred to as drawdowns or notes).
MTN program ratings are intended to reflect the ratings likely to be assigned to drawdowns issued from the program with the specified priority of claim (e.g., senior or subordinated). To capture the contingent nature of a program rating, Moodys assigns provisional ratings to MTN programs. A provisional rating is denoted by a (P) in front of the rating and is defined elsewhere in this document. The rating assigned to a drawdown from a rated MTN or bank/deposit note program is definitive in nature, and may differ from the program rating if the drawdown is exposed to additional credit risks besides the issuers default, such as links to the defaults of other issuers, or has other structural features that warrant a different rating. In some circumstances, no rating may be assigned to a draw down.
Moodys encourages market participants to contact Moodys Ratings Desks or visit www.moodys.com directly if they have questions regarding ratings for specific notes issued under a medium-term note program. Unrated notes issued under an MTN program may be assigned an NR (not rated) symbol.
Short-Term Obligation Ratings
Moodys short-term ratings are opinions of the ability of issuers to honor short-term financial obligations. Ratings may be assigned to issuers, short-term programs or to individual short-term debt instruments. Such obligations generally have an original maturity not exceeding thirteen months, unless explicitly noted.
Moodys employs the following designations to indicate the relative repayment ability of rated issuers:
P-1
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
Note: Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced by the senior-most long-term rating of the issuer, its guarantor or support-provider.
Short-Term Issuer Ratings
Short-Term Issuer Ratings are opinions of the ability of entities to honor short-term senior unsecured financial obligations and contracts. Moodys expresses Short-Term Issuer Ratings on its short-term obligations ratings scale.
A-8
Fitch Investor Services, Inc.A brief description of the applicable rating symbols of Fitch Investor Services, Inc. (Fitch) and their meanings (as published by Fitch) follows:
Credit Rating Scales
Fitch Ratings credit ratings provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit ratings are used by investors as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they invested. The agencys credit ratings cover the global spectrum of corporate, sovereign (including supranational and sub-national), financial, bank, insurance, municipal and other public finance entities and the securities or other obligations they issue, as well as structured finance securities backed by receivables or other financial assets.
The terms investment grade and speculative grade have established themselves over time as shorthand to describe the categories AAA to BBB (investment grade) and BB to D (speculative grade). The terms investment grade and speculative grade are market conventions, and do not imply any recommendation or endorsement of a specific security for investment purposes. Investment grade categories indicate relatively low to moderate credit risk, while ratings in the speculative categories either signal a higher level of credit risk or that a default has already occurred.
A designation of Not Rated or NR is used to denote securities not rated by Fitch where Fitch has rated some, but not all, securities comprising an issuance capital structure.
Credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss. For information about the historical performance of ratings please refer to Fitchs Rating Transition and Default studies which detail the historical default rates and their meaning. The European Securities and Markets Authority also maintains a central repository of rating default rates.
Fitch Ratings credit ratings do not directly address any risk other than credit risk. In particular, ratings do not deal with the risk of a market value loss on a rated security due to changes in interest rates, liquidity and other market considerations. However, in terms of payment obligation on the rated liability, market risk may be considered to the extent that it influences the ability of an issuer to pay upon a commitment. Ratings nonetheless do not reflect market risk to the extent that they influence the size or other conditionality of the obligation to pay upon a commitment (for example, in the case of index-linked bonds).
In the default components of ratings assigned to individual obligations or instruments, the agency typically rates to the likelihood of non-payment or default in accordance with the terms of that instruments documentation. In limited cases, Fitch Ratings may include additional considerations (i.e., rate to a higher or lower standard than that implied in the obligations documentation). In such cases, the agency will make clear the assumptions underlying the agencys opinion in the accompanying rating commentary.
Long-Term Credit Rating Scales
Issuer Credit Rating Scales
Rated entities in a number of sectors, including financial and non-financial corporations, sovereigns and insurance companies, are generally assigned Issuer Default Ratings (IDRs). IDRs opine on an entitys relative vulnerability to default on financial obligations. The threshold default risk addressed by the IDR is generally that of the financial obligations whose non-payment would best reflect the uncured failure of that entity. As such, IDRs also address relative vulnerability to bankruptcy, administrative receivership or similar concepts, although the agency recognizes that issuers may also make pre-emptive and therefore voluntary use of such mechanisms.
In aggregate, IDRs provide an ordinal ranking of issuers based on the agencys view of their relative vulnerability to default, rather than a prediction of a specific percentage likelihood of default. For historical information on the default experience of Fitch-rated issuers, please consult the transition and default performance studies available from the Fitch Ratings website.
A-9
AAA
Highest credit quality. AAA ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA
Very high credit quality. AA ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A
High credit quality. A ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB
Good credit quality. BBB ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.
BB
Speculative. BB ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists which supports the servicing of financial commitments.
B
Highly speculative. B ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.
CCC
Substantial credit risk. Default is a real possibility.
CC
Very high levels of credit risk. Default of some kind appears probable.
C
Exceptionally high levels of credit risk. Default is imminent or inevitable, or the issuer is in standstill. Conditions that are indicative of a C category rating for an issuer include:
| the issuer has entered into a grace or cure period following non-payment of a material financial obligation; |
| the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or |
| Fitch Ratings otherwise believes a condition of RD or D to be imminent or inevitable, including through the formal announcement of a distressed debt exchange. |
RD
Restricted default. RD ratings indicate an issuer that in Fitch Ratings opinion has experienced an uncured payment default on a bond, loan or other material financial obligation but which has not entered into bankruptcy
A-10
filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased operating. This would include:
| the selective payment default on a specific class or currency of debt; |
| the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation; |
| the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; or |
| execution of a distressed debt exchange on one or more material financial obligations. |
D
Default. D ratings indicate an issuer that in Fitch Ratings opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, or which has otherwise ceased business.
Default ratings are not assigned prospectively to entities or their obligations; within this context, non-payment on an instrument that contains a deferral feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance, or by a distressed debt exchange.
Imminent default typically refers to the occasion where a payment default has been intimated by the issuer, and is all but inevitable. This may, for example, be where an issuer has missed a scheduled payment, but (as is typical) has a grace period during which it may cure the payment default. Another alternative would be where an issuer has formally announced a distressed debt exchange, but the date of the exchange still lies several days or weeks in the immediate future.
In all cases, the assignment of a default rating reflects the agencys opinion as to the most appropriate rating category consistent with the rest of its universe of ratings, and may differ from the definition of default under the terms of an issuers financial obligations or local commercial practice.
Note:
The modifiers + or may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA Long-Term IDR category, or to Long-Term IDR categories below B.
Limitations of the Issuer Credit Rating Scale
Specific limitations relevant to the issuer credit rating scale include:
| The ratings do not predict a specific percentage of default likelihood over any given time period. |
| The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change. |
| The ratings do not opine on the liquidity of the issuers securities or stock. |
| The ratings do not opine on the possible loss severity on an obligation should an issuer default. |
| The ratings do not opine on the suitability of an issuer as counterparty to trade credit. |
| The ratings do not opine on any quality related to an issuers business, operational or financial profile other than the agencys opinion on its relative vulnerability to default. |
A-11
Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience. Readers are requested to review the section Understanding Credit RatingsLimitations and Usage for further information on the limitations of the agencys ratings.
Short-Term Ratings
Short-Term Ratings Assigned to Issuers or Obligations in Corporate, Public and Structured Finance
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity or security stream, and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as short term based on market convention. Typically, this means up to 13 months for corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
F1
Highest short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added + to denote any exceptionally strong credit feature.
F2
Good short-term credit quality. Good intrinsic capacity for timely payment of financial commitments.
F3
Fair short-term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate.
B
Speculative short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.
C
High short-term default risk. Default is a real possibility.
RD
Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Applicable to entity ratings only.
D
Default. Indicates a broad-based default event for an entity, or the default of a short-term obligation.
Limitations of the Short-Term Ratings Scale
Specific limitations relevant to the Short-Term Ratings scale include:
| The ratings do not predict a specific percentage of default likelihood over any given time period. |
| The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change. |
| The ratings do not opine on the liquidity of the issuers securities or stock. |
| The ratings do not opine on the possible loss severity on an obligation should an obligation default. |
| The ratings do not opine on any quality related to an issuer or transactions profile other than the agencys opinion on the relative vulnerability to default of the rated issuer or obligation. |
A-12
Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience. Readers are requested to review the section Understanding Credit RatingsLimitations and Usage for further information on the limitations of the agencys ratings.
Standard Rating Actions
Affirmed*
The rating has been reviewed with no change in rating. Ratings affirmations may also include an affirmation of, or change to an Outlook when an Outlook is used.
Confirmed
Action taken in response to an external request or change in terms. Rating has been reviewed in either context, and no rating change has been deemed necessary. For servicer ratings, action taken in response to change in financial condition or IDR of servicer where servicer rating is reviewed in that context exclusively, and no rating action has been deemed necessary.
Downgrade*
The rating has been lowered in the scale.
Matured*/Paid-In-Full
a. Matured This action is used when an issue has reached the end of its repayment term and rating coverage is discontinued. Denoted as NR.
b. Paid-In-Full This action indicates that the issue has been paid in full. As the issue no longer exists, it is therefore no longer rated. Denoted as PIF.
Publish*
Initial public announcement of rating on the agencys website, although not necessarily the first rating assigned. This action denotes when a previously private rating is published.
Rating Watch Maintained*
The issue or issuer has been reviewed and remains on active Rating Watch status.
Rating Watch On*
The issue or issuer has been placed on active Rating Watch status.
Revision Enhancement
Some form of the credit support affecting the rating opinion has been added or removed.
Revision Implication Watch*
Rating Watch status has changed.
Revision Outlook
Rating Outlook status has changed independent of a full review of the underlying rating.
Upgrade*
The rating has been raised in the scale.
A-13
Withdrawn*
The rating has been withdrawn and the issue or issuer is no longer rated by Fitch Ratings. Indicated in rating databases with the symbol WD.
*A rating action must be recorded for each rating in a required cycle to be considered compliant with Fitch policy concerning aging of ratings. Not all Ratings or Data Actions, or changes in rating modifiers, will meet this requirement. Actions that meet this requirement are noted with an * in the above definitions.
XT33-0913
A-14
Registration Nos. 002-11101
811-00242
NATIXIS FUNDS TRUST II
PART C
OTHER INFORMATION
Item 28. Exhibits
(a) |
Articles of Incorporation. | |||
(1) | The Registrants Fourth Amended and Restated Agreement and Declaration of Trust dated June 2, 2005 (the Agreement and Declaration) is incorporated by reference to exhibit (a)(1) to post-effective amendment (PEA) No. 128 to the initial registration statement (Registration Statement) filed on January 30, 2006. | |||
(2) | Amendment No. 1 dated June 1, 2007 to the Agreement and Declaration is incorporated by reference to exhibit (a)(2) to PEA No. 132 to the Registration Statement filed on January 28, 2008. | |||
(3) | Memorandum and Articles of Association of ASG Global Alternatives Cayman Fund Ltd. (the Global Alternatives Commodity Subsidiary) dated August 11, 2008 is incorporated by reference to exhibit (a)(3) to PEA No. 138 filed on September 29, 2008. | |||
(4) | Memorandum and Articles of Association of ASG Diversifying Strategies Cayman Fund Ltd. (the Diversifying Strategies Commodity Subsidiary) dated July 2, 2009 is incorporated by reference to exhibit (a)(4) to PEA No. 144 filed on July 31, 2009. | |||
(5) | Memorandum and Articles of Association of ASG Managed Futures Strategy Cayman Fund Ltd. (the Managed Futures Strategy Commodity Subsidiary) dated June 24, 2010 is incorporated by reference to exhibit (a)(5) to PEA No. 150 filed on July 29, 2010. | |||
(6) | Memorandum and Articles of Association of Loomis Sayles Multi-Asset Real Return Cayman Fund Ltd. (the Multi-Asset Real Return Commodity Subsidiary) dated August 18, 2010 is incorporated by reference to exhibit (a)(6) to PEA No. 151 filed on September 29, 2010. | |||
(b) |
By-Laws. | |||
(1) | The Registrants Amended and Restated By-Laws dated September 23, 2008 (the By-Laws) are incorporated by reference to exhibit (b)(1) to PEA No. 140 to the Registration Statement filed on December 1, 2008. | |||
(c) |
Instruments Defining Rights of Security Holders. |
1
(1) | Rights of shareholders as described in Article III, Section 6 and Article V of the Registrants Agreement and Declaration is incorporated by reference to exhibit (c) to PEA No. 128 to the Registration Statement filed on January 30, 2006. | |||||
(d) |
Investment Advisory Contracts. | |||||
(1) | (i) | Advisory Agreement dated October 30, 2000 between the Registrant, on behalf of Harris Associates Large Cap Value Fund, and NGAM Advisors, L.P. (NGAM Advisors) is incorporated by reference to exhibit (d)(1)(i) to PEA No. 114 to the Registration Statement filed on February 27, 2001. | ||||
(ii) | Advisory Agreement dated September 30, 2008 between the Registrant, on behalf of ASG Global Alternatives Fund, and AlphaSimplex Group, LLC (AlphaSimplex) is incorporated by reference to exhibit (d)(1)(iii) to PEA No. 140 to the Registration Statement filed on December 1, 2008. | |||||
(iii) | Addendum dated July 1, 2012 to the Advisory Agreement dated September 30, 2008 between the Registrant, on behalf of ASG Global Alternatives Fund, and AlphaSimplex Group, LLC is incorporated by reference to exhibit (d)(1)(iii) to PEA No. 172 to the Registration Statement filed on January 24, 2013. | |||||
(iv) | Advisory Agreement dated October 31, 2008 between the Registrant, on behalf of Vaughan Nelson Value Opportunity Fund, and NGAM Advisors is incorporated by reference to exhibit (d)(1)(iv) to PEA No. 139 to the Registration Statement filed on October 30, 2008. | |||||
(v) | Advisory Agreement dated November 27, 2008 between the Global Alternatives Commodity Subsidiary and AlphaSimplex is incorporated by reference to exhibit (d)(1)(v) to PEA No. 141 to the Registration Statement filed on April 30, 2009. | |||||
(vi) | Advisory Agreement dated July 21, 2009 between the Registrant, on behalf of ASG Diversifying Strategies Fund, and AlphaSimplex is incorporated by reference to exhibit (d)(1)(vi) to PEA No. 144 filed on July 31, 2009. | |||||
(vii) | Advisory Agreement dated July 21, 2009 between the Diversifying Strategies Commodity Subsidiary and AlphaSimplex is incorporated by reference to exhibit (d)(1)(viii) to PEA No. 144 filed on July 31, 2009. | |||||
(viii) | Advisory Agreement dated July 28, 2010 between the Registrant on behalf of ASG Managed Futures Strategy Fund and AlphaSimplex is incorporated by reference to exhibit (d)(1)(vii) to PEA No. 151 filed on September 29, 2010. | |||||
(ix) | Advisory Agreement dated July 28, 2010 between the ASG Managed Futures Strategy Commodity Subsidiary and AlphaSimplex is incorporated by reference to exhibit (d)(1)(viii) to PEA No. 151 filed on September 29, 2010. |
2
(x) | Advisory Agreement dated September 30, 2010 between the Registrant on behalf of Loomis Sayles Multi-Asset Real Return Fund and Loomis, Sayles & Company, L.P. (Loomis Sayles) is incorporated by reference to exhibit (d)(1)(x) to PEA No. 151 filed on September 29, 2010. | |||||
(xi) | Advisory Agreement dated September 30, 2010 between the Multi-Asset Real Return Commodity Subsidiary and Loomis Sayles is incorporated by reference to exhibit (d)(1)(xi) to PEA No. 151 filed on September 29, 2010. | |||||
(xii) | Advisory Agreement dated December 14, 2010 between the Registrant on behalf of Loomis Sayles Strategic Alpha Fund (formerly, the Loomis Sayles Absolute Strategies Fund) and Loomis Sayles is incorporated by reference to exhibit (d)(1)(xii) to PEA No. 153 filed on December 14, 2010. | |||||
(xiii) | Advisory Agreement dated September 16, 2011 between the Registrant on behalf of Loomis Sayles Senior Floating Rate and Fixed Income Fund and Loomis Sayles is incorporated by reference to exhibit (d)(1)(xv) to PEA No. 158 as filed on September 29, 2011. | |||||
(xiv) | Advisory Agreement dated March 28, 2012 between the Registrant on behalf of Loomis Sayles Capital Income Fund and Loomis Sayles is incorporated by reference to exhibit (d)(1)(xv) to PEA No. 162 to the Registration Statement filed on March 30, 2012. | |||||
(xv) | Advisory Agreement dated June 29, 2012 between the Registrant, on behalf of Vaughan Nelson Select Fund and NGAM Advisors is incorporated by reference to exhibit (d)(1)(xvi) to PEA No. 167 filed on June 28, 2012. | |||||
(xvi) | Advisory Agreement dated November 16, 2012 between the Registrant, on behalf of McDonnell Intermediate Municipal Bond Fund and NGAM Advisors is incorporated by reference to exhibit (d)(1)(xvii) to PEA No. 170 to the Registration Statement filed on December 28, 2012. | |||||
(xvii) | Advisory Agreement dated September 30, 2013 between Registrant on behalf of ASG Tactical U.S. Market Fund and AlphaSimplex is filed herewith. | |||||
(2) | (i) | Sub-Advisory Agreement dated October 29, 2002 among Registrant, on behalf of Harris Associates Large Cap Value Fund, NGAM Advisors, and Harris Associates L.P. (Harris Associates) is incorporated by reference to exhibit (d)(2)(i) to PEA No. 118 to the Registration Statement filed on February 28, 2003. | ||||
(ii) | Amendment No.1 dated July 1, 2005 to Sub-Advisory Agreement dated October 29, 2002 among Registrant, on behalf of Harris Large Cap Value Fund, NGAM Advisors, and Harris Associates is incorporated by reference to exhibit (d)(2)(ii) to PEA No. 128 to the Registration Statement filed on January 30, 2006. |
3
(iii) | Sub-Advisory Agreement dated September 30, 2008 among Registrant, on behalf of ASG Global Alternatives Fund, AlphaSimplex and Reich & Tang Asset Management, LLC (Reich & Tang) is incorporated by reference to exhibit (d)(2)(iii) to PEA No. 140 to the Registration Statement filed on December 1, 2008. | |||||
(iv) | Sub-Advisory Agreement dated October 31, 2008 among Registrant on behalf of Vaughan Nelson Value Opportunity Fund, NGAM Advisors and Vaughan Nelson Investment Management, L.P. (Vaughan Nelson) is incorporated by reference to exhibit (d)(2)(iv) to PEA No. 139 to the Registration Statement filed on October 30, 2008. | |||||
(v) | Sub-Advisory Agreement dated November 27, 2008 among the Global Alternatives Commodity Subsidiary, AlphaSimplex and Reich & Tang is incorporated by reference to exhibit (d)(2)(v) to PEA No. 141 to the Registration Statement filed on April 30, 2009. | |||||
(vi) | Sub-Advisory Agreement dated July 24, 2009 among Registrant, on behalf of ASG Diversifying Strategies Fund, AlphaSimplex and Reich & Tang is incorporated by reference to exhibit (d)(2)(vi) to PEA No. 144 filed on July 31, 2009. | |||||
(vii) | Sub-Advisory Agreement dated July 24, 2009 among the Diversifying Strategies Commodity Subsidiary, AlphaSimplex and Reich & Tang is incorporated by reference to exhibit (d)(2)(vii) to PEA No. 144 filed on July 31, 2009. | |||||
(viii) | Sub-Advisory Agreement dated July 28, 2010 among Registrant, on behalf of ASG Managed Futures Strategy Fund, AlphaSimplex and Reich & Tang is incorporated by reference to exhibit (d)(2)(viii) to PEA No. 151 filed on September 29, 2010. | |||||
(ix) | Sub-Advisory Agreement dated June 29, 2012 among Registrant, on behalf of Vaughan Nelson Select Fund, NGAM Advisors and Vaughan Nelson is incorporated by reference to exhibit (d)(2)(xi) to PEA No. 167 filed on June 28, 2012. | |||||
(x) | Sub-Advisory Agreement dated January 1, 2013 among the Registrant, on behalf of McDonnell Intermediate Municipal Bond Fund, NGAM Advisors and McDonnell Investment Management, LLC is incorporated by reference to exhibit (d)(2)(xiii) to PEA No. 170 to the Registration Statement filed on December 28, 2012. | |||||
(xi) | Sub-Advisory Agreement dated September 30, 2013 among the Registrant, on behalf of ASG Tactical U.S. Market Fund, AlphaSimplex and Reich & Tang is filed herewith. | |||||
(xii) | Sub-Advisory Agreement dated September 30, 2013 among the Registrant, on behalf of ASG Tactical U.S. Market Fund, AlphaSimplex and NGAM Advisors is filed herewith. |
4
(e) |
Underwriting Contracts. | |||||
(1) | Distribution Agreement dated March 3, 2003 between Registrant, on behalf of Harris Associates Large Cap Value Fund, and NGAM Distribution, L.P. (NGAM Distribution) is incorporated by reference to exhibit (e)(1) to PEA No. 119 to the Registration Statement filed on April 29, 2003. | |||||
(2) | Distribution Agreement dated September 30, 2008 between Registrant, on behalf of ASG Global Alternatives Fund, and NGAM Distribution is incorporated by reference to exhibit (e)(4) to PEA No. 140 to the Registration Statement filed on December 1, 2008. | |||||
(3) | Distribution Agreement dated October 31, 2008 between Registrant, on behalf of Vaughan Nelson Value Opportunity Fund, and NGAM Distribution is incorporated by reference to exhibit (e)(5) to PEA No. 139 to the Registration Statement filed on October 30, 2008. | |||||
(4) | Distribution Agreement dated July 27, 2009 between Registrant, on behalf of ASG Diversifying Strategies Fund, and NGAM Distribution is incorporated by reference to exhibit (e)(5) to PEA No. 144 filed on July 31, 2009. | |||||
(5) | Distribution Agreement dated July 28, 2010 between Registrant, on behalf of ASG Managed Futures Strategy Fund, and NGAM Distribution is incorporated by reference to exhibit (e)(5) to PEA No. 151 filed on September 29, 2010. | |||||
(6) | Distribution Agreement dated September 21, 2010 between Registrant, on behalf of Loomis Sayles Multi-Asset Real Return Fund, and NGAM Distribution is incorporated by reference to exhibit (e)(7) to PEA No. 151 filed on September 29, 2010. | |||||
(7) | Distribution Agreement dated December 14, 2010 between Registrant, on behalf of Loomis Sayles Strategic Alpha Fund, and NGAM Distribution is incorporated by reference to exhibit (e)(8) to PEA No. 153 filed on December 14, 2010. | |||||
(8) | Distribution Agreement dated September 30, 2011 between Registrant, on behalf of Loomis Sayles Senior Floating Rate and Fixed Income Fund, and NGAM Distribution is incorporated by reference to exhibit (e)(10) to PEA No. 158 filed on September 29, 2011. | |||||
(9) | Distribution Agreement dated March 28, 2012 between Registrant, on behalf of Loomis Sayles Capital Income Fund, and NGAM Distribution is incorporated by reference to exhibit (e)(10) to PEA No. 162 to the Registration Statement filed on March 30, 2012. |
5
(10) | Distribution Agreement dated June 29, 2012 between Registrant, on behalf of Vaughan Nelson Select Fund, and NGAM Distribution is incorporated by reference to exhibit (e)(11) to PEA No. 167 filed on June 28, 2012. | |||||
(11) | Distribution Agreement dated December 31, 2012 between Registrant, on behalf of McDonnell Intermediate Municipal Bond Fund, and NGAM Distribution is incorporated by reference to exhibit (e)(12) to PEA No. 170 to the Registration Statement filed on December 28, 2012. | |||||
(12) | Distribution Agreement dated September 30, 2013 between Registrant, on behalf of ASG Tactical U.S. Market Fund, and NGAM Distribution is filed herewith. | |||||
(13) | Form of Dealer Agreement used by NGAM Distribution is filed herewith. | |||||
(f) |
Bonus or Profit Sharing Contracts. | |||||
Not applicable. | ||||||
(g) |
Custodian Agreements. | |||||
(1) | Custodian Contract dated September 1, 2005 among Registrant, on behalf of its respective series, Natixis Funds Trust I, Natixis Funds Trust IV, Loomis Sayles Funds I, Loomis Sayles Funds II and State Street Bank and Trust Company (State Street) is incorporated by reference to exhibit (g)(1) to PEA No. 128 to the Registration Statement filed on January 30, 2006. | |||||
(2) | Amendment No. 1 dated September 15, 2006 to Master Custody Agreement dated September 1, 2005 among the Registrant, on behalf of its respective series, Natixis Funds Trust I, Natixis Funds Trust IV, Loomis Sayles Funds I, Loomis Sayles Funds II and State Street is incorporated by reference to exhibit (g)(2) to PEA No. 130 filed on January 26, 2007. | |||||
(3) | Custody Services Agreement dated November 27, 2008 between the Global Alternatives Commodity Subsidiary and State Street is incorporated by reference to exhibit (g)(3) to PEA No. 141 to the Registration Statement filed on April 30, 2009. | |||||
(4) | Custody Services Agreement dated July 27, 2009 between the Diversifying Strategies Commodity Subsidiary and State Street is incorporated by reference to exhibit (g)(4) to PEA No. 144 filed on July 31, 2009. | |||||
(5) | Custody Services Agreement dated July 28, 2010 between the Managed Futures Strategy Commodity Subsidiary and State Street is incorporated by reference to exhibit (g)(5) to PEA No. 151 filed on September 29, 2010. | |||||
(6) | Custody Services Agreement dated September 30, 2010 between the Multi-Asset Real Return Commodity Subsidiary and State Street is incorporated by reference to exhibit (g)(6) to PEA No. 151 filed on September 29, 2010. |
6
(h) |
Other Material Contracts. | |||||
(1) | (i) | Transfer Agency and Services Agreement dated October 1, 2005 among the Registrant, on behalf of its respective series, Natixis Funds Trust I, Natixis Funds Trust IV, Loomis Sayles Funds I, Loomis Sayles Funds II and Boston Financial Data Services, Inc. (Boston Financial) is incorporated by reference to exhibit (h)(1)(i) to PEA No. 128 to the Registration Statement filed on January 30, 2006. | ||||
(ii) | Amendment dated October 1, 2008 to the Transfer Agency and Services Agreement dated October 1, 2005 among the Registrant, on behalf of its respective series, Natixis Funds Trust I, Natixis Funds Trust IV, Loomis Sayles Funds I, Loomis Sayles Funds II, Hansberger International Series, Gateway Trust and Boston Financial is incorporated by reference to exhibit (h)(1)(iii) to PEA No. 139 to the Registration Statement filed on October 30, 2008. | |||||
(iii) | Amendment dated October 1, 2011 to the Transfer Agency and Services Agreement dated October 1, 2005 among the Registrant on behalf of its respective series, Natixis Funds Trust I, Natixis Funds Trust IV, Loomis Sayles Funds I, Loomis Sayles Funds II, Gateway Trust, Hansberger International Series and Boston Financial is incorporated by reference to exhibit (h)(1)(vi) to PEA No. 161 to the Registration Statement filed on February 17, 2012. | |||||
(iv) | Revised Appendix A dated March 30, 2012 to the Transfer Agency and Services Agreement dated October 1, 2005 among the Registrant on behalf of its respective series, Natixis Funds Trust I, Natixis Funds Trust IV, Loomis Sayles Funds I, Loomis Sayles Funds II, Gateway Trust, Hansberger International Series and Boston Financial is incorporated by reference to exhibit (h)(1)(v) to PEA No. 162 to the Registration Statement filed on March 30, 2012. | |||||
(v) | Amendment dated February 21, 2012 to the Transfer Agency and Services Agreement dated October 1, 2005 among the Registrant on behalf of its respective series, Natixis Funds Trust I, Natixis Funds Trust IV, Loomis Sayles Funds I, Loomis Sayles Funds II, Gateway Trust, Hansberger International Series and Boston Financial is incorporated by reference to exhibit (h)(1)(v) to PEA No. 163 to the Registration Statement filed on April 13, 2012. | |||||
(2) | (i) | Administrative Services Agreement dated January 3, 2005 between the Registrant, on behalf of its respective series, Natixis Funds Trust I, Natixis Funds Trust IV, Loomis Sayles Funds I, Loomis Sayles Funds II and NGAM Advisors is incorporated by reference to exhibit (h)(2) to PEA No. 125 to the Registration Statement filed on January 28, 2005. | ||||
(ii) | First Amendment dated November 1, 2005 to the Administrative Services Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(ii) to PEA No. 128 to the Registration Statement filed on January 30, 2006. |
7
(iii) | Second Amendment dated January 1, 2006 to Administrative Services Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(iii) to PEA No. 128 to the Registration Statement filed on January 30, 2006. | |||||
(iv) | Third Amendment dated July 1, 2007 to Administrative Services Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(iv) to PEA No. 132 to the Registration Statement filed on January 28, 2008. | |||||
(v) | Fourth Amendment dated September 17, 2007 to the Administrative Services Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(v) to PEA No. 132 to the Registration Statement filed on January 28, 2008. | |||||
(vi) | Fifth Amendment dated February 1, 2008 to the Administrative Services Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(vi) to PEA No. 132 to the Registration Statement filed on January 28, 2008. | |||||
(vii) | Sixth Amendment dated February 19, 2008 to the Administrative Services Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(vii) to PEA No. 134 to the Registration Statement filed on April 29, 2008. | |||||
(viii) | Seventh Amendment dated July 1, 2008 to the Administrative Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(viii) to PEA No. 138 to the Registration Statement filed on September 29, 2008. | |||||
(ix) | Eighth Amendment dated September 29, 2008 to the Administrative Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(ix) to PEA No. 138 to the Registration Statement filed on September 29, 2008. | |||||
(x) | Ninth Amendment dated October 31, 2008 to the Administrative Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(x) to PEA No. 139 to the Registration Statement filed on October 30, 2008. | |||||
(xi) | Tenth Amendment dated January 9, 2009 to the Administrative Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(xi) to PEA No. 141 to the Registration Statement filed on April 30, 2009. | |||||
(xii) | Eleventh Amendment dated July 27, 2009 to the Administrative Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(xii) to PEA No. 144 filed on July 31, 2009. | |||||
(xiii) | Twelfth Amendment dated February 25, 2010 to the Administrative Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(xiii) to PEA No. 146 filed on March 1, 2010. |
8
(xiv) | Thirteenth Amendment dated July 1, 2010 to the Administrative Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(xiv) to PEA No. 150 filed on July 29, 2010. | |||||
(xv) | Fourteenth Amendment dated September 21, 2010 to the Administrative Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(xv) to PEA No. 151 filed on September 29, 2010. | |||||
(xvi) | Fifteenth Amendment dated December 14, 2010 to the Administrative Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(xvi) to PEA No. 153 filed on December 14, 2010. | |||||
(xvii) | Sixteenth Amendment dated July 1, 2011 to the Administrative Services Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(xvii) to PEA No. 157 filed on July 15, 2011. | |||||
(xviii) | Seventeenth Amendment dated September 16, 2011 to the Administrative Services Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(xviii) to PEA No. 160 filed on September 29, 2011. | |||||
(xix) | Eighteenth Amendment dated March 28, 2012 to the Administrative Services Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(xix) to PEA No. 162 filed on March 30, 2012. | |||||
(xx) | Nineteenth Amendment dated June 29, 2012 to the Administrative Services Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(xx) to PEA No. 167 filed on June 28, 2012. | |||||
(xxi) | Twentieth Amendment dated November 16, 2012 to the Administrative Services Agreement with NGAM Advisors is incorporated by reference to exhibit (h)(2)(xxi) to PEA No. 170 to the Registration Statement filed on December 28, 2012. | |||||
(xxii) | Administrative Services Agreement dated November 27, 2008 between the Global Alternatives Commodity Subsidiary and NGAM Advisors is incorporated by reference to exhibit (h)(2)(xii) to PEA No. 141 filed on April 30, 2009. | |||||
(xxiii) | Sub-Administrative Services Agreement dated January 28, 2009 among the Global Alternatives Commodity Subsidiary, State Street and NGAM Advisors is incorporated by reference to exhibit (h)(2)(xiii) to PEA No. 141 filed on April 30, 2009. | |||||
(xxiv) | Administrative Services Agreement dated July 27, 2009 between the Diversifying Strategies Commodity Subsidiary and NGAM Advisors is incorporated by reference to exhibit (h)(2)(xv) to PEA No. 144 filed on July 31, 2009. |
9
(xxv) | Sub-Administrative Services Agreement dated July 27, 2009 among the Diversifying Strategies Commodity Subsidiary, State Street and NGAM Advisors is incorporated by reference to exhibit (h)(2)(xvi) to PEA No. 144 filed on July 31, 2009. | |||||
(xxvi) | Administrative Services Agreement dated July 28, 2010 between the Managed Futures Strategy Commodity Subsidiary and NGAM Advisors is incorporated by reference to exhibit (h)(2)(xx) to PEA No. 151 filed on September 29, 2010. | |||||
(xxvii) | Sub-Administrative Services Agreement dated July 28, 2010 among the Managed Futures Strategy Commodity Subsidiary, State Street and NGAM Advisors is incorporated by reference to exhibit (h)(2)(xxi) to PEA No. 151 filed on September 29, 2010. | |||||
(xxviii) | Administrative Services Agreement dated September 30, 2010 between the Multi-Asset Real Return Commodity Subsidiary and NGAM Advisors is incorporated by reference to exhibit (h)(2)(xxii) to PEA No. 151 filed on September 29, 2010. | |||||
(xxix) | Sub-Administrative Services Agreement dated September 30, 2010 among the Multi-Asset Real Return Commodity Subsidiary, State Street and NGAM Advisors is incorporated by reference to exhibit (h)(2)(xxiii) to PEA No. 151 filed on September 29, 2010. | |||||
(3) | (i) | Securities Lending Authorization Agreement dated September 1, 2005 among the Registrant, on behalf of its respective series, Natixis Funds Trust I, Natixis Funds Trust IV, Loomis Sayles Funds I, Loomis Sayles Funds II and State Street is incorporated by reference to exhibit (h)(3)(i) to PEA No. 128 to the Registration Statement filed on January 30, 2006. | ||||
(ii) | First Amendment dated December 20, 2005 to the Securities Lending Authorization Agreement dated September 1, 2005 with State Street is incorporated by reference to exhibit (h)(3)(ii) to PEA No. 140 to the Registration Statement filed on December 1, 2008. | |||||
(iii) | Second Amendment dated February 29, 2008 to the Securities Lending Authorization Agreement dated September 1, 2005 with State Street is incorporated by reference to exhibit (h)(3)(iii) to PEA No. 140 to the Registration Statement filed on December 1, 2008. | |||||
(iv) | Third Amendment dated January 1, 2011 to Securities Lending Authorization Agreement dated September 1, 2005 with State Street is incorporated by reference to exhibit (h)(3)(iv) to PEA No. 155 to the Registration Statement filed on May 2, 2011. | |||||
(4) | AlphaSimplex Fee Waiver/Expense Reimbursement Undertaking dated April 30, 2013 between AlphaSimplex and the Registrant, on behalf of ASG Diversifying Strategies Fund, ASG Global Alternatives Fund, ASG Managed Futures Strategy Fund and AlphaSimplex is incorporated by reference to exhibit (h)(4) to PEA No. 176 to the Registration Statement filed on April 29, 2013. |
10
(5) | NGAM Advisors Fee Waiver/Expense Reimbursement Undertakings dated April 30, 2013 between NGAM Advisors and the Registrant, on behalf of Harris Associates Large Cap Value Fund and Vaughan Nelson Value Opportunity Fund is incorporated by reference to exhibit (h)(5) to PEA No. 176 to the Registration Statement filed on April 29, 2013. | |||||
(6) | Loomis Sayles Fee Waiver/Expense Reimbursement Undertaking dated April 30, 2013 between Loomis Sayles and the Registrant, on behalf of Loomis Sayles Strategic Alpha Fund, Loomis Sayles Multi-Asset Real Return Fund and Loomis Sayles is incorporated by reference to exhibit (h)(6) to PEA No. 176 to the Registration Statement filed on April 29, 2013. | |||||
(7) | Loomis Sayles Fee Waiver/Expense Reimbursement Undertaking dated March 31, 2013 between Loomis Sayles and the Registrant, on behalf of Loomis Sayles Capital Income Fund and Loomis Sayles Senior Floating Rate and Fixed Income Fund is incorporated by reference to exhibit (h)(8) to PEA No. 174 to the Registration Statement filed on March 28, 2013. | |||||
(8) | Reliance Agreement for Exchange Privileges dated June 30, 2009 by and among Natixis Funds Trust I, Natixis Funds Trust IV, Gateway Trust, Hansberger International Series, Loomis Sayles Funds I, Loomis Sayles Funds II and the Registrant is incorporated by reference to exhibit (h)(7) to PEA No. 146 filed on March 1, 2010. | |||||
(9) | NGAM Advisors Fee Waiver/Expense Reimbursement Undertaking dated June 29, 2012 between NGAM Advisors and the Registrant, on behalf of Vaughan Nelson Select Fund is incorporated by reference to exhibit (h)(11) to PEA No. 167 filed on June 28, 2012. | |||||
(10) | NGAM Advisors Fee Waiver/Expense Reimbursement Undertaking dated December 31, 2012 between NGAM Advisors and the Registrant, on behalf of McDonnell Intermediate Municipal Bond Fund is incorporated by reference to exhibit (h)(12) to PEA No. 170 to the Registration Statement filed on December 28, 2012. | |||||
(11) | AlphaSimplex Fee Waiver/Expense Reimbursement Undertaking dated September 30, 2013 between AlphaSimplex and the Registrant, on behalf of ASG Tactical U.S. Market Fund and AlphaSimplex is filed herewith. | |||||
(i) |
Legal Opinion. | |||||
(1) | Opinion and Consent of Counsel dated January 3, 1989 with respect to the Registrants Harris Associates Large Cap Value Fund and Loomis Sayles Massachusetts Tax Free Income Fund is incorporated by reference to exhibit 10(a) to PEA No. 106 filed on April 18, 1997. | |||||
(2) | Opinion and Consent of Counsel dated September 10, 1993 with respect to offering multiple classes of shares for all series of the Registrant is incorporated by reference to exhibit 10(d) to PEA No. 106 filed on April 18, 1997. |
11
(j) |
Other Opinions. | |||||
Not applicable. | ||||||
(k) |
Omitted Financial Statements. | |||||
Not applicable. | ||||||
(l) |
Initial Capital Agreements. | |||||
Not applicable. | ||||||
(m) |
Rule 12b-1 Plan. | |||||
(1) | (a) | Rule 12b-1 Plan for Class A shares of Harris Associates Large Cap Value Fund is incorporated by reference to exhibit (m)(1)(a) to PEA No. 115 to the Registration Statement filed on April 30, 2001. | ||||
(b) | Rule 12b-1 Plan for Class B shares of Harris Associates Large Cap Value Fund is incorporated by reference to exhibit (m)(1)(b) to PEA No. 119 to the Registration Statement filed on April 29, 2003. | |||||
(c) | Rule 12b-1 Plan for Class C shares of Harris Associates Large Cap Value Fund is incorporated by reference to exhibit (m)(1)(c) to PEA No. 115 to the Registration Statement filed on April 30, 2001. | |||||
(2) | (a) | Rule 12b-1 Plan for Class A shares of ASG Global Alternatives Fund is incorporated by reference to exhibit (m)(3)(a) to PEA No. 138 to the Registration Statement filed on September 29, 2008. | ||||
(b) | Rule 12b-1 Plan for Class C shares of ASG Global Alternatives Fund is incorporated by reference to exhibit (m)(3)(b) to PEA No. 138 to the Registration Statement filed on September 29, 2008. | |||||
(3) | (a) | Rule 12b-1 Plan for Class A shares of Vaughan Nelson Value Opportunity Fund is incorporated by reference to exhibit (m)(4)(a) to PEA No. 139 to the Registration Statement filed on October 30, 2008. | ||||
(b) | Rule 12b-1 Plan for Class C shares of Vaughan Nelson Value Opportunity Fund is incorporated by reference to exhibit (m)(4)(b) to PEA No. 139 to the Registration Statement filed on October 30, 2008. | |||||
(4) | (a) | Rule 12b-1 Plan for Class A shares of ASG Diversifying Strategies Fund is incorporated by reference to exhibit (m)(5)(a) to PEA No. 144 filed on July 31, 2009. | ||||
(b) | Rule 12b-1 Plan for Class C shares of ASG Diversifying Strategies Fund is incorporated by reference to exhibit (m)(5)(b) to PEA No. 144 filed on July 31, 2009. |
12
(5) | (a) | Rule 12b-1 Plan for Class A shares of ASG Managed Futures Strategy Fund is incorporated by reference to exhibit (m)(5)(a) to PEA No. 150 filed on July 29, 2010. | ||||
(b) | Rule 12b-1 Plan for Class C shares of ASG Managed Futures Strategy Fund is incorporated by reference to exhibit (m)(5)(b) to PEA No. 150 filed on July 29, 2010. | |||||
(6) | (a) | Rule 12b-1 Plan for Class A shares of Loomis Sayles Multi-Asset Real Return Fund is incorporated by reference to exhibit (m)(7)(a) to PEA No. 151 filed on September 29, 2010. | ||||
(b) | Rule 12b-1 Plan for Class C shares of Loomis Sayles Multi-Asset Real Return Fund is incorporated by reference to exhibit (m)(7)(b) to PEA No. 151 filed on September 29, 2010. | |||||
(7) | (a) | Rule 12b-1 Plan for Class A shares of Loomis Sayles Strategic Alpha Fund is incorporated by reference to exhibit (m)(8)(a) to PEA No. 153 filed on December 14, 2010. | ||||
(b) | Rule 12b-1 Plan for Class C shares of Loomis Sayles Strategic Alpha Fund is incorporated by reference to exhibit (m)(8)(b) to PEA No. 153 filed on December 14, 2010. | |||||
(8) | (a) | Rule 12b-1 Plan for Class A shares of Loomis Sayles Senior Floating Rate and Fixed Income Fund is incorporated by reference to exhibit (m)(10)(a) to PEA No. 158 filed on September 29, 2011. | ||||
(b) | Rule 12b-1 Plan for Class C shares of Loomis Sayles Senior Floating Rate and Fixed Income Fund is incorporated by reference to exhibit (m)(10)(b) to PEA No. 158 filed on September 29, 2011. | |||||
(9) | (a) | Rule 12b-1 Plan for Class A shares of Loomis Sayles Capital Income Fund is incorporated by reference to exhibit (m)(10)(a) to PEA No. 162 filed on March 30, 2012. | ||||
(b) | Rule 12b-1 Plan for Class C shares of Loomis Sayles Capital Income Fund is incorporated by reference to exhibit (m)(10)(b) to PEA No. 162 filed on March 30, 2012. | |||||
(10) | (a) | Rule 12b-1 Plan for Class A shares of Vaughan Nelson Select Fund is incorporated by reference to exhibit (m)(11)(a) to PEA No. 167 filed on June 28, 2012. | ||||
(b) | Rule 12b-1 Plan for Class C shares of Vaughan Nelson Select Fund is incorporated by reference to exhibit (m)(11)(b) to PEA No. 167 filed on June 28, 2012. | |||||
(11) | (a) | Rule 12b-1 Plan for Class A shares of McDonnell Intermediate Municipal Bond Fund is incorporated by reference to exhibit (m)(12)(a) to PEA No. 170 to the Registration Statement filed on December 28, 2012. |
13
(b) | Rule 12b-1 Plan for Class C shares of McDonnell Intermediate Municipal Bond Fund is incorporated by reference to exhibit (m)(12)(b) to PEA No. 170 to the Registration Statement filed on December 28, 2012. | |||||
(12) | (a) | Rule 12b-1 Plan for Class A shares of ASG Tactical U.S. Market Fund is filed herewith. | ||||
(b) | Rule 12b-1 Plan for Class C shares of ASG Tactical U.S. Market Fund is filed herewith. | |||||
(n) |
Rule 18f-3 Plan. | |||||
Registrants Amended and Restated Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940 (the 1940 Act) effective November 16, 2012 is incorporated by reference to exhibit (n) to PEA No. 170 to the Registration Statement filed on December 28, 2012. | ||||||
(p) |
Code of Ethics. | |||||
(1) | Code of Ethics dated September 14, 2007 for Registrant is incorporated by reference to exhibit (p)(1) to PEA No. 132 to the Registration Statement filed on January 28, 2008. | |||||
(2) | Code of Ethics dated October 1, 2007 as amended January 1, 2010 for NGAM Advisors and NGAM Distribution is incorporated by reference to exhibit (p)(2) to PEA No. 147 to the Registration Statement filed on April 30, 2010. | |||||
(3) | Code of Ethics dated September 30, 2005 as amended April 8, 2013 of Harris Associates is filed herewith. | |||||
(4) | Code of Ethics revised as of July 30, 2010 for AlphaSimplex is incorporated by reference to exhibit (p)(4) to PEA No. 155 filed on May 2, 2011. | |||||
(5) | Code of Ethics dated February 1, 2008 as amended September 2012 for Reich & Tang is incorporated by reference to exhibit (p)(5) to PEA No. 174 filed on March 28, 2013. | |||||
(6) | Code of Ethics dated May 20, 2008 as amended November 1, 2010 of Vaughan Nelson is incorporated by reference to exhibit (p)(6) to PEA No. 155 filed on May 2, 2011. | |||||
(7) | Code of Ethics dated January 14, 2000 as amended November 27, 2012 for Loomis Sayles is incorporated by reference to exhibit (p)(8) to PEA No. 174 filed on March 28, 2013. | |||||
(8) | Code of Ethics dated June 1, 2011 as amended June 24, 2013 for McDonnell is filed herewith. |
14
(q) |
Powers of Attorney. | |||||
(1) | Powers of Attorney for Daniel M. Cain, John T. Hailer, Robert Blanding and Sandra O. Moose dated October 18, 2004 designating John M. Loder, Coleen Downs Dinneen, Russell Kane and Michael Kardok as attorneys to sign for each Trustee are incorporated by reference to exhibit (q) to PEA No. 124 to the Registration Statement filed on December 2, 2004. | |||||
(2) | Power of Attorney for Cynthia L. Walker dated June 2, 2005 designating John M. Loder, Coleen Downs Dinneen, Russell Kane and Michael Kardok as attorneys to sign for each Trustee is incorporated by reference to exhibit (q)(2) to PEA No. 128 to the Registration Statement filed on January 30, 2006. | |||||
(3) | Power of Attorney for Kenneth A. Drucker dated June 17, 2008 is incorporated by reference to exhibit (q)(4) to PEA No. 136 to the registration Statement filed on July 17, 2008. | |||||
(4) | Power of Attorney for Wendell J. Knox dated June 4, 2009 is incorporated by reference to exhibit (q)(4) to PEA No. 143 to the Registration Statement filed on July 15, 2009. | |||||
(5) | Power of Attorney for Erik Sirri dated November 19, 2009 is incorporated by reference to exhibit (q)(5) to PEA No. 146 to the Registration Statement filed on March 1, 2010. | |||||
(6) | Power of Attorney for Peter Smail dated November 24, 2009 is incorporated by reference to exhibit (q)(6) to PEA No. 146 to the Registration Statement filed on March 1, 2010. | |||||
(7) | Power of Attorney for Charles D. Baker dated December 20, 2010, effective January 1, 2011, is incorporated by reference to exhibit (q)(7) to PEA No. 154 filed on February 25, 2011. | |||||
(8) | Power of Attorney for David L. Giunta dated January 3, 2011, effective January 1, 2011, is incorporated by reference to exhibit (q)(8) to PEA No. 154 filed on February 25, 2011. | |||||
(9) | Power of Attorney for Martin T. Meehan dated July 1, 2012, is incorporated by reference to exhibit (q)(9) to PEA No. 169 to the registration Statement filed on October 17, 2012. | |||||
(10) | Power of Attorney for Edmond J. English dated December 28, 2012, is incorporated by reference to exhibit (1) to PEA No. 171 to the registration Statement filed on January 18, 2013. |
15
Item 29. Persons Controlled by or under Common Control with the Registrant.
The Registrant is not aware of any person controlled or under common control with any of its series. As of September 3, 2013, the persons listed below owned 25% or more of the outstanding voting securities of one or more series of the Registrant and thus may be deemed to control the series within the meaning of Section 2(a)(9) of the 1940 Act:
Fund |
Shareholder and Address |
Percentage of shares held |
||||
ASG Diversifying Strategies Fund |
Charles Schwab & Co., Inc. San Francisco, CA 94104-4151 |
29.97 | % | |||
ASG Global Alternatives Fund |
Wells Fargo Bank NA Minneapolis, MN 55480-1533 |
33.58 | % | |||
ASG Managed Futures Strategy Fund |
Charles Schwab & Co., Inc. San Francisco, CA 94104-4151 |
37.26 | % | |||
Loomis Sayles Capital Income Fund |
Natixis Global Asset Management, L.P. Boston, MA 02116-3368 |
34.25 | % | |||
Loomis Sayles Multi-Asset Real Return Fund |
Natixis Global Asset Management, L.P. Boston, MA 02116-3368 |
74.49 | % | |||
McDonnell International Municipal Bond Fund |
Natixis Global Asset Management, L.P. Boston, MA 02116-3368 |
95.49 | % | |||
Vaughan Nelson Select Fund |
Charles Schwab & Co., Inc. San Francisco, CA 94104-4151 |
42.15 | % | |||
Vaughan Nelson Value Opportunity Fund |
Charles Schwab & Co., Inc. San Francisco, CA 94104-4151 |
26.23 | % |
Item 30. Indemnification.
Under Article 5 of the Registrants By-laws, any past or present Trustee or officer of the Registrant (hereinafter referred to as a Covered Person) shall be indemnified to the fullest extent permitted by law against all liability and all expenses reasonably incurred by him or her in connection with any claim, action, suit or proceeding to which he or she may be a party or otherwise involved by reason of his or her being or having been a Covered Person. That provision does not authorize indemnification when it is determined that such Covered Person would otherwise be liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. This description is modified in its entirety by the provision of Article 5 of the Registrants By-laws incorporated by reference to exhibit (b)(1) to PEA No. 140 to the Registration Statement filed on December 1, 2008.
The Distribution Agreements, the Custodian Agreement, the Transfer Agency and Service Agreement and the Administrative Services Agreement (the Agreements) contained herein and in various post-effective amendments and incorporated herein by reference, provide for indemnification. The general effect of these provisions is to indemnify entities contracting with the Registrant against liability and expenses in certain circumstances. This description is modified in its entirety by the provisions of the Agreements as contained in this Registration Statement and incorporated herein by reference.
16
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the Securities Act), may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in connection with the successful defense of any claim, action, suit or proceeding) is asserted against the Registrant by such Trustee, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The Registrant and its Trustees, officers and employees are insured, under a policy of insurance maintained by the Registrant in conjunction with Natixis Global Asset Management, L.P. and its affiliates, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such Trustees or officers. The policy expressly excludes coverage for any Trustee or officer for any claim arising out of any fraudulent act or omission, any dishonest act or omission or any criminal act or omission of the Trustee or officer.
Item 31. Business and Other Connections of Investment Adviser.
(a) | NGAM Advisors, a wholly-owned subsidiary of Natixis Global Asset Management, L.P., serves as investment adviser to Harris Associates Large Cap Value Fund, McDonnell Intermediate Municipal Bond Fund, Vaughan Nelson Value Opportunity Fund and Vaughan Nelson Select Fund and subadviser to ASG Tactical U.S. Market Fund. NGAM Advisors was organized in 1995. | |||
The list required by this Item 31 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of NGAM Advisors during the past two years is incorporated by reference to schedules A, C and D of Form ADV filed by NGAM Advisors pursuant to the Investment Advisers Act of 1940, as amended, (the Advisers Act) (SEC file No. 801-48408; IARD/CRD No. 106800). | ||||
(b) | Harris Associates serves as a subadviser to the Registrants Harris Associates Large Cap Value Fund. Harris Associates serves as investment adviser to mutual funds, individuals, trusts, retirement plans, endowments and foundations, and manages several private partnerships, and is a registered commodity trading adviser and commodity pool operator. | |||
The list required by this Item 31 regarding any other business, profession or employment of a substantial nature engaged in by officers and partners of Harris Associates during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Harris Associates pursuant to the Advisers Act (SEC File No. 801-50333; IARD/CRD No. 106960). |
17
(c) | Reich & Tang, a subsidiary of Natixis Global Asset Management, L.P., serves as the subadviser to ASG Diversifying Strategies Fund, ASG Global Alternatives Fund, ASG Managed Futures Strategy Fund and ASG Tactical U.S. Market Fund and currently is manager or subadviser of 13 registered investment companies, of which it acts as administrator for 10, and advises pension trusts, profit sharing trusts and endowments. | |||
The list required by this Item 31 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of Reich & Tang during the past two years is incorporated herein by reference to schedules A, B and D of Form ADV filed by Reich & Tang pursuant to the Advisers Act (SEC file No. 801-47230, IARD/CRD No. 106186). | ||||
(d) |
AlphaSimplex, a subsidiary of Natixis Global Asset Management, L.P., serves as the investment adviser to ASG Diversifying Strategies Fund, ASG Global Alternatives Fund, ASG Managed Futures Strategy Fund and ASG Tactical U.S. Market Fund and currently is manager or subadviser of additional registered investment companies and privately-offered funds. | |||
The list required by this Item 31 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of AlphaSimplex during the past two years is incorporated herein by reference to schedules A, B and D of Form ADV filed by AlphaSimplex pursuant to the Advisers Act (SEC file No. 801-62448, IARD/CRD No. 128356). | ||||
(e) |
Vaughan Nelson, a subsidiary of Natixis Global Asset Management, L.P., serves as subadviser to the Registrants Vaughan Nelson Value Opportunity Fund and Vaughan Nelson Select Fund and provides investment advice to a number of other registered investment companies and to other organizations and individuals. | |||
The list required by this Item 31 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of Vaughan Nelson during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Vaughan Nelson pursuant to the Advisers Act (SEC file No. 801-51795, IARD/CRD No. 106975). | ||||
(f) |
Loomis Sayles, a subsidiary of Natixis Global Asset Management, L.P., serves as adviser to the Registrants Loomis Sayles Capital Income Fund, Loomis Sayles Multi-Asset Real Return Fund, Loomis Sayles Senior Floating Rate and Fixed Income Fund and Loomis Sayles Strategic Alpha Fund and provides investment advice to a number of other registered investment companies and to other organizations and individuals. | |||
The list required by this Item 31 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of Loomis Sayles during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by Loomis Sayles pursuant to the Advisers Act (SEC file No. 801-170; IARD/CRD No. 105377). | ||||
(g) |
McDonnell serves as subadviser to the Registrants McDonnell Intermediate Municipal Bond Fund and provides investment advice to a number of other registered investment companies and to other organizations and individuals. |
18
The list required by this Item 31 regarding any other business, profession, vocation or employment of a substantial nature engaged in by officers and partners of McDonnell during the past two years is incorporated herein by reference to schedules A, C and D of Form ADV filed by McDonnell pursuant to the Advisers Act (SEC file No. 801-60399; IARD/CRD No. 113878).
Item 32. Principal Underwriters.
(a) | NGAM Distribution, L.P., the Registrants principal underwriter, also serves as principal underwriter for: |
Natixis Funds Trust I
Natixis Funds Trust IV
Loomis Sayles Funds I
Loomis Sayles Funds II
Hansberger International Series
Gateway Trust
(b) | The general partner and officers of the Registrants principal underwriter, NGAM Distribution, L.P., and their addresses are as follows: |
Name |
Positions and Offices with Principal Underwriter |
Positions and Offices with Registrant | ||
NGAM Distribution Corporation | General Partner | None | ||
David L. Giunta | President and Chief Executive Officer | President and Chief Executive Officer | ||
Coleen Downs Dinneen | Executive Vice President, General Counsel, Secretary and Clerk | Secretary, Clerk and Chief Legal Officer | ||
Russell Kane | Senior Vice President, Deputy General Counsel, Assistant Secretary, Assistant Clerk and Chief Compliance Officer for Mutual Funds | Chief Compliance Officer, Anti-Money Laundering Officer and Assistant Secretary | ||
Michael Kardok | Senior Vice President | Treasurer, Principal Financial and Accounting Officer | ||
Beatriz Pina Smith | Executive Vice President, Treasurer and Chief Financial Officer | None | ||
Anthony Loureiro | Senior Vice President, Chief Compliance Officer-Broker/Dealer and Anti-Money Laundering Compliance Officer | None | ||
Marilyn Rosh | Senior Vice President and Controller | None |
19
Name |
Positions and Offices with Principal Underwriter |
Positions and Offices with Registrant | ||
Josh Bogen |
Executive Vice President | None | ||
Matthew Coldren |
Executive Vice President | None | ||
Mark Doyle |
Executive Vice President | None | ||
Ed Farrington |
Executive Vice President | None | ||
Robert Hussey |
Executive Vice President | None | ||
Dan Santaniello |
Executive Vice President | None | ||
Sharon Wratchford |
Executive Vice President | None | ||
Paul Anderson |
Senior Vice President | None | ||
John Bearce |
Senior Vice President | None | ||
William Butcher |
Senior Vice President | None | ||
Spiro Christopulos |
Senior Vice President | None | ||
Claudine Ciccia |
Senior Vice President | None | ||
James Cove |
Senior Vice President | None | ||
Joe Duffey |
Senior Vice President | None | ||
Dineen Dusablon |
Senior Vice President | None | ||
Tracy Fagan |
Senior Vice President | None | ||
Kevin Finney |
Senior Vice President | None | ||
Tracey Flaherty |
Senior Vice President | None | ||
Alaina Giampapa |
Senior Vice President | None | ||
David Goodsell |
Senior Vice President | None | ||
Marina Gross |
Senior Vice President | None | ||
Dana Hartwell |
Senior Vice President | None | ||
Tom Huddleston |
Senior Vice President | None | ||
Sean Kane |
Senior Vice President | None |
20
Name |
Positions and Offices with Principal Underwriter |
Positions and Offices with Registrant | ||
Jeff Keselman |
Senior Vice President | None | ||
David Lafferty |
Senior Vice President | None | ||
Ted LeClair |
Senior Vice President | None | ||
Rosa Licea-Mailloux |
Senior Vice President | None | ||
Dan Lynch |
Senior Vice President | None | ||
Cyndi Lyons |
Senior Vice President | None | ||
Robert Lyons |
Senior Vice President | None | ||
Ian MacDuff |
Senior Vice President | None | ||
Timothy Maher |
Senior Vice President | None | ||
Meghan Marquez |
Senior Vice President | None | ||
Marla McDougall |
Senior Vice President | None | ||
Shylaja Nathan |
Senior Vice President | None | ||
Peter Olson |
Senior Vice President | None | ||
Maureen ONeill |
Senior Vice President | None | ||
Stacie Paoletti |
Senior Vice President | None | ||
Daniel Price |
Senior Vice President | None | ||
Elizabeth Puls-Burns |
Senior Vice President | None | ||
David Vallon |
Senior Vice President | None | ||
Laura Verville |
Senior Vice President | None | ||
Leslie Walstrom |
Senior Vice President | None | ||
Susannah Wardly |
Senior Vice President | None |
The principal business address of all the above persons or entities is 399 Boylston Street, Boston, MA 02116.
(c) | Not applicable. |
21
Item 33. Location of Accounts and Records
The following companies, in the aggregate, maintain possession of the documents required to be maintained by Section 31(a) of the 1940 Act and the rules thereunder:
(a) |
For all series of Registrant: | |||
(i) | Natixis Funds Trust II | |||
399 Boylston Street | ||||
Boston, Massachusetts 02116 | ||||
(ii) | NGAM Distribution, L.P. | |||
399 Boylston Street | ||||
Boston, Massachusetts 02116 | ||||
(iii) | NGAM Advisors, L.P. | |||
399 Boylston Street | ||||
Boston, Massachusetts 02116 | ||||
(iv) | State Street Bank and Trust Company | |||
225 Franklin Street | ||||
Boston, Massachusetts 02110 | ||||
(v) | Boston Financial Data Services, Inc. | |||
2000 Crown Colony Drive | ||||
Quincy, Massachusetts 02169 | ||||
(b) |
For the series of the Registrant managed by Harris Associates: | |||
Harris Associates L.P. | ||||
Two North LaSalle Street, Suite 500 | ||||
Chicago, Illinois 60602 | ||||
(c) |
For the series of the Registrant managed by Reich & Tang: Reich & Tang Asset Management, LLC 1411 Broadway, 28th Floor New York, New York 10018-3450 | |||
(d) |
For the series of the Registrant managed by AlphaSimplex: AlphaSimplex Group, LLC One Cambridge Center Cambridge, Massachusetts 02142 | |||
(e) |
For the series of the Registrant managed by Vaughan Nelson: Vaughan Nelson Investment Management, L.P. 600 Travis Street, Suite 6300 Houston, Texas 77002 | |||
(f) |
For the series of the Registrant managed by Loomis Sayles: Loomis, Sayles & Company, L.P. One Financial Center Boston, Massachusetts 02111 |
22
(g) |
For the series of the Registrant managed by McDonnell: McDonnell Investment Management, LLC 1515 West 22nd Street Oak Brook, Illinois 60523 |
Item 34. Management Services.
None.
Item 35. Undertakings.
The Registrant undertakes to provide the annual report of any of its series to any person who receives a prospectus for such series and who requests the annual report.
23
NATIXIS FUNDS TRUST II
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Post-Effective Amendment No. 179 to its Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Boston, and the Commonwealth of Massachusetts on the 26th day of September, 2013.
NATIXIS FUNDS TRUST II | ||
By: | /s/ David L. Giunta | |
David L. Giunta | ||
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
Signature |
Title |
Date | ||
/s/ David L. Giunta David L. Giunta |
President, Chief Executive Officer and Trustee | September 26, 2013 | ||
/s/ Michael C. Kardok Michael C. Kardok |
Treasurer | September 26, 2013 | ||
Charles D. Baker* Charles D. Baker |
Trustee | September 26, 2013 | ||
Robert J. Blanding* Robert J. Blanding |
Trustee | September 26, 2013 | ||
Daniel M. Cain* Daniel M. Cain |
Trustee | September 26, 2013 | ||
Kenneth A. Drucker* Kenneth A. Drucker |
Trustee | September 26, 2013 | ||
Edmond J. English* Edmond J. English |
Trustee | September 26, 2013 | ||
John T. Hailer* John T. Hailer |
Trustee | September 26, 2013 | ||
Wendell J. Knox* Wendell J. Knox |
Trustee | September 26, 2013 | ||
Martin T. Meehan* Martin T. Meehan |
Trustee | September 26, 2013 | ||
Sandra O. Moose* Sandra O. Moose |
Trustee, Chairperson of the Board | September 26, 2013 |
Erik R. Sirri* Erik R. Sirri |
Trustee | September 26, 2013 | ||
Peter J. Smail* Peter J. Smail |
Trustee | September 26, 2013 | ||
Cynthia L. Walker* Cynthia L. Walker |
Trustee | September 26, 2013 |
*By: | /s/ Coleen Downs Dinneen | |
Coleen Downs Dinneen | ||
Attorney-In-Fact 1 September 26, 2013 |
1 | Powers of Attorney for Robert J. Blanding, Daniel M. Cain, John T. Hailer and Sandra O. Moose are incorporated by reference to exhibit (q) to PEA No. 124 to the Registration Statement filed on December 2, 2004. Power of Attorney for Cynthia L. Walker is incorporated by reference to exhibit (q)(2) to PEA No. 128 to the Registration Statement filed on January 30, 2006. Power of Attorney for Kenneth A. Drucker is incorporated by reference to exhibit (q)(4) to PEA No. 136 to the Registration Statement filed on July 17, 2008. Power of Attorney for Wendell J. Knox is incorporated by reference to exhibit (q)(4) to PEA No. 143 to the Registration Statement filed on July 15, 2009. Power of Attorney for Erik Sirri is incorporated by reference to exhibit (q)(5) to PEA No. 146 to the Registration Statement filed on March 1, 2010. Power of Attorney for Peter Smail is incorporated by reference to exhibit (q)(6) to PEA No. 146 to the Registration Statement filed on March 1, 2010. Power of Attorney for Charles D. Baker is incorporated by reference to exhibit (q)(7) to PEA No. 154 to the Registration Statement filed on February 25, 2011. Power of Attorney for Martin T. Meehan is incorporated by reference to exhibit (q)(9) to PEA No. 169 to the Registration Statement filed on October 17, 2012. Power of Attorney for Edmond J. English is incorporated by reference to exhibit (1) to PEA No. 171 to the registration Statement filed on January 18, 2013. |
Natixis Funds Trust II
Exhibit Index
Exhibits for Item 28 of Form N-1A
Exhibit |
Exhibit Description | |
(d)(1)(xviii) | Advisory Agreement dated September 30, 2013 between Registrant on behalf of ASG Tactical U.S. Market Fund and AlphaSimplex | |
(d)(2)(xi) | Sub-Advisory Agreement dated September 30, 2013 among the Registrant, on behalf of ASG Tactical U.S. Market Fund, AlphaSimplex and Reich & Tang | |
(d)(2)(xii) | Sub-Advisory Agreement dated September 30, 2013 among the Registrant, on behalf of ASG Tactical U.S. Market Fund, AlphaSimplex and NGAM Advisors | |
(e)(12) | Distribution Agreement dated September 30, 2013 between Registrant, on behalf of ASG Tactical U.S. Market Fund, and NGAM Distribution | |
(e)(13) | Form of Dealer Agreement | |
(h)(11) | AlphaSimplex Fee Waiver/Expense Reimbursement Undertaking dated September 30, 2013 between AlphaSimplex and the Registrant, on behalf of ASG Tactical U.S. Market Fund and AlphaSimplex | |
(m)(12)(a) | Rule 12b-1 Plan for Class A shares of ASG Tactical U.S. Market Fund | |
(m)(12)(b) | Rule 12b-1 Plan for Class C shares of ASG Tactical U.S. Market Fund | |
(p)(3) | Code of Ethics dated September 30, 2005 as amended April 8, 2013 of Harris Associates | |
(p)(8) | Code of Ethics dated June 1, 2011 as amended June 24, 2013 for McDonnell |
Exhibit (d)(1)(xviii)
ASG TACTICAL U.S. MARKET FUND
Advisory Agreement
AGREEMENT made the 30th day of September, 2013, by and between NATIXIS FUNDS TRUST II, a Massachusetts business trust (the Fund), with respect to its ASG Tactical U.S. Market Fund series (the Series), and AlphaSimplex Group, LLC, a Delaware limited liability company (the Manager).
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting forth the terms upon which the Manager (or certain other parties acting pursuant to delegation from the Manager) will perform certain services for the Series;
NOW, THEREFORE, in consideration of the premises and covenants hereinafter contained, the parties agree as follows:
1. (a) The Fund hereby employs the Manager to furnish the Series with Portfolio Management Services (as defined in Section 2 hereof), subject to the authority of the Manager to delegate any or all of its responsibilities hereunder to other parties as provided in Sections 1(b) and (c) hereof. The Manager hereby accepts such employment and agrees, at its own expense, to furnish such services (either directly or pursuant to delegation to other parties as permitted by Sections 1(b) and (c) hereof) and to assume the obligations herein set forth, for the compensation herein provided; provided, however, that the Manager shall have no obligation to pay the fees of any Sub-Adviser (as defined in Section 1(b) hereof), to the extent that the Fund has agreed, under any contract to which the Fund and the Sub-Adviser are parties (a Sub-Advisory Agreement) to pay such fees. The Manager shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund.
(b) The Manager may delegate any or all of its responsibilities hereunder with respect to the provision of Portfolio Management Services (and assumption of related expenses) to one or more other parties (each such party, a Sub-Adviser), pursuant in each case to a written agreement with such Sub-Adviser that meets the requirements of Section 15 of the Investment Company Act of 1940 and the rules thereunder (the 1940 Act) applicable to contracts for service as investment adviser of a registered investment company (including without limitation the requirements for approval by the trustees of the Fund and the shareholders of the Series), subject, however, to such exemptions as may be granted by the Securities and Exchange Commission. Any Sub-Adviser may (but need not) be affiliated with the Manager. If different Sub-Advisers are engaged to provide Portfolio Management Services with respect to different segments of the portfolio of the Series, the Manager shall determine, in the manner described in the prospectus of the Series from time to time in effect, what portion of the assets belonging to the Series shall be managed by each Sub-Adviser.
Exhibit (d)(1)(xviii)
2. As used in this Agreement, Portfolio Management Services means management of the investment and reinvestment of the assets belonging to the Series, consisting specifically of the following:
(a) obtaining and evaluating such economic, statistical and financial data and information and undertaking such additional investment research as shall be necessary or advisable for the management of the investment and reinvestment of the assets belonging to the Series in accordance with the Series investment objective and policies;
(b) taking such steps as are necessary to implement the investment policies of the Series by purchasing and selling of securities, including the placing of orders for such purchase and sale;
(c) regularly reporting to the Board of Trustees of the Fund with respect to the implementation of the investment policies of the Series;
(d) voting all proxies and exercising all other rights of the Series as a security holder of companies in which the Series from time to time invests; and
(e) oversight of all matters relating to compliance by the Series with applicable laws and with the Series investment policies, restrictions and guidelines, if the Manager has designated to one or more Sub-Advisers any or all of its responsibilities hereunder with respect to the provision of Portfolio Management Services.
The Manager shall manage the Series in conformity with (1) the investment objective, policies and restrictions of the Series set forth in the Funds prospectus and statement of additional information relating to the Series, (2) any additional policies or guidelines established by the Funds trustees that have been furnished in writing to the Manager, and (3) the provisions of the Internal Revenue Code (the Code) applicable to regulated investment companies (as defined in Section 851 of the Code), all as from time to time in effect (collectively, the Policies), and with all applicable provisions of law, including, without limitation, all applicable provisions of the 1940 Act and the rules and regulations thereunder. Subject to the foregoing, the Manager is authorized in its discretion to buy, sell, lend and otherwise trade in any stocks, bonds and other securities and investment instruments on behalf of the Series, without regard to the length of time the securities have been held and the resulting rate of portfolio turnover or any tax considerations; and the majority or the whole of the Series may be invested in such proportions of stocks, bonds, other securities or investment instruments, or cash, as the Manager shall determine.
3. | [RESERVED] |
2
Exhibit (d)(1)(xviii)
4. This Agreement shall not require the Manager to bear, or to reimburse the Fund for:
(a) any of the costs of printing and mailing the items referred to in sub-section (n) of this section 4;
(b) any of the costs of preparing, printing and distributing sales literature;
(c) compensation of trustees of the Fund who are not directors, officers or employees of the Manager, any Sub-Adviser or any Administrator or of any affiliated person (other than a registered investment company) of the Manager, any Sub-Adviser or any Administrator;
(d) registration, filing and other fees in connection with requirements of regulatory authorities;
(e) the charges and expenses of any entity appointed by the Fund for custodial, paying agent, shareholder servicing and plan agent services;
(f) charges and expenses of independent accountants retained by the Fund;
(g) charges and expenses of any transfer agents and registrars appointed by the Fund;
(h) brokers commissions and issue and transfer taxes chargeable to the Fund in connection with securities transactions to which the Fund is a party;
(i) taxes and fees payable by the Fund to federal, state or other governmental agencies;
(j) any cost of certificates representing shares of the Fund;
(k) legal fees and expenses in connection with the affairs of the Fund, including registering and qualifying its shares with Federal and State regulatory authorities;
(l) expenses of meetings of shareholders and trustees of the Fund;
(m) interest, including interest on borrowings by the Fund;
(n) the costs of services, including services of counsel, required in connection with the preparation of the Funds registration statements and prospectuses, including amendments and revisions thereto, annual, semiannual and other periodic reports of the Fund, and notices and proxy solicitation material furnished to shareholders of the Fund or regulatory authorities; and
3
Exhibit (d)(1)(xviii)
(o) the Funds expenses of bookkeeping, accounting, auditing and financial reporting, including related clerical expenses.
5. All activities undertaken by the Manager or any Sub-Adviser or Administrator pursuant to this Agreement shall at all times be subject to the supervision and control of the Board of Trustees of the Fund, any duly constituted committee thereof or any officer of the Fund acting pursuant to like authority.
6. The services to be provided by the Manager and any Sub-Adviser or Administrator hereunder are not to be deemed exclusive and the Manager and any Sub-Adviser or Administrator shall be free to render similar services to others, so long as its services hereunder are not impaired thereby.
7. As full compensation for all services rendered, facilities furnished and expenses borne by the Manager hereunder, the Fund shall pay the Manager compensation in an amount equal to (x) the annual rate of 0.80% of the average daily net assets of the Series (or such lesser amount as the Manager may from time to time agree to receive) minus (y) any fees payable by the Fund, with respect to the period in question, to any one or more Sub-Advisers pursuant to any Sub-Advisory Agreements in effect with respect to such period. Such compensation shall be payable monthly in arrears or at such other intervals, not less frequently than quarterly, as the Board of Trustees of the Fund may from time to time determine and specify in writing to the Manager. The Manager hereby acknowledges that the Funds obligation to pay such compensation is binding only on the assets and property belonging to the Series.
8. It is understood that any of the shareholders, trustees, officers, employees and agents of the Fund may be a shareholder, director, officer, employee or agent of, or be otherwise interested in, the Manager, any affiliated person of the Manager, any organization in which the Manager may have an interest or any organization that may have an interest in the Manager; that the Manager, any such affiliated person or any such organization may have an interest in the Fund; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Fund, the limited liability company agreement of the Manager or specific provisions of applicable law.
9. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, this Agreement shall continue in effect for two years from the date of execution, and from year to year thereafter so long as such continuance is specifically approved at least annually (i) by the Board of Trustees of the Fund or by vote of a majority of the outstanding voting securities of the Series, and (ii) by vote of a majority of the trustees of the Fund who are not interested persons of the Fund or the Manager, cast in person at a meeting called for the purpose of voting on, such approval;
4
Exhibit (d)(1)(xviii)
(b) this Agreement may at any time be terminated on sixty days written notice to the Manager either by vote of the Board of Trustees of the Fund or by vote of a majority of the outstanding voting securities of the Series;
(c) this Agreement shall automatically terminate in the event of its assignment;
(d) this Agreement may be terminated by the Manager on ninety days written notice to the Fund;
Termination of this Agreement pursuant to this Section 9 shall be without the payment of any penalty.
10. This Agreement may be amended at any time by mutual consent of the parties, provided that such consent on the part of the Fund shall have been approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the trustees of the Fund who are not interested persons of the Fund or the Manager, cast in person at a meeting called for the purpose of voting on such approval.
11. For the purpose of this Agreement, the terms vote of a majority of the outstanding voting securities, interested person, affiliated person and assignment shall have their respective meanings defined in the 1940 Act, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the 1940 Act. References in this Agreement to any assets, property or liabilities belonging to the Series shall have the meaning defined in the Funds Agreement and Declaration of Trust as amended from time to time.
12. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Manager, or reckless disregard of its obligations and duties hereunder, the Manager shall not be subject to any liability to the Fund, to any shareholder of the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
13. In accordance with Regulation S-P, if non-public personal information regarding either partys customers or consumers is disclosed to the other party in connection with this Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Agreement.
5
Exhibit (d)(1)(xviii)
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
NATIXIS FUNDS TRUST II on behalf of its ASG Tactical U.S. Market Fund series | ||
By: | /s/ David Giunta |
Name: | David Giunta | |
Title: | President |
ALPHASIMPLEX GROUP, LLC | ||
By: | /s/ Kendall Walker |
Name: | Kendall Walker | |
Title: | Chief Financial Officer |
6
Exhibit (d)(1)(xviii)
NOTICE
A copy of the Agreement and Declaration of Trust establishing Natixis Funds Trust II (the Fund) is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed with respect to the Funds ASG Tactical U.S. Market Fund series (the Series) on behalf of the Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and property belonging to the Series.
7
Exhibit (d)(2)(xi)
ASG TACTICAL U.S. MARKET FUND
Sub-Advisory Agreement
(Reich & Tang Asset Management, LLC)
Sub-Advisory Agreement (this Agreement) entered into as of 30th day of September, 2013, by and among Natixis Funds Trust II, a Massachusetts business trust (the Trust), with respect to its ASG Tactical U.S. Market Fund series (the Series), AlphaSimplex Group, LLC, a Delaware limited liability company (the Manager), and Reich & Tang Asset Management, LLC, a Delaware limited liability company (the Sub-Adviser).
WHEREAS, the Manager has entered into an Advisory Agreement dated September 30, 2013 (the Advisory Agreement) with the Trust, relating to the provision of portfolio management services to the Series;
WHEREAS, the Advisory Agreement provides that the Manager may delegate any or all of its portfolio management responsibilities under the Advisory Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the Sub-Adviser to render portfolio management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, the Trust, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the Manager, manage the investment and reinvestment of such portion of the assets of the Series as the Manager may from time to time allocate to the Sub-Adviser for management (the Designated Assets), and have the authority on behalf of the Series to vote and shall vote all proxies and exercise all other rights of the Series as a security holder of companies in which the Series from time to time invests. The Sub-Adviser shall manage the Designated Assets in conformity with (1) the investment objective, policies and restrictions of the Series set forth in the Trusts prospectus and statement of additional information relating to the Series as they pertain to the Designated Assets, (2) any additional policies or guidelines established by the Manager or by the Trusts trustees that have been furnished in writing to the Sub-Adviser and (3) the provisions of the Internal Revenue Code as amended (the Code) applicable to regulated investment companies (as defined in Section 851 of the Code), all as from time to time in effect (collectively, the Policies), and with all applicable provisions of law, including without limitation all applicable provisions of the Investment Company Act of 1940 as amended (the 1940 Act) and the rules and regulations thereunder. Subject to the foregoing, the
Exhibit (d)(2)(xi)
Sub-Adviser is authorized, in its discretion and without prior consultation with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds and other securities and investment instruments on behalf of the Series, without regard to the length of time the securities have been held and the resulting rate of portfolio turnover or any tax considerations; and the majority or the whole of the Series may be invested in such proportions of stocks, bonds, other securities or investment instruments, or cash, as the Sub-Adviser shall determine.
b. The Sub-Adviser shall not be responsible for the investment or reinvestment of any assets other than the Designated Assets, or for compliance with the investment objectives, policies and restrictions of the Series as they apply to assets other than the Designated Assets.
c. The Sub-Adviser shall furnish the Manager monthly, quarterly and annual reports concerning portfolio transactions and performance of the Series in such form as may be mutually agreed upon, and agrees to review the Series and discuss the management of it. The Sub-Adviser shall permit all books and records with respect to the Series to be inspected and audited by the Manager at all reasonable times during normal business hours, upon reasonable notice. The Sub-Adviser shall also provide the Manager with such other information and reports as may reasonably be requested by the Manager from time to time, including without limitation all material requested by or required to be delivered to the Trustees of the Trust.
d. The Sub-Adviser shall provide to the Manager a copy of the Sub-Advisers Form ADV as filed with the Securities and Exchange Commission and a list of the persons whom the Sub-Adviser wishes to have authorized to give written and/or oral instructions to custodians of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall, on a continuous basis, identify, or cause the Series Custodian (as defined in Section 3 hereof) to identify, the Designated Assets to the Sub-Adviser.
b. The Manager shall provide, or cause the Series Custodian (as defined in Section 3 hereof) to provide, timely information to the Sub-Adviser regarding such matters as the composition of assets of the Series and the Designated Assets, cash requirements and cash available for investment in the Series, and all other information as may be reasonably necessary for the Sub-Adviser to perform its responsibilities hereunder, including information relating to the Code and the 1940 Act, as that information may be required by the Sub-Adviser for the proper management of the Designated Assets.
c. The Manager has furnished the Sub-Adviser a copy of the prospectus and statement of additional information of the Series and agrees during the continuance of this Agreement to furnish the Sub-Adviser copies of any revisions or supplements thereto
2
Exhibit (d)(2)(xi)
at, or, if practicable, before the time the revisions or supplements become effective. The Manager agrees to furnish the Sub-Adviser with minutes of meetings of the trustees of the Trust applicable to the Series to the extent they may affect the duties of the Sub-Adviser, and with copies of any financial statements or reports made by the Series to its shareholders, and any further materials or information which the Sub-Adviser may reasonably request to enable it to perform its functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of the Series agreement with the custodian designated to hold the assets of the Series (the Custodian) and any modifications thereto (the Custody Agreement), copies of such modifications to be provided to the Sub-Adviser a reasonable time in advance of the effectiveness of such modifications. The assets of the Series shall be maintained in the custody of the Custodian identified in, and in accordance with the terms and conditions of, the Custody Agreement (or any sub-custodian properly appointed as provided in the Custody Agreement). The Sub-Adviser shall have no liability for the acts or omissions of the Custodian, unless such act or omission is taken solely in reliance upon instruction given to the Custodian by a representative of the Sub-Adviser properly authorized to give such instruction under the Custody Agreement. Any assets added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the Sub-Adviser is the sole owner of the name Reich & Tang Asset Management, LLC and that all use of any designation consisting in whole or part of Reich & Tang Asset Management, LLC under this Agreement shall inure to the benefit of the Sub-Adviser. The Manager on its own behalf and on behalf of the Series agrees not to use any such designation in any advertisement or sales literature or other materials promoting the Series, except with the prior written consent of the Sub-Adviser. Without the prior written consent of the Sub-Adviser, the Manager shall not, and the Manager shall use its best efforts to cause the Series not to, make representations regarding the Sub-Adviser in any disclosure document, advertisement or sales literature or other materials relating to the Series. Upon termination of this Agreement for any reason, the Manager shall cease, and the Manager shall use its best efforts to cause the Series to cease, all use of any such designation as soon as reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed to be paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for any organizational, operational or business expenses of the Manager or the Trust including, without limitation, (a) interest and taxes, (b) brokerage commissions and other costs in connection with the purchase or sale of securities or other investment instruments with respect to the Series, (c) custodian fees and expenses, and (d) any legal fees and expenses incurred in connection with regulatory investigations or legal proceedings relating to the Trust, the Series or the Manager and not resulting from the conduct of the Sub-Adviser. Any reimbursement of advisory fees required by any expense limitation provision of any law shall be the sole responsibility of the Manager. The Manager and the Sub-Adviser shall not be considered as partners or participants in a joint venture. The Sub-Adviser will pay its own expenses incurred in furnishing the services to be provided by it pursuant to this Agreement. Neither the Sub-Adviser nor any affiliated person thereof shall be entitled to any compensation from the Manager or the Trust with respect to service by any affiliated person of the Sub-Adviser as an officer or trustee of the Trust (other than the compensation to the Sub-Adviser payable by the Manager pursuant to Section 7 hereof).
3
Exhibit (d)(2)(xi)
6. Purchase and Sale of Assets. The Sub-Adviser shall place all orders for the purchase and sale of securities for the Series with brokers or dealers selected by the Sub-Adviser, which may include brokers or dealers affiliated with the Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in all respects. To the extent consistent with applicable law, purchase or sell orders for the Series may be aggregated with contemporaneous purchase or sell orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain execution of transactions for the Series at prices which are advantageous to the Series and at commission rates that are reasonable in relation to the benefits received. However, the Sub-Adviser may select brokers or dealers on the basis that they provide brokerage, research or other services or products to the Series and/or other accounts serviced by the Sub-Adviser. To the extent consistent with applicable law, the Sub-Adviser may pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission or dealer spread another broker or dealer would have charged for effecting that transaction if the Sub-Adviser determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research products and/or services provided by such broker or dealer. This determination, with respect to brokerage and research services or products, may be viewed in terms of either that particular transaction or the overall responsibilities which the Sub-Adviser and its affiliates have with respect to the Series or to accounts over which they exercise investment discretion. Not all such services or products need be used by the Sub-Adviser in managing the Series.
To the extent permitted by applicable law, and in all instances subject to the foregoing policy of best execution, the Sub-Adviser may allocate brokerage transactions to broker-dealers (including affiliates of Natixis Distributors, L.P.) that have entered into arrangements in which the broker-dealer allocates a portion of the commissions paid by a fund toward the reduction of that funds expenses, subject to the policy of best execution.
7. Compensation of the Sub-Adviser. As full compensation for all services rendered, facilities furnished and expenses borne by the Sub-Adviser hereunder, the Sub-Adviser shall be paid at the annual rate of 0.05% of the average daily net assets of the Designated Assets (or such lesser amount as the Sub-Adviser may from time to time agree to receive), subject to a minimum annual fee of $50,000. Such compensation shall be paid by the Trust (except to the extent that the Trust, the Sub-Adviser and the Manager otherwise agree in writing from time to time). Such compensation shall be payable monthly in arrears or at such other intervals, not less frequently than quarterly, as the Manager is paid by the Series pursuant to the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Trust on behalf of the Series agree that the services of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and its affiliates are free to act as investment manager and provide other services to various investment companies and other managed accounts, except as the Sub-Adviser and the Manager may otherwise agree from time to time in writing before or after the date hereof. This Agreement shall not in any way limit or restrict the Sub-Adviser or any of its directors, officers, employees
4
Exhibit (d)(2)(xi)
or agents from buying, selling or trading any securities or other investment instruments for its or their own account or for the account of others for whom it or they may be acting, provided that such activities do not adversely affect or otherwise impair the performance by the Sub-Adviser of its duties and obligations under this Agreement. The Manager and the Trust recognize and agree that the Sub-Adviser may provide advice to or take action with respect to other clients, which advice or action, including the timing and nature of such action, may differ from or be identical to advice given or action taken with respect to the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an independent contractor and shall, unless otherwise provided or authorized, have no authority to act for or represent the Trust or the Manager in any way or otherwise be deemed an agent of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act or other federal securities laws, neither the Sub-Adviser nor any of its officers, directors, partners, employees or agents (the Indemnified Parties) shall be subject to any liability to the Manager, the Trust, the Series or any shareholder of the Series for any error of judgment, any mistake of law or any loss arising out of any investment or other act or omission in the course of, connected with, or arising out of any service to be rendered under this Agreement, except by reason of willful misfeasance, bad faith or gross negligence in the performance of the Sub-Advisers duties or by reason of reckless disregard by the Sub-Adviser of its obligations and duties hereunder. The Manager shall hold harmless and indemnify the Sub-Adviser for any loss, liability, cost, damage or expense (including reasonable attorneys fees and costs) arising from any claim or demand by any past or present shareholder of the Series that is not based upon the obligations of the Sub-Adviser under this Agreement.
The Manager acknowledges and agrees that the Sub-Adviser makes no representation or warranty, expressed or implied, that any level of performance or investment results will be achieved by the Series or that the Series will perform comparably with any standard or index, including other clients of the Sub-Adviser, whether public or private.
10. Effective Date and Termination. This Agreement shall become effective as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue in effect for two years from the date of execution, and from year to year thereafter so long as such continuance is specifically approved at least annually (i) by the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series, and (ii) by vote of a majority of the trustees of the Trust who are not interested persons of the Trust, the Manager or the Sub-Adviser, cast in person at a meeting called for the purpose of voting on such approval;
b. this Agreement may at any time be terminated on sixty days written notice to the Sub-Adviser either by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series;
c. this Agreement shall automatically terminate in the event of its assignment or upon the termination of the Advisory Agreement; and
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Exhibit (d)(2)(xi)
d. this Agreement may be terminated by the Sub-Adviser on ninety days written notice to the Manager and the Trust, or by the Manager on ninety days written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual consent of the Manager and the Sub-Adviser, provided that, if required by law, such amendment shall also have been approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the trustees of the Trust who are not interested persons of the Trust, the Manager or the Sub-Adviser, cast in person at a meeting called for the purpose of voting on such approval.
12. Certain Definitions. For the purpose of this Agreement, the terms vote of a majority of the outstanding voting securities, interested person, affiliated person and assignment shall have their respective meanings defined in the 1940 Act, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the 1940 Act.
13. General.
a. The Sub-Adviser may perform its services through any employee, officer or agent of the Sub-Adviser, and the Manager shall not be entitled to the advice, recommendation or judgment of any specific person; provided, however, that the persons identified in the prospectus of the Series shall perform the day-to-day portfolio management duties described therein until the Sub-Adviser notifies the Manager that one or more other employees, officers or agents of the Sub-Adviser, identified in such notice, shall assume such duties as of a specific date.
b. If any term or provision of this Agreement or the application thereof to any person or circumstances is held to be invalid or unenforceable to any extent, the remainder of this Agreement or the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the fullest extent permitted by law.
c. In accordance with Regulation S-P, if non-public personal information regarding either partys customers or consumers is disclosed to the other party in connection with this Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Agreement.
d. This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts.
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Exhibit (d)(2)(xi)
e. Counterparts. This Agreement may be executed by the parties hereto in one or more counterparts, and, if so executed, the separate instruments shall constitute one agreement.
7
Exhibit (d)(2)(xi)
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
AlphaSimplex Group, LLC | ||
By: | /s/ Kendall Walker |
Name: | Kendall Walker | |
Title: | Chief Financial Officer |
Reich & Tang Asset Management, LLC | ||
By: | /s/ Joseph Jerkovich |
Name: | Joseph Jerkovich | |
Title: | Senior Vice President & Chief Financial Officer |
Natixis Funds Trust II, on behalf of its ASG Tactical U.S. Market Fund series | ||
By: | /s/ David Giunta |
Name: | David Giunta | |
Title: | President |
8
Exhibit (d)(2)(xi)
NOTICE
A copy of the Agreement and Declaration of Trust establishing Natixis Funds Trust II (the Fund) is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed with respect to the Funds ASG Tactical U.S. Market Fund series (the Series) on behalf of the Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and property belonging to the Series.
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Exhibit (d)(2)(xii)
ASG TACTICAL U.S. MARKET FUND
Sub-Advisory Agreement
(Active Investment Advisors, a division of NGAM Advisors, L.P.)
Sub-Advisory Agreement (this Agreement) entered into as of 30th day of September, 2013, by and among Natixis Funds Trust II, a Massachusetts business trust (the Trust), with respect to its ASG Tactical U.S. Market Fund series (the Series), AlphaSimplex Group, LLC, a Delaware limited liability company (the Manager), and NGAM Advisors, L.P., a Delaware limited partnership (the Sub-Adviser).
WHEREAS, the Manager has entered into an Advisory Agreement dated September 30, 2013 (the Advisory Agreement) with the Trust, relating to the provision of portfolio management services to the Series;
WHEREAS, the Advisory Agreement provides that the Manager may delegate any or all of its portfolio management responsibilities under the Advisory Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the Sub-Adviser to render portfolio management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, the Trust, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the Manager, manage the investment and reinvestment of such portion of the assets of the Series as the Manager may from time to time allocate to the Sub-Adviser for management (the Designated Assets), and have the authority on behalf of the Series to vote and shall vote all proxies and exercise all other rights of the Series as a security holder of companies in which the Series from time to time invests. The Sub-Adviser shall manage the Designated Assets in conformity with (1) the investment objective, policies and restrictions of the Series set forth in the Trusts prospectus and statement of additional information relating to the Series as they pertain to the Designated Assets, (2) any additional policies or guidelines established by the Manager or by the Trusts Trustees that have been furnished in writing to the Sub-Adviser (prior to such additional policies and guidelines going into effect, when possible), and (3) the provisions of the Internal Revenue Code as amended (the Code) applicable to regulated investment companies (as defined in Section 851 of the Code), all as from time to time in effect (collectively, the Policies), and with all applicable provisions of law, including without limitation all applicable provisions of the Investment Company Act of 1940, as amended (the 1940
Exhibit (d)(2)(xii)
Act) and the rules and regulations thereunder. Subject to the foregoing, the Sub-Adviser is authorized, in its discretion and without prior consultation with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds and other securities and investment instruments on behalf of the Series, without regard to the length of time the securities have been held and the resulting rate of portfolio turnover or any tax considerations; and the majority or the whole of the Series may be invested in such proportions of stocks, bonds, other securities or investment instruments, or cash, as the Sub-Adviser shall determine.
b. The Sub-Adviser shall not be responsible for the investment or reinvestment of any assets other than the Designated Assets, or for compliance with the investment objectives, policies and restrictions of the Series as they apply to assets other than the Designated Assets.
c. The Sub-Adviser shall furnish the Manager monthly, quarterly and annual reports concerning portfolio transactions and performance of the Series in such form as may be mutually agreed upon. The Sub-Adviser also agrees to review the Series and discuss the management of it with the Manager, as may be reasonably requested by the Manager. The Sub-Adviser shall permit all books and records with respect to the Series to be inspected and audited by the Manager at all reasonable times during normal business hours, upon reasonable prior notice. The Sub-Adviser shall also provide the Manager with such other information and reports as may reasonably be requested by the Manager from time to time, including without limitation all material requested by or required to be delivered to the Trustees of the Trust.
d. The Sub-Adviser shall provide to the Manager a copy of the Sub-Advisers Form ADV as filed with the Securities and Exchange Commission and a list of the persons whom the Sub-Adviser wishes to have authorized to give written and/or oral instructions to custodians of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall, on a continuous basis, identify, or cause the Series Custodian (as defined in Section 3 hereof) to identify, the Designated Assets to the Sub-Adviser.
b. The Manager shall provide, or cause the Series Custodian (as defined in Section 3 hereof) to provide, timely information to the Sub-Adviser regarding such matters as the composition of assets of the Series and the Designated Assets, cash requirements and cash available for investment in the Series, and all other information as may be reasonably necessary for the Sub-Adviser to perform its responsibilities hereunder, including information relating to the Code and the 1940 Act, as that information may be required by the Sub-Adviser for the proper management of the Designated Assets.
2
Exhibit (d)(2)(xii)
c. The Manager has furnished the Sub-Adviser a copy of the prospectus and statement of additional information of the Series and agrees during the continuance of this Agreement to furnish the Sub-Adviser copies of any revisions or supplements thereto at, or, if practicable, before the time the revisions or supplements become effective. The Manager agrees to furnish the Sub-Adviser with minutes of meetings of the Trustees of the Trust applicable to the Series to the extent they may affect the duties of the Sub-Adviser, and with copies of any financial statements or reports made by the Series to its shareholders, and any further materials or information which the Sub-Adviser may reasonably request to enable it to perform its functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of the Series agreement with the custodian designated to hold the assets of the Series (the Custodian) and any modifications thereto (the Custody Agreement), copies of such modifications to be provided to the Sub-Adviser a reasonable time in advance of the effectiveness of such modifications. The assets of the Series shall be maintained in the custody of the Custodian identified in, and in accordance with the terms and conditions of, the Custody Agreement (or any sub-custodian properly appointed as provided in the Custody Agreement). The Sub-Adviser shall have no liability for the acts or omissions of the Custodian, unless such act or omission is taken solely in reliance upon instruction given to the Custodian by a representative of the Sub-Adviser that is properly authorized to give such instruction under the Custody Agreement. Any assets added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the Sub-Adviser is the sole owner of the name Active Investment Advisors, a division of NGAM Advisors, L.P. and the stand-alone reference Active Investment Advisors, which stand-alone reference is a service mark of the Sub-Adviser. In this regard, any and all use of any designation consisting in whole or part of Active Investment Advisors under this Agreement shall inure to the benefit of the Sub-Adviser. The Manager on its own behalf and on behalf of the Series agrees not to use any such designation in any advertisement or sales literature or other materials promoting the Series, except with the prior written consent of the Sub-Adviser. Without the prior written consent of the Sub-Adviser, the Manager shall not, and the Manager shall use its best efforts to cause the Series not to, make representations regarding the Sub-Adviser in any disclosure document, advertisement or sales literature or other materials relating to the Series. Upon termination of this Agreement for any reason, the Manager shall cease, and the Manager shall use its best efforts to cause the Series to cease, all use of any such designation as soon as reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed to be paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for any organizational, operational or business expenses of the Manager or the Trust including, without limitation, (a) interest and taxes, (b) brokerage commissions and other costs in connection with the purchase or sale of securities or other investment instruments with respect to the Series, (c) custodian fees and expenses, and (d) any legal fees and expenses incurred in connection with regulatory investigations or legal proceedings relating to the Trust, the Series or the Manager and not resulting from the conduct of the Sub-Adviser. Any reimbursement of advisory fees required by any expense limitation provision of any law shall be the sole responsibility of the Manager. The
3
Exhibit (d)(2)(xii)
Manager and the Sub-Adviser shall not be considered as partners or participants in a joint venture. The Sub-Adviser will pay its own expenses incurred in furnishing the services to be provided by it pursuant to this Agreement. Neither the Sub-Adviser nor any affiliated person thereof shall be entitled to any compensation from the Manager or the Trust with respect to service by any affiliated person of the Sub-Adviser as an officer or Trustee of the Trust (other than the compensation to the Sub-Adviser payable by the Manager pursuant to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all orders for the purchase and sale of securities for the Series with brokers or dealers selected by the Sub-Adviser, which may include brokers or dealers affiliated with the Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in all respects. To the extent consistent with applicable law, purchase or sell orders for the Series may be aggregated with contemporaneous purchase or sell orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain execution of transactions for the Series at prices which are advantageous to the Series and at commission rates that are reasonable in relation to the benefits received. However, the Sub-Adviser may select brokers or dealers on the basis that they provide brokerage, research or other services or products to the Series and/or other accounts serviced by the Sub-Adviser. To the extent consistent with applicable law, the Sub-Adviser may pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission or dealer spread another broker or dealer would have charged for effecting that transaction if the Sub-Adviser determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research products and/or services provided by such broker or dealer. This determination, with respect to brokerage and research services or products, may be viewed in terms of either that particular transaction or the overall responsibilities which the Sub-Adviser and its affiliates have with respect to the Series or to accounts over which they exercise investment discretion. Not all such services or products need be used by the Sub-Adviser in managing the Designated Assets.
To the extent permitted by applicable law, and in all instances subject to the foregoing policy of best execution, the Sub-Adviser may allocate brokerage transactions to broker-dealers (including affiliates of NGAM Distribution, L.P.) that have entered into arrangements in which the broker-dealer allocates a portion of the commissions paid by a fund toward the reduction of that funds expenses, subject to the policy of best execution.
7. Compensation of the Sub-Adviser. As full compensation for all services rendered, facilities furnished and expenses borne by the Sub-Adviser hereunder, the Sub-Adviser shall be paid at the annual rate of 0.10% of the average daily net assets of the Designated Assets (or such lesser amount as the Sub-Adviser may from time to time agree to receive). Such compensation shall be paid by the Trust (except to the extent that the Trust, the Sub-Adviser and the Manager otherwise agree in writing from time to time). Such compensation shall be payable monthly in arrears or at such other intervals, not less frequently than quarterly, as the Manager is paid by the Series pursuant to the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Trust on behalf of the Series agree that the services of the Sub-Adviser are not exclusive and that the Sub-Adviser and its affiliates are free to provide investment advisory services, including services that are substantially similar to
4
Exhibit (d)(2)(xii)
the services provided hereunder, except as the Sub-Adviser and Manager may otherwise agree from time to time in writing after the date hereof. For avoidance of doubt, this Agreement shall not in any way limit or restrict the Sub-Adviser or any of its directors, officers, employees or agents from buying, selling or trading any securities or other investment instruments for its or their own account or for the account of others for whom it or they may be acting, provided that such activities do not adversely affect or otherwise impair the performance by the Sub-Adviser of its duties and obligations under this Agreement. The Manager and the Trust recognize and agree that the Sub-Adviser may provide advice to or take action with respect to other clients, which advice or action, including the timing and nature of such action, may differ from or be identical to advice given or action taken with respect to the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an independent contractor and shall, unless otherwise provided or authorized, have no authority to act for or represent the Trust or the Manager in any way or otherwise be deemed an agent of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act or other federal securities laws, neither the Sub-Adviser nor any of its officers, directors, partners, employees or agents (the Indemnified Parties) shall be subject to any liability to the Manager, the Trust, the Series or any shareholder of the Series for any error of judgment, any mistake of law or any loss arising out of any investment or other act or omission in the course of, connected with, or arising out of any service to be rendered under this Agreement, except by reason of willful misfeasance, bad faith or gross negligence in the performance of the Sub-Advisers duties or by reason of reckless disregard by the Sub-Adviser of its obligations and duties hereunder. The Manager shall hold harmless and indemnify the Sub-Adviser for any loss, liability, cost, damage or expense (including reasonable attorneys fees and costs) arising from any claim or demand by any past or present shareholder of the Series that is not based upon the obligations of the Sub-Adviser under this Agreement.
The Manager acknowledges and agrees that the Sub-Adviser makes no representation or warranty, expressed or implied, that any level of performance or investment results will be achieved by the Series or that the Series will perform comparably with any standard or index, including other clients of the Sub-Adviser, whether public or private.
10. Effective Date and Termination. This Agreement shall become effective as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue in effect for two years from the date of execution, and from year to year thereafter so long as such continuance is specifically approved at least annually (i) by the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series, and (ii) by vote of a majority of the Trustees of the Trust who are not interested persons of the Trust, the Manager or the Sub-Adviser, cast in person at a meeting called for the purpose of voting on such approval;
b. this Agreement may at any time be terminated on sixty days written notice to the Sub-Adviser either by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series;
5
Exhibit (d)(2)(xii)
c. this Agreement shall automatically terminate in the event of its assignment or upon the termination of the Advisory Agreement; and
d. this Agreement may be terminated by the Sub-Adviser on ninety days written notice to the Manager and the Trust, or by the Manager on ninety days written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual consent of the Manager and the Sub-Adviser, provided that, if required by law, such amendment shall also have been approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the Trustees of the Trust who are not interested persons of the Trust, the Manager or the Sub-Adviser, cast in person at a meeting called for the purpose of voting on such approval.
12. Certain Definitions. For the purpose of this Agreement, the terms vote of a majority of the outstanding voting securities, interested person, affiliated person and assignment shall have their respective meanings defined in the 1940 Act, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the 1940 Act.
13. General.
a. The Sub-Adviser may perform its services through any employee, officer or agent of the Sub-Adviser, and the Manager shall not be entitled to the advice, recommendation or judgment of any specific person; provided, however, that the persons identified in the prospectus of the Series shall perform the day-to-day portfolio management duties described therein until the Sub-Adviser notifies the Manager that one or more other employees, officers or agents of the Sub-Adviser, identified in such notice, shall assume such duties as of a specific date.
b. If any term or provision of this Agreement or the application thereof to any person or circumstances is held to be invalid or unenforceable to any extent, the remainder of this Agreement or the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the fullest extent permitted by law.
c. In accordance with Regulation S-P, if non-public personal information regarding either partys customers or consumers is disclosed to the other party in connection with this Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Agreement.
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Exhibit (d)(2)(xii)
d. This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts.
e. Counterparts. This Agreement may be executed by the parties hereto in one or more counterparts, and, if so executed, the separate instruments shall constitute one agreement.
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Exhibit (d)(2)(xii)
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
AlphaSimplex Group, LLC | ||
By: | /s/ Kendall Walker |
Name: | Kendall Walker | |
Title: | Chief Financial Officer |
NGAM Advisors, L.P., | ||
By: | NGAM Distribution Corporation, Its General Partner |
By: | /s/ Beatriz Pina Smith |
Name: | Beatriz Pina Smith | |
Title: | Executive Vice President and Chief Financial Officer |
Natixis Funds Trust II, on behalf of its ASG Tactical U.S. Market Fund series | ||
By: | /s/ David Giunta |
Name: | David Giunta | |
Title: | President |
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Exhibit (d)(2)(xii)
NOTICE
A copy of the Agreement and Declaration of Trust establishing Natixis Funds Trust II (the Fund) is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed with respect to the Funds ASG Tactical U.S. Market Fund series (the Series) on behalf of the Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property belonging to the Series.
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Exhibit (e)(12)
ASG TACTICAL U.S. MARKET FUND
Distribution Agreement
AGREEMENT made this September 30, 2013 by and between NATIXIS FUNDS TRUST II, a Massachusetts business trust (the Trust), and NGAM DISTRIBUTION, L.P., a Delaware limited partnership (the Distributor).
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the premises and covenants hereinafter contained, the Trust and the Distributor agree as follows:
1. | Distributor. The Trust hereby appoints the Distributor as general distributor of shares of beneficial interest (Series shares) of the Trusts ASG Tactical U.S. Market Fund series (the Series) during the term of this Agreement. The Trust reserves the right, however, to refuse at any time or times to sell any Series shares hereunder for any reason deemed adequate by the Board of Trustees of the Trust. |
2. | Sale and Payment. Under this agreement, the following provisions shall apply with respect to the sale of and payment for Series shares: |
(a) The Distributor shall have the right, as principal, to purchase Series shares from the Trust at their net asset value and to sell such shares to the public against orders therefor at the applicable public offering price, as defined in Section 3 hereof. The Distributor shall also have the right, as principal, to sell shares to dealers against orders therefor at the public offering price less a concession determined by the Distributor.
(b) Prior to the time of delivery of any shares by the Trust to, or on the order of, the Distributor, the Distributor shall pay or cause to be paid to the Trust or to its order an amount in Boston or New York clearing house funds equal to the applicable net asset value of such shares. The Distributor shall retain so much of any sales charge or underwriting discount as is not allowed by it as a concession to dealers.
3. | Public Offering Price. The public offering price shall be the net asset value of Series shares, plus any applicable sales charge, all as set forth in the current prospectus and statement of additional information (together the prospectus) of the Trust relating to the Series shares. In no event shall the public offering price exceed 1000/935 of such net asset value, and in no event shall any applicable sales charge or underwriting discount exceed 6.5% of the public offering price. The net asset value of Series shares shall be determined in accordance with the provisions of the agreement and declaration of trust and by-laws of the Trust, each as amended to date, and the current prospectus of the Trust relating to the Series shares. |
4. | Trust Issuance of Series Shares. The delivery of Series shares shall be made promptly by a credit to a shareholders open account for the Series or by delivery of a share certificate. The Trust reserves the right to (a) issue Series shares at any time directly to the shareholders of the Series as a stock dividend or stock split, (b) issue to such shareholders shares of the Series, or rights to subscribe to shares of the Series, as all or part of any dividend that may be distributed to shareholders of the Series or as all or part of any optional or alternative dividend that may be distributed to shareholders of the Series, and (c) to sell Series shares in accordance with the current applicable prospectus of the Trust relating to the Series shares. |
Exhibit (e)(12)
5. | Redemption or Repurchase. The Distributor shall act as agent for the Trust in connection with the redemption or repurchase of Series shares by the Trust to the extent and upon the terms and conditions set forth in the current applicable prospectus of the Trust relating to the Series shares, and the Trust agrees to reimburse the Distributor, from time to time upon demand, for any reasonable expenses incurred in connection with such redemptions or repurchases. |
6. | Undertaking Regarding Sales. The Distributor shall use reasonable efforts to sell Series shares but does not agree hereby to sell any specific number of Series shares and shall be free to act as distributor of the shares of other investment companies. Series shares will be sold by the Distributor only against orders therefor. The Distributor shall not purchase Series shares from anyone except in accordance with Sections 2 and 5 and shall not take long or short positions in Series shares contrary to the agreement and declaration of trust or by-laws of the Trust, each as amended to date. |
7. | Compliance. The Distributor shall conform to the Conduct Rules of the Financial Industry Regulatory Authority (FINRA) and the sale of securities laws of any jurisdiction in which it sells, directly or indirectly, any Series shares. The Distributor agrees to make timely filings with the Securities and Exchange Commission (the SEC), FINRA and such other regulatory authorities as may be required, of any sales literature relating to the Series and intended for distribution to prospective investors. The Distributor also agrees to furnish to the Trust sufficient copies of any agreements or plans it intends to use in connection with any sale of Series shares in adequate time for the Trust to file and clear them with the proper authorities before they are put in use (which the Trust agrees to use its best efforts to do as expeditiously as reasonably possible), and not to use them until so filed and cleared. |
8. | Registration and Qualification of Series Shares. The Trust agrees to execute such papers and to do such acts and things as shall from time to time be reasonably requested by the Distributor for the purpose of qualifying and maintaining qualification of the Series shares for sale under the so-called Blue Sky Laws of any state or for maintaining the registration of the Trust and of the Series shares under the federal Securities Act of 1933, as amended and the federal Investment Company Act of 1940, as amended (the 1940 Act), to the end that there will be available for sale from time to time such number of Series shares as the Distributor may reasonably be expected to sell. The Trust shall advise the Distributor promptly of (a) any action of the SEC or any authorities of any state or territory, of which it may be advised, affecting registration or qualification of the Trust or the Series shares, or rights to offer Series shares for sale, and (b) the happening of any event which makes untrue any statement or which requires the making of any change in the Trusts registration statement or its prospectus relating to the Series shares in order to make the statements therein not misleading. |
9. | Distributor Independent Contractor. The Distributor shall be an independent contractor and neither the Distributor nor any of its officers or employees as such is or shall be an employee of the Trust. The Distributor is responsible for its own conduct and the employment, control and conduct of its agents and employees and for injury to such agents or employees or to others through its agents or employees. The Distributor assumes full responsibility for its agents and employees under applicable statutes and agrees to pay all employer taxes thereunder. |
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Exhibit (e)(12)
10. | Expenses Paid by Distributor. While the Distributor continues to act as agent of the Trust to obtain subscriptions for and to sell Series shares, the Distributor shall pay the following: |
(a) all expenses of printing (exclusive of typesetting) and distributing any prospectus for use in offering Series shares for sale, and all other copies of any such prospectus used by the Distributor, and
(b) all other expenses of advertising and of preparing, printing and distributing all other literature or material for use in connection with offering Series shares for sale.
11. | Interests in and of Distributor. It is understood that any of the shareholders, trustees, officers, employees and agents of the Trust may be a shareholder, director, officer, employee or agent of, or be otherwise interested in, the Distributor, any affiliated person of the Distributor, any organization in which the Distributor may have an interest or any organization which may have an interest in the Distributor; that the Distributor, any such affiliated person or any such organization may have an interest in the Trust; and that the existence of any such dual interest shall not affect the validity hereof or of any transaction hereunder except as otherwise provided in the agreement and declaration of trust or by-laws of the Trust, in the limited partnership agreement of the Distributor or by specific provision of applicable law. |
12. | Effective Date and Termination. This Agreement shall become effective as of the date of its execution, and |
(a) Unless otherwise terminated, this Agreement shall continue in effect with respect to the shares of the Series so long as such continuation is specifically approved at least annually (i) by the Board of Trustees of the Trust or by the vote of a majority of the votes which may be cast by shareholders of the Series and (ii) by a vote of a majority of the Board of Trustees of the Trust who are not interested persons of the Distributor or the Trust, cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may at any time be terminated on sixty days notice to the Distributor either by vote of a majority of the Trusts Board of Trustees then in office or by the vote of a majority of the votes which may be cast by shareholders of the Series.
(c) This Agreement shall automatically terminate in the event of its assignment.
(d) This Agreement may be terminated by the Distributor on ninety days written notice to the Trust.
Termination of this Agreement pursuant to this section shall be without payment of any penalty.
13. | Definitions. For purposes of this Agreement, the following definitions shall apply: |
(a) The vote of a majority of the votes which may be cast by shareholders of the Series means (1) 67% or more of the votes of the Series present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of the Series entitled to vote at such meeting are present; or (2) the vote of the holders of more than 50% of the outstanding shares of the Series entitled to vote at such meeting, whichever is less.
(b) The terms affiliated person, interested person and assignment shall have their respective meanings as defined in the 1940 Act subject, however, to such exemptions as may be granted by the SEC under the 1940 Act.
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Exhibit (e)(12)
14. | Amendment. This Agreement may be amended at any time by mutual consent of the parties, provided that such consent on the part of the Series shall be approved (i) by the Board of Trustees of the Trust or by vote of a majority of the votes which may be cast by shareholders of the Series and (ii) by a vote of a majority of the Board of Trustees of the Trust who are not interested persons of the Distributor or the Trust cast in person at a meeting called for the purpose of voting on such approval. |
15. | Applicable Law and Liabilities. This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. All sales hereunder are to be made, and title to the Series shares shall pass, in Boston, Massachusetts. |
16. | Limited Recourse. The Distributor hereby acknowledges that the Trusts obligations hereunder with respect to the shares of the Series are binding only on the assets and property belonging to the Series. |
17. | Privacy. In accordance with Regulation S-P, if non-public personal information regarding either partys customers or consumers is disclosed to the other party in connection with this Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Agreement. |
18. | Anti-Money Laundering. Each party to this agreement hereby agrees to abide by and comply with all relevant anti-money laundering laws and regulations, including without limitation the Bank Secrecy Act, as amended, and the USA Patriot Act of 2001. Each party represents that it has established an Anti-Money Laundering Program that complies with all material aspects of the USA Patriot Act of 2001 and other applicable anti-money laundering laws and regulations. Each party also hereby agrees to comply with any new or additional anti-money laundering laws or regulations. |
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Exhibit (e)(12)
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
NATIXIS FUNDS TRUST II, on behalf of its ASG TACTICAL U.S. MARKET FUND series | ||
By: | /s/ David L. Giunta | |
Name: David L. Giunta | ||
Title: President |
NGAM DISTRIBUTION, L.P. | ||
By: | NGAM Distribution Corporation, its general partner | |
By: | /s/ Coleen Downs Dinneen | |
Name: Coleen Downs Dinneen | ||
Title: Executive Vice President |
-5-
Exhibit (e)(12)
A copy of the Agreement and Declaration of Trust establishing Natixis Funds Trust II, (the Trust), as amended to date, is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed with respect to the Trusts ASG Tactical U.S. Market Fund series (the Series) on behalf of the Trust by officers of the Trust as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the trustees, officers or shareholders of the Trust individually but are binding only upon the assets and property of the Series.
-6-
Exhibit (e)(13)
NGAM Distribution, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Dealer Agreement
This dealer agreement (Dealer Agreement) is entered into between NGAM Distribution, L.P. (formerly Natixis Distributors, L.P.) (our, us, or we) and the undersigned company (you). We offer to sell to you shares of each of the mutual funds distributed by us (the Funds and each a Fund), for each of which we serve as principal underwriter as defined in the Investment Company Act of 1940, as amended (the Act), and from which we have the right to purchase shares.1 Shares are offered pursuant to the then current prospectus, including any supplements or amendments thereto, of each of the Funds (the Prospectus, which term as hereinafter used shall include the Statement of Additional Information of the Fund).
With respect to each of the Funds (except for Section 5, which applies only with respect to each Fund having in effect from time to time a service plan, service and distribution plan or other plan adopted pursuant to Rule 12b-1 under the Act, each a Plan and together the Plans):
1. For all sales of shares of the Funds you shall act as dealer for your own account, and in no transaction shall you have any authority to act as agent, except as limited agent for purposes of receiving and transmitting orders and instructions regarding the purchase, exchange and redemption of shares of your customers and employees, with no authority to otherwise act as agent for any Fund or for us.
2. You or your designated agent agree to obtain and provide to your customers the Prospectus(es) of the applicable Fund(s) together with any supplemental sales literature you provide. You agree not to purchase any Fund shares for any customer, unless you deliver or cause to be delivered to such customer, at or prior to the time of such purchase, a copy of the Prospectus of the applicable Fund, or the Prospectus of the applicable Fund. You hereby represent that you understand your obligation to deliver a Prospectus to customers who purchase Fund shares pursuant to federal securities laws and you have taken all necessary steps to comply with such Prospectus delivery requirements.
3. Orders received from you will be accepted by us only at the public offering price applicable to each order, except for transactions to which a reduced offering price applies as provided in the Prospectus of the Fund(s). The minimum dollar purchase of shares of each Fund by any investor shall be the applicable minimum amount described in the Prospectus of the Fund and no order for less than such amount will be accepted hereunder. The public offering price shall be the net asset value per share plus the sales charge, if any, applicable to the transaction, expressed as a percentage of the public offering price, as determined and effective as of the time specified in the Prospectus of the Fund(s). The procedures relating to the handling of orders shall be subject to any instructions that we shall forward from time to time to you. All orders are subject to acceptance or rejection by us, or our designated agent, in our sole discretion. You hereby agree to comply with attached Appendix A, Policies and Procedures with Respect to Mutual Fund Trading, as well as with the terms of the Prospectus and the policies and procedures of the Funds. You understand that in recommending the purchase, sale or exchange of any Fund shares to your customers, you must have reasonable grounds for believing that such recommendation is suitable for such customer.
4. The sales charge applicable to any sale of Fund shares by you and the dealer concession or commission applicable to any order from you for the purchase of Fund shares accepted by us shall be set forth in the Prospectus of the Fund. You shall notify us if you are not eligible to receive a dealer concession or commission. You may be deemed to be an underwriter in connection with sales by you of shares of the Fund where you receive all or substantially all of the sales charge as set forth in the Funds Prospectus, and therefore you may be subject to applicable provisions of the Securities Act of 1933.
1 | The definition of Funds shall not include the following mutual funds, which are distributed by NGAM Distribution, L.P, but which are not available to you through the terms of this Dealer Agreement: Hansberger Emerging Markets Fund (Institutional Class); Hansberger International Growth Fund (Institutional Class); Hansberger International Value Fund (Institutional Class); Hansberger International Growth Fund (Advisor Class); Loomis Sayles Fixed Income Fund; Loomis Sayles Institutional High Income Fund; Loomis Sayles Investment Grade Fixed Income Fund; Loomis Sayles High Income Opportunities Fund; and Loomis Sayles Securitized Asset Fund. |
1 | 12-11 |
Exhibit (e)(13)
(a) We are entitled to a contingent deferred sales charge (CDSC) on redemptions of applicable classes of shares of the Funds, as described in the Prospectus. You agree that you will sell shares subject to a CDSC and that are to be held in omnibus accounts only if you are a NETWORKING participant with the National Securities Clearing Corporation and if such accounts are established pursuant to a NETWORKING Agreement.
(b) Reduced sales charges or no sales charge may apply to certain transactions, including under letter of intent, combined purchases or investments, reinvestment of dividends and distributions, repurchase privilege, unit investment trust distribution reinvestment or other programs, as described in the Prospectus of the Fund(s). To obtain any such reductions, you must notify us when the sale that would qualify for such reduction takes place.
5. Rule 12b-1 Plans. The substantive provisions of this Section 5 have been adopted pursuant to the Plans.
(a) You agree to provide (i) for the Funds with a service plan, personal services to investors in shares of the Funds and/or services related to the maintenance of shareholder accounts, and (ii) for those Funds with a service and distribution plan, both personal services to investors in shares of the Funds and/or services related to the maintenance of shareholder accounts and also distribution and marketing services in the promotion of Fund shares. As compensation for these services, we shall pay you, as agent, upon receipt by us from the Fund(s), a quarterly service fee or service fee and distribution fee based on the average daily net asset value of Fund shares at the rate set forth with respect to the relevant Class(es) of shares of the Fund(s) in the Prospectus. This fee will be based on the average daily net asset value of Fund shares that are owned of record by your firm as nominee for your customers or that are owned by those shareholders whose records, as maintained by the Fund or its agent, designate your firm as the shareholders dealer of record. Normally, payment of such fee to you shall be made within forty-five (45) days after the close of each quarter for which such fee is payable provided, however, that any other provision of this Dealer Agreement or the Prospectuses to the contrary notwithstanding, we shall not have any obligation whatsoever to pay any amount of distribution and/or service fee with respect to shares of any Fund except to the extent, and only to the extent, that we have actually received payment of at least such amount of distribution and/or service fee from the Funds with respect to such shares pursuant to a Plan in consideration of you furnishing distribution and client services hereunder with respect to your customers that own such class of shares of such Fund, it being understood that our liability to you in respect of such fees is limited solely to the proceeds of such fees received by us from the Funds.
(b) You shall furnish us and the Fund with such information as shall reasonably be requested by the Trustees of the Fund with respect to the fees paid to you pursuant to this Section 5 and you shall notify us if you are not eligible to receive 12b-1 fees, including without limitation by reason of your failure to provide the services as required in this Section 5.
(c) The provisions of this Section 5 may be terminated by the vote of a majority of the Trustees of the Funds who are not interested persons of the Funds and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, or by a vote of a majority of the Funds outstanding shares, on sixty (60) days written notice, without payment of any penalty. Such provisions will be terminated also by any act that terminates either the Funds Distribution Contract or Underwriting Agreement with us, or this Dealer Agreement under Section 16 hereof or otherwise and shall terminate automatically in the event of the assignment (as that term is defined in the Act) of this Dealer Agreement.
(d) The provisions of the Distribution Contract or Underwriting Agreement between the Fund and us, insofar as they relate to the Plan, are incorporated herein by reference. The provisions of this Section 5 shall continue in full force and effect only so long as the continuance of the Plan, the Distribution Contract or Underwriting Agreement and these provisions are approved at least annually by a vote of the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, cast in person at a meeting called for the purpose of voting thereon.
6. You agree to purchase Fund shares only from us or from your customers. If you purchase Fund shares from us, you agree that all such purchases shall be made only: (a) to cover orders already received by you from your customers; (b) for shares being acquired by your customers pursuant to either the exchange privilege or the reinvestment privilege, as described in the Prospectus of the Fund; or (c) for your own bona fide investment. If you purchase shares from your customers, you agree to pay such customers not less than the applicable redemption price next quoted by the Fund pursuant to the procedures set forth in the Prospectus of the Fund.
2 | 12-11 |
Exhibit (e)(13)
7. You shall sell shares only: (a) to customers at the applicable public offering price, except for shares being acquired by your customers at net asset value as described in the Prospectus of the Fund, and (b) to us as agent for the Fund at the redemption price. In such a sale to us, you may act either as principal for your own account or as agent for your customer. If you act as principal for your own account in purchasing shares for resale to us, you agree to pay your customer not less than the price that you receive from us. If you act as agent for your customer in selling shares to us, you agree not to charge your customer more than a fair commission or fee for handling the transaction, except that you agree to receive no compensation of any kind based on the reinvestment of redemption or repurchase proceeds pursuant to the repurchase privilege, as described in the Prospectus of the Fund.
8. You hereby certify that all of your customers taxpayer identification numbers (TIN) or social security numbers (SSN) furnished to us by you are correct and that you will not open an account without providing us with the customers TIN or SSN. You agree to comply with the provisions of Appendix B, Policies and Procedures with Respect to Rule 22c-2.
9. You hereby acknowledge that, in the performance of the services contemplated by this Dealer Agreement, you use or have access to records, systems, or operations that include, in tangible or electronic form, information relating to your customers such as their name, address (including email address), phone number, account number, SSN, drivers license number, date of birth, account activity, investments, and other nonpublic personal information (including consumer reports) (collectively, Personal Information or Customer Data), which is subject to the requirements of the Gramm-Leach Bliley Act and Regulation S-P thereunder promulgated by the Securities and Exchange Commission, as from time to time amended, and other federal and state laws and regulations applicable to the management, use, disposal, and safekeeping of Personal Information and/or Customer Data as well as laws and regulations relating to know your customer, anti-money laundering, and similar federal and state regulatory requirements (collectively Privacy Laws). You agree to comply with all applicable Privacy Laws relating to Personal Information and Customer Data and to cooperate with us in enabling us to satisfy our regulatory requirements relating to Personal Information.
10. You shall not withhold placing with us orders received from your customers so as to profit yourself as a result of such withholding; e.g., by a change in the net asset value from that used in determining the public offering price to your customers.
11. We will not accept from you any conditional orders for shares.
12. If any Fund shares sold to you or your customers under the terms of this Dealer Agreement are redeemed by the Fund or repurchased by us as agent for the Fund within seven (7) business days after the date of our confirmation of the original purchase by you or your customers, it is agreed that you shall forfeit your right to any dealer concession or commission received by you on such Fund shares. We will notify you of any such repurchase or redemption within ten (10) business days after the date thereof and you shall forthwith refund to us the entire concession or commission allowed or paid to you on such sale. We agree, in the event of any such repurchase or redemption, to refund to the Fund the portion of the sales charge, if any, retained by us and, upon receipt from you of the concession allowed to you on any Fund shares, to pay such refund forthwith to the Fund.
13. Payment for Fund shares sold to you shall be made on or before the settlement date specified in our confirmation, at the office of our clearing agent, and by check payable to the order of the Fund, which reserves the right to delay issuance, redemption or transfer of shares until such check has cleared. If such payment and all necessary applications and documents are not received by us, we reserve the right, without notice, forthwith either to cancel the sale, or at our option, sell the shares ordered back to the Fund, in which case you shall bear any loss resulting from your failure to make payment as aforesaid.
14. You will also act as principal in all purchases by a shareholder for whom you are the dealer of record of Fund shares with respect to payments sent directly by such shareholder to the Shareholder Services and Transfer Agent (the TA) specified in the Prospectus of the Fund, and you authorize and appoint the TA to execute and confirm such purchases to such shareholders on your behalf. Upon receipt of payment from the Funds, we, as agent, will remit to you, no less frequently than monthly, the amount of any concessions due with respect to such purchases, except that no concessions will be paid to you on any transaction for which your net sales concession is less than $5.00 in any payment cycle. You also represent that with respect to all such direct purchases by such shareholder, you may lawfully sell shares of such Fund in the state designated as such shareholders record address.
15. No person is authorized to make any representations concerning shares of the Funds except those contained in the Prospectuses of the Funds and in sales literature issued by us supplemental to such Prospectuses or approved in writing by us. In purchasing shares from us, you shall rely solely on the representations contained in such Prospectuses and such sales literature. We will furnish you with additional copies of such Prospectuses and such sales literature and other releases and information issued by us in reasonable quantities upon request.
3 | 12-11 |
Exhibit (e)(13)
(a) If, with prior written approval from us, you use any advertisement or sales literature which has not been supplied by us, you are responsible for ensuring that the material complies with all applicable regulations and has been filed with the appropriate authorities.
(b) You shall indemnify and hold us (and our directors, officers, employees, controlling persons and agents) and the Fund and its Trustees and officers harmless from and against any and all losses, claims, liabilities and expenses (including reasonable attorneys fees) (Losses) incurred by us or any of them arising out of (i) your dissemination of information regarding any Fund that is alleged to contain an untrue statement of material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading and that was not published or provided to you by or on behalf of us, or accurately derived from information published or provided by or on behalf of us or any of our Affiliates, (ii) any breach by you of any representation, warranty or agreement contained in this Dealer Agreement, (iii) any act or omission, including without limitation any material misstatement by you in connection with any orders or solicitation of orders for, or transactions in, shares of the Funds, or (iv) any willful misconduct or negligence on your part in the performance of, or failure to perform, your obligations under this Dealer Agreement, except to the extent such losses are caused by our breach of this Dealer Agreement or our willful misconduct or negligence in the performance, or failure to perform, our obligations under this Dealer Agreement.
(c) We shall indemnify and hold you (and your directors, officers, employees, controlling persons and agents) harmless from and against any and all Losses incurred by you arising out of (i) our dissemination of information regarding any Fund that contains an untrue statement of material fact or any omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, (ii) any breach by us of any representation, warranty or agreement contained in this Dealer Agreement, (iii) any act or omission, including without limitation any material misstatement by us in connection with any orders or solicitation of orders for, or transactions in, shares of the Funds, or (iv) any willful misconduct or negligence on our part in the performance of, or failure to perform, our obligations under this Dealer Agreement, except to the extent such losses are caused by your breach of this Dealer Agreement or your willful misconduct or negligence in the performance, or failure to perform, your obligations under this Dealer Agreement.
(d) This Section 15 shall survive termination of this Dealer Agreement.
16. The Fund reserves the right in its discretion and we reserve the right in our discretion, without notice, to refuse any order for the purchase of Fund shares for any reason whatsoever, and to suspend sales or withdraw the offering of Fund shares (or shares of any class(es)) entirely. We reserve the right, by written notice to you, to amend, modify, cancel or assign this Dealer Agreement, including Section 5 hereof, and any appendices that are now or in the future attached to this Dealer Agreement. Notice for all purposes shall be deemed to be given when mailed or electronically transmitted to you.
17. This Dealer Agreement shall replace any prior agreement between you and us or any of our predecessor entities (including but not limited to Natixis Distributors, L.P., IXIS Asset Management Distributors, L.P., CDC IXIS Asset Management Distributors, L.P., Nvest Funds Distributor, L.P., New England Funds, L.P., TNE Investment Services Corporation, and Investment Trust of Boston Distributors, Inc.) and is conditioned upon your representation and warranty that you are (i) registered as a broker/dealer under the Securities Exchange Act of 1934, as amended (the 1934 Act), and are a member in good standing of the Financial Industry Regulatory Authority, Inc. (FINRA) or (ii) exempt from registration as a broker/dealer under the 1934 Act. Regardless of whether you are a FINRA member, you and we agree to abide by the Rules and Regulations of FINRA, including without limitation Conduct Rules 2310, 2420, 3110, 3510 and 2830, and all applicable state and federal laws, rules and regulations. You agree to notify us immediately if you cease to be registered as a broker/dealer under the 1934 Act (or exempt from registration as a broker/dealer under the 1934 Act) and a member of FINRA. You agree to notify us of any material compliance matter related to the services provided by you pursuant to this Dealer Agreement. Should you cease to be registered as a broker/dealer under the 1934 Act (or exempt from such registration) and/or a cease to be a member in good standing of FINRA, you will be removed as broker-dealer of record and this Dealer Agreement will be terminated.
(a) You will not offer Fund shares for sale in any state (a) where they are not qualified for sale under the blue sky laws and regulations of such state or (b) where you are not qualified to act as a broker/dealer. You agree to offer Fund shares only to U.S. citizens with U.S. addresses.
4 | 12-11 |
Exhibit (e)(13)
(b) If you are a bank, with respect to any and all transactions in shares of the Funds pursuant to this Dealer Agreement, it is understood and agreed in each case that unless otherwise agreed to by us in writing: (i) you shall be acting solely as agent for the account of your customer; (ii) each transaction shall be initiated solely upon the order of your customer; (iii) we shall execute transactions only upon receiving instructions from you acting as agent for your customer; (iv) as between you and your customer, your customer will have full beneficial ownership of all shares; and (v) each transaction shall be for the account of your customer and not for your account.
18. Each of the parties represents and warrants that it has enacted appropriate safeguards to protect non-public customer information. If non-public personal information regarding either partys customers or consumers is disclosed to the other party in connection with this Dealer Agreement, the party receiving such information will not disclose or use that information other than as necessary to carry out the purposes of this Dealer Agreement and in accordance with Regulation S-P.
19. You hereby represent and certify to us that you are aware of, and in compliance with, all applicable anti-money laundering laws, regulations, rules and government guidance, including the reporting, recordkeeping and compliance requirements of the Bank Secrecy Act (BSA), as amended by the USA PATRIOT Act of 2001 (the Patriot Act), its implementing regulations, and related Securities and Exchange Commission and self-regulatory organization rules and regulations. You hereby certify to us that, as required by the Patriot Act, you have a comprehensive anti-money laundering compliance program that includes: internal policies, procedures and controls for complying with the Patriot Act; a designated compliance officer or officers; an ongoing training program for appropriate employees; and an independent audit function. You also hereby certify to us that, to the extent applicable, you are in compliance with the economic sanctions programs administered by the U.S. Treasury Departments Office of Foreign Assets Control (OFAC), and have an OFAC compliance program that satisfies all applicable laws and regulations and sanctions programs administered by the U.S. Treasury Departments Office of Foreign Laws and Regulations. You represent that you have adopted a Customer Identification Program in compliance with applicable laws, rules and regulations and will verify the identity of customers who open accounts with you and who invest in shares of the Funds. Except to the extent restricted by applicable law, you hereby agree to notify the Funds promptly whenever questionable activity or potential indications of suspicious activity or OFAC matches are detected with respect to the Funds. You hereby undertake to notify us promptly if any of the foregoing certifications cease to be true and correct for any reason. You further agree to monitor your employees use of web based systems used by you to access customer account information. You agree to notify us should any system ID require reassignment. You agree to remove such access as necessary. You agree that any order to purchase shares shall constitute your continued certification of the matters you have certified in this Section 19.
20. You hereby agree that all purchases, redemptions and exchanges of shares contemplated by this Dealer Agreement shall be effected by you for your customers in accordance with each Funds Prospectus, including, without limitation, the collection of any redemption fees, if applicable, and in accordance with applicable laws and regulations. You agree that, in the event that it should come to your attention that any of your customers are engaging in a pattern of purchases, redemptions and/or exchanges of Funds that potentially violates the Funds frequent trading policy as described in the relevant Funds Prospectus, you shall immediately notify us of such pattern and shall cooperate fully with us in any investigation and, if deemed necessary or appropriate by us, terminating any such pattern of trading, including, without limitation, by refusing such customers orders to purchase or exchange shares of the Funds.
21. You hereby represent that you have established and will maintain a business continuity program, in compliance with FINRA Rules 3510 and 3520, designed to ensure that you will at all times fulfill your obligations as set forth in this Dealer Agreement.
22. You hereby agree to provide any additional material as we may reasonably request to allow us to conduct periodic due diligence reviews and to ensure compliance with this Dealer Agreement.
23. You hereby acknowledge that each Fund and class of shares thereof may be offered and sold only in accordance with the terms and conditions set forth in the respective Funds prospectus and statement of additional information, as may be amended from time to time.
24. All communications to us should be mailed to the above address and e-mailed to thirdpartynotices@ngam.natixis.com. Any notice to you shall be duly given if mailed or faxed to you at the address specified by you.
25. This Dealer Agreement together with attached appendices shall be effective when accepted by you below and shall be governed by and construed under the laws of the Commonwealth of Massachusetts.
5 | 12-11 |
Exhibit (e)(13)
26. This Dealer Agreement together with attached appendices shall be effective as against you and your successor in interest. All obligations, representations, warranties and covenants made and belonging to you shall be enforceable against your successor in interest to the same extent that such would be enforceable against you.
Your submission and our acceptance of an order for the Funds, or receipt by us of an executed copy of this Dealer Agreement from you represents your acknowledgement and acceptance of the terms and conditions of this Dealer Agreement and its attached appendices.
Accepted: | NGAM Distribution, L.P. | |||||||
Dealers Name | By: | NGAM Distribution Corporation, its general partner | ||||||
Address: | Address: 399 Boylston Street | |||||||
Boston, MA 02116 | ||||||||
By: |
By: | |||||||||
Authorized Signature of Dealer |
Authorized Signature | |||||||||
Date: | ||||||||||
(Please print name) |
6 | 12-11 |
Exhibit (e)(13)
Appendix A
NGAM Distribution, L.P.
Policies and Procedures with Respect to Mutual Fund Trading
You shall establish and maintain effective internal policies and controls, including operational and system controls, with respect to the processing of orders of the funds received prior to and after the close of the New York Stock Exchange normally 4:00 p.m. Eastern Time (Pricing Time), for the purchase, redemption and exchange of shares of mutual funds, including the Funds.
For all transactions in the Funds, you shall follow all applicable rules and regulations and shall establish internal policies regarding the timely handling of orders for the purchase, redemption and exchange of shares of the Funds (Fund Orders) and maintain effective internal controls over the ability to distinguish and appropriately process Fund Orders received prior to and after the Funds Pricing Time, including operational and systems controls. Specifically, you represent as of the date of Dealer Agreement and each time that you accept a Fund Order on behalf of a Fund that:
| Your policies and procedures provide reasonable assurance that Fund Orders received by you prior to the Funds Pricing Time are segregated from Fund Orders received by you after the Funds Pricing Time and are properly transmitted to the Funds (or their agents) for execution at the current days net asset value (NAV). |
| Your policies and procedures provide reasonable assurances that Fund Orders received by you after the Funds Pricing Time are properly transmitted to the Funds (or their agents) for execution at the next days NAV. |
| Your policies and procedures provide reasonable assurance that transactional information is delivered to the Funds (or their agents) in a timely manner. |
| You have designed procedures to provide reasonable assurance that policies with regard to the receipt and processing of Fund Orders are complied with. Such procedures either prevent or detect, on a timely basis, instances of noncompliance with the policies governing the receipt and processing of Fund Orders. |
| Policies and procedures governing the timely handling of Fund Orders have been designed and implemented effectively by all third parties to whom you have designated the responsibility to distinguish and appropriately process Fund Orders received prior to and after the Funds Pricing Time. |
To the extent we have entered into related agreements with you regarding your handling of Fund Orders, you acknowledge and agree that this appendix shall apply to your handling of all Fund Orders, whether authorized under the Dealer Agreement or any other agreement with us or our affiliates.
7 | 12-11 |
Exhibit (e)(13)
Appendix B
NGAM Distribution, L.P.
Policies and Procedures with Respect to Rule 22c-2
I. Shareholder Information.
1. Agreement to Provide Information. You agree to provide to the Fund, upon written request, the taxpayer identification number (TIN), the Individual/International Taxpayer Identification Number (ITIN), or other government-issued identifier (GII), if known, of any or all Shareholder(s) of each account held of record by you and the amount, date, name or other identifier of any investment professional(s) associated with the Shareholder(s) or account (if known), and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Shares held through an account maintained by you during the period covered by the request.
2. Period Covered by Request. Requests must set forth a specific period, not to exceed ninety (90) days from the date of the request, for which transaction information is sought. The Fund may request transaction information older than ninety (90) days from the date of the request as the Fund deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund.
The Fund reserves the right to request the information set forth in Section I. (1) for each trading day and you agree, if so directed by the Fund, to provide the information.
3. Form and Timing of Response. You agree to provide, promptly upon request of the Fund or its designee, the requested information specified in Section I. (1). If requested by the Fund or its designee, you agree to use best efforts to determine promptly whether any specific person about whom you have received identification and transaction information specified in Section I. (1) is itself a financial intermediary (indirect intermediary) and, upon further request of the Fund or its designee, promptly either (i) provide (or arrange to have provided) the information set forth in Section I. (1) for those shareholders who hold an account with an indirect intermediary or (ii) restrict or prohibit the indirect intermediary from purchasing, in nominee name on behalf of other persons, securities issued by the Fund. You additionally agree to inform the Fund whether you plan to perform (i) or (ii). Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the parties. To the extent practicable, the format for any transaction information provided to the Fund should be consistent with the NSCC Standardized Data Reporting Format.
4. Limitations on Use of Information. Fund agrees not to use the information received for marketing or any other similar purpose without your prior written consent.
5. Agreement to Restrict Trading. You agree to execute written instructions from the Fund to restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by the Fund as having engaged in transactions of the Funds Shares (directly or indirectly through your account) that violate policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Fund.
6. Form of Instructions. Instructions to restrict or prohibit trading must include the TIN, ITIN, GII, if known, and the specific restriction(s) to be executed. If the TIN, ITIN, or GII is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates.
7. Timing of Response. You agree to execute instructions as soon as reasonably practicable, but not later than five (5) business days after receipt of the instructions by you.
8. Confirmation. You must provide written confirmation to the Fund that instructions have been executed. You agree to provide confirmation as soon as reasonably practicable, but not later than ten (10) business days after the instructions have been executed.
9. Definitions. For purposes of this schedule only:
(a) The term Fund includes the funds principal underwriter and transfer agent. The term does not include any excepted funds as defined in SEC Rule 22c-2(b) under the Investment Company Act of 1940.*
* | As defined in SEC Rule 22c-2(b), the term excepted fund means any: (1) money market fund; (2) fund that issues securities that are listed on a national securities exchange; and (3) fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the fund permits short-term trading of its securities and that such trading may result in additional costs for the fund. |
8 | 12-11 |
Exhibit (e)(13)
(b) The term Shares means the interests of Shareholders corresponding to the redeemable securities of record issued by the Fund under the Investment Company Act of 1940 that are held by you.
(c) The term Shareholder means the beneficial owner of Shares, whether the Shares are held directly or by you in nominee name.
(d) Note that the term Shareholder may have alternative meanings as follows: (1) for Retirement Plan Recordkeepers the term Shareholder means the Plan participant notwithstanding that the Plan may be deemed to be the beneficial owner of Shares and (2) for Insurance Companies the term Shareholder means the holder of interests in a variable annuity or variable life insurance contract issued by an Intermediary.
(e) The term written includes electronic writings and facsimile transmissions.
9 | 12-11 |
Exhibit (h)(11)
September 30, 2013
Natixis Funds Trust II
399 Boylston Street
Boston, MA 02116
Re: Fee Waiver/Expense Reimbursement
Ladies and Gentlemen:
AlphaSimplex Group, LLC (AlphaSimplex) notifies you that it will reduce its management fee and to the extent necessary, bear certain expenses of the ASG Tactical U.S. Market Fund (the Fund) effective, September 30, 2013 through April 30, 2015 to the extent that the total annual fund operating expenses of each class of the Fund, exclusive of acquired fund fees and expenses, brokerage, interest, taxes and organizational and extraordinary expenses, such as litigation and indemnification expenses, would exceed the following annual rates:
Name of Fund |
Expense Cap | |
September 30, 2013 through April 30, 2015: | ||
ASG Tactical U.S. Market Fund1 | 1.40% for Class A shares | |
2.15%for Class C shares | ||
1.15%for Class Y shares |
1 | The expense caps account for advisory fees payable to AlphaSimplex. NGAM Advisors, L.P. (NGAM Advisors) will bear a portion of the waiver at the actual percent of the fee paid to NGAM Advisors (Support Services Fee) divided by the management fee earned by AlphaSimplex. |
With respect to the Fund, subject to applicable legal requirements, AlphaSimplex shall be permitted to recover, on a class-by-class basis, management fees reduced and/or any expenses it has borne subsequent to the effective date of this agreement in later periods to the extent that a class total annual fund operating expenses fall below the annual rates set forth above; provided, however, that AlphaSimplex is not entitled to recover any such reduced fees and expenses with respect to a class more than one year after the end of the fiscal year in which the fee/expense was deferred.
During the period covered by this agreement, the expense cap arrangement set forth above for the Fund may only be modified by a majority vote of the non-interested Trustees of Natixis Funds Trust II.
For purposes of determining any such waiver or expense reimbursement, expenses of the class of the Fund shall not reflect the application of balance credits made available by the Funds custodian or arrangements under which broker-dealers that execute portfolio transactions for the Fund agree to bear some portion of Fund expenses.
Exhibit (h)(11)
We understand and intend that you will rely on this undertaking in preparing and filing the Registration Statements on Form N-1A for the Fund with the Securities and Exchange Commission, in accruing the Funds expenses for purposes of calculating its net asset value per share, and for other purposes permitted under Form N-1A and/or the Investment Company Act of 1940, as amended, and expressly permit you to do so.
AlphaSimplex Group, LLC | ||
By: | /s/ Kendall Walker | |
Name: Kendall Walker | ||
Title: Chief Financial Officer |
Exhibit (m)(12)(a)
ASG TACTICAL U.S. MARKET FUND
Class A 12b-1 Plan
This Plan (the Plan) constitutes the Service Plan relating to the Class A shares of ASG Tactical U.S. Market Fund (the Series), a series of Natixis Funds Trust II, a Massachusetts business trust (the Trust).
Section 1. The Trust, on behalf of the Series, will pay to NGAM Distribution, L.P., a Delaware limited partnership which acts as the Principal Distributor of the Series shares, or such other entity as shall from time to time act as the Principal Distributor of the Series shares (the Distributor), a fee (the Service Fee) for expenses borne by the Distributor in connection with the provision of personal services provided to investors in Class A shares of the Series or the maintenance of shareholder accounts, at an annual rate not to exceed 0.25% of the Series average daily net assets attributable to the Class A shares. Subject to such limit and subject to the provisions of Section 7 hereof, the Service Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. All payments of Service Fees are intended to qualify as service fees as defined in Rule 2830(b)(9) of the Financial Industry Regulatory Authority (or any successor provision) Conduct Rules as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the Distributor for expenses of providing personal services to investors in Class A shares of the Series, including, but not limited to, (i) expenses (including overhead expenses) of the Distributor for providing personal services to investors in Class A shares of the Series or in connection with the maintenance of shareholder accounts and (ii) payments made by the Distributor to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors in Class A shares of the Series or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more than one year only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940, as amended (the Act) or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement.
-1-
Exhibit (m)(12)(a)
Section 4. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Class A shares of the Series.
Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide:
A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Class A shares of the Series, on not more than 60 days written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its assignment.
Section 7. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Section 1 hereof without approval by a vote of at least a majority of the outstanding Class A shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 3.
Section 8. As used in this Plan, (a) the term Independent Trustees shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms assignment and interested person shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term majority of the outstanding Class A shares of the Series shall mean the lesser of the 67% or the 50% voting requirements specified in clauses (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission.
-2-
Exhibit (m)(12)(b)
ASG TACTICAL U.S. MARKET FUND
Class C Distribution and Service Plan
This Plan (the Plan) constitutes the Distribution and Service Plan relating to the Class C shares of ASG Tactical U.S. Market Fund (the Series), a series of Natixis Funds Trust II, a Massachusetts business trust (the Trust).
Section 1. Service Fee. The Trust, on behalf of the Series, will pay to NGAM Distribution, L.P. (NGAM Distribution), a Delaware limited partnership which acts as the Principal Distributor of the Series shares, or such other entity as shall from time to time act as the Principal Distributor of the Series shares (the Distributor), a fee (the Service Fee) at an annual rate not to exceed 0.25% of the Series average daily net assets attributable to the Class C shares. Subject to such limit and subject to the provisions of Section 7 hereof, the Service Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust (as defined in Section 8 below); provided, however, that no Service Fee or other fee that is a service fee as defined in Rule 2830(b)(9) of the Financial Industry Regulatory Authority (or any successor provision thereto) Conduct Rules as in effect from time to time (the FINRA Rule) shall be paid, with respect to Class C shares of the Series, to NGAM Distribution (or to any affiliate of NGAM Distribution, or to any other person in circumstances where substantially all of the services and functions relating to the distribution of Class C shares of the Series have been delegated to, or are being performed by, NGAM Distribution or an affiliate of NGAM Distribution), under this Plan or otherwise, if the Distribution Fee is terminated or is reduced below the rate set forth in Section 2. The Service Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. The Distributor may pay all or any portion of the Service Fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as service fees pursuant to agreements with such organizations for providing personal services to investors in Class C shares of the Series and/or the maintenance of shareholder accounts, and may retain all or any portion of the Service Fee as compensation for providing personal services to investors in Class C shares of the Series and/or the maintenance of shareholder accounts. All payments under this Section 1 are intended to qualify as service fees as defined in the FINRA Rule.
Section 2. Distribution Fee. In addition to the Service Fee, the Trust, on behalf of the Series, will pay to the Distributor a fee (the Distribution Fee) at an annual rate of 0.75% of the Series average daily net assets attributable to the Class C shares (unless reduced as contemplated by and permitted pursuant to the next sentence hereof) in consideration of the services rendered in connection with the sale of such shares by the Distributor. The Trust will not terminate the Distribution Fee in respect of Series assets attributable to Class C shares, or pay such fee at an annual rate of less than 0.75% of the Series average daily net assets attributable to the Class C shares, unless it has ceased, and not resumed, paying the Service Fee (or any other fee that constitutes a service fee as defined in the FINRA Rule) to NGAM Distribution (or to any affiliate of NGAM Distribution, or to any other person in circumstances where substantially all of the services and functions relating to the distribution of Class C shares of the Series have been delegated to, or are being performed by, NGAM Distribution or an affiliate of NGAM Distribution). Subject to such restriction and subject to the provisions of Section 7 hereof, the Distribution Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Distribution Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine.
-1-
Exhibit (m)(12)(b)
The obligation of the Series to pay the Distribution Fee shall terminate upon the termination of this Plan or the relevant distribution agreement between the Distributor and the Trust relating to the Series, in accordance with the terms hereof or thereof, but until any such termination shall not be subject to any dispute, offset, counterclaim or defense whatsoever (it being understood that nothing in this sentence shall be deemed a waiver by the Trust or the Series of its right separately to pursue any claims it may have against the Distributor and enforce such claims against any assets of the Distributor (other than its right to be paid the Distribution Fee and to be paid contingent deferred sales charges)).
The right of NGAM Distribution to receive the Distribution Fee (but not the relevant distribution agreement or NGAM Distributions obligations thereunder) may be transferred by NGAM Distribution in order to raise funds which may be useful or necessary to perform its duties as principal underwriter, and any such transfer shall be effective upon written notice from NGAM Distribution to the Trust. In connection with the foregoing, the Series is authorized to pay all or part of the Distribution Fee directly to such transferee as directed by NGAM Distribution.
The Distributor may pay all or any portion of the Distribution Fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as commissions, asset-based sales charges or other compensation with respect to the sale of Class C shares of the Series, and may retain all or any portion of the Distribution Fee as compensation for the Distributors services as principal underwriter of the Class C shares of the Series. All payments under this Section 2 are intended to qualify as asset-based sales charges as defined in the FINRA Rule.
Section 3. This Plan shall continue in effect for a period of more than one year only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940, as amended (the Act) or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan.
Section 4. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Class C shares of the Series.
-2-
Exhibit (m)(12)(b)
Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide:
A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Class C shares of the Series, on not more than 60 days written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its assignment.
Section 7. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Sections 1 or 2 hereof without approval by a vote of at least a majority of the outstanding Class C shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 3.
Section 8. As used in this Plan, (a) the term Independent Trustees shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms assignment and interested person shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term majority of the outstanding Class C shares of the Series shall mean the lesser of the 67% or the 50% voting requirements specified in clauses (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission.
-3-
Exhibit (p)(3)
Harris Associates L.P., Harris Associates Securities L.P. and Harris Associates Investment Trust
Code of Ethics and Statement on Insider Trading
As Amended, Effective as of April 8, 2013
I. | DEFINITIONS |
A. | Firm or Harris. The term Firm or Harris shall include Harris Associates L.P. (HALP) and Harris Associates Securities L.P. (HASLP). |
B. | Trust. The term Trust shall mean Harris Associates Investment Trust, including any series of shares of beneficial interest of the Trust (each, a Fund). |
C. | Employee. The term Employee shall include any person employed by the Firm, whether on a full or part-time basis and all partners, officers, shareholders and directors (other than Non-Access Directors (as defined below)) of the Firm. |
D. | Access Person. The term Access Person shall have the meaning set forth in Section 17j-1(a)(1) of the Investment Company Act of 1940 and rules thereunder (the Act) and Section 204A-1(e)(1) of the Investment Advisers Act of 1940 (the Advisers Act). Accordingly, Access Person means any director, officer, general partner, or Advisory Person (as defined below) of the Trust or HALP, but shall not include (1) any trustee of the Trust who is not an interested person of the Trust; (2) any trustee of the Trust who is designated an interested person, as defined in Section 2(a)(19) of the Investment Company Act of 1940, but is not a director, officer, general partner or Advisory Person of HALP, HASLP or Harris Associates, Inc.; and (3) in the case of HALP, shall not include any Non-Access Director. |
E. | Advisory Person. The term Advisory Person shall have the meaning set forth in Section 17j-1(a)(2) of the Act. Accordingly, Advisory Person means any Employee of the Firm, who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities (as defined below) by a Client (as defined below), or whose functions relate to the making of any recommendations with respect to purchases and sales. For the purpose of this Code, each Employee of the Firm with an office at the Firms principal place of business shall be deemed to be an Advisory Person. |
F. | Persons Subject to this Code. Each Employee is subject to this Code. In addition, Non-Access Directors are subject to the following provisions of this Code: II.A, II.B, II.C.i, II.J, and III (except for III.B.3 (i), (ii) and (iv) and the last sentence of III.B.4). |
1
Exhibit (p)(3)
G. | Covered Security. The term Covered Security shall have the meaning set forth in Section 2(a)(36) of the Act1, including any right to acquire such security, except that it shall not include securities which are direct obligations of the Government of the United States or any other country, bankers acceptances, bank certificates of deposit, commercial paper, high quality short-term debt instruments (including repurchase agreements), and shares issued by open-end investment companies other than Reportable Funds (defined below). In addition, all exchange-traded funds (ETFs), whether registered as open-end management companies or unit investment trusts, shall be treated as Covered Securities for reporting purposes only. |
H. | Reportable Fund. The term Reportable Fund shall have the meaning set forth in Section 204A-1(e)(9) of the Advisers Act. Reportable Fund means any investment company registered under the Act that is advised or sub-advised or distributed by the Firm or any affiliated company (e.g. Natixis Asset Management Advisers, Loomis Sayles, Hansberger). Reportable Funds include, for example, open-ended investment companies and closed-end funds2. A current list of Reportable Funds is maintained on the Compliance page of the Firms intranet site. |
I. | Beneficial Interest or Ownership. The term beneficial interest or ownership shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and rules thereunder, which includes any interest in which a person, directly or indirectly, has or shares a direct or indirect pecuniary interest. A pecuniary interest is the opportunity, directly or indirectly, to profit or share in any profit derived from any transaction. Each person will be assumed to have a pecuniary interest, and therefore, beneficial interest or ownership, in all securities held by that person, that persons spouse, all members of that persons immediate family and adults sharing the same household with that person (other than mere roommates) and all minor children of that person and in all accounts subject to their direct or indirect influence or control and/or through which they obtain the substantial equivalent of ownership, such as trusts in which they are a trustee or beneficiary, partnerships in which they are the general partner, corporations in which they are a controlling shareholder or any other similar arrangement. Any questions an Employee may have about |
1 | Sec. 2(a)(36) Security means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a security, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. |
2 | Reportable Funds that are money market funds are not subject to the Codes reporting requirements (see Section II.G Procedures to Implement Trading Restrictions and Reporting Obligations). |
2
Exhibit (p)(3)
whether an interest in a security or an account constitutes beneficial interest or ownership should be directed to the Firms General Counsel or Compliance Department. Examples of beneficial interest or ownership are attached as Appendix A. |
J. | Client. The term Client shall mean any client of HALP, including any Fund. |
K. | Special Compliance Person. The term Special Compliance Person shall mean the current Compliance Officer of IXIS Asset Management North America. |
L. | Non-Access Director. The term Non-Access Director shall mean any person who is a Director of Harris Associates, Inc., the corporate general partner of HALP and HASLP, but who is not an officer or employee of any of HALP, HASLP or Harris Associates, Inc. and who meets all of the following conditions: |
i. | He or she, in connection with his or her regular functions or duties, does not make, participate in or obtain information regarding the purchase or sale of Covered Securities by a registered investment company, and whose functions do not relate to the making of recommendations with respect to such purchases or sales; |
ii. | He or she does not have access to nonpublic information regarding any Firm clients purchases or sales of securities (other than information contained in standard account statements or reports that the Firm may furnish to such person in his or her capacity as a client of the Firm), or nonpublic information regarding the portfolio holdings of any Reportable Fund; and |
iii. | He or she is not involved in making securities recommendations to Firm clients, and does not have access to such recommendations that are nonpublic (other than information contained in standard account statements or reports that the Firm may furnish to such person in his or her capacity as a client of the Firm). |
II. | CODE OF ETHICS |
A. | GENERAL STATEMENT |
Harris seeks to foster a reputation for integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in us by investors in mutual funds and clients with accounts advised by the Firm is something that is highly valued and must be protected. The Firm owes a fiduciary duty to its advisory clients, and the fundamental principle of the Firm is that at all times the interests of its Clients come first. As a result, any activity which creates even the suspicion of misuse of material non-public information by the Firm or any of its Employees, which gives rise to or appears to give rise to any breach of fiduciary duty owed to any Client, or which creates any actual or potential conflict of interest between any Client and the Firm or any of its Employees or even the appearance of any conflict of interest must be avoided and is prohibited.
3
Exhibit (p)(3)
The Investment Company Act and rules make it illegal for any person covered by the Code, directly or indirectly, in connection with the purchase or sale of a security held or to be acquired by the Trust to:
i.) | employ any device, scheme, or artifice to defraud the Trust; |
ii.) | make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of circumstances under which they are made, not misleading or in any way mislead the Trust regarding a material fact; |
iii.) | engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Trust; or |
iv.) | engage in any manipulative practice with respect to the Trust. |
The restrictions on personal securities transactions contained in this Code are intended to help the Firm monitor for compliance with these prohibitions.
Additionally, the federal securities laws require that an investment adviser maintain a record of every transaction in any Covered Security and Reportable Fund in which an Access Person acquires any direct or indirect beneficial interest or ownership, except any transaction in an account in which the Access Person has no direct or indirect control or influence.
To attempt to ensure that each Person Subject to this Code satisfies this Code and these record keeping obligations, the Firm has developed the following rules relating to personal securities trading, outside employment, personal investments with external investment managers and confidentiality.
The General Counsel, President, and Chief Compliance Officer, acting in concert, have the authority to grant written waivers of the provisions of this Code in appropriate instances. However, the Firm expects that waivers will be granted only in rare instances, and some provisions of the Code that are mandated by the Act or the Advisers Act cannot be waived.
The Firm expects all Access Persons to comply with the spirit of the Code as well as the specific rules contained in the Code. Any violations of the Code must be reported promptly to the Firms Chief Compliance Officer.
4
Exhibit (p)(3)
B. | COMPLIANCE WITH FEDERAL SECURITIES LAWS |
More generally, Firm personnel and Non-Access Directors are required to comply with applicable federal securities laws at all times. Examples of applicable federal securities laws include:
i.) | the Securities Act of 1933, Securities Act of 1934, Sarbanes-Oxley Act of 2002 and SEC rules thereunder; |
ii.) | the Investment Advisers Act of 1940 and SEC rules thereunder; |
iii.) | the Investment Company Act of 1940 and SEC rules thereunder; |
iv.) | Title V of the Gramm-Leach-Bliley Act of 1999 (privacy and security of client non-public information); and |
v.) | the Bank Secrecy Act, as it applies to mutual funds and investment advisers, and SEC and Department of the Treasury rules thereunder. |
C. | RESTRICTIONS ON EMPLOYEE TRADING |
No trading activity by an Employee in any security in which an Employee has any beneficial interest or ownership which is also the subject of a Client portfolio purchase or sale shall disadvantage or appear to disadvantage such Client transaction. Further, the following specific restrictions apply to all trading activity for Advisory Persons:
i.) | Any transaction in a security in anticipation of client orders (frontrunning) is prohibited, |
ii.) | Any transaction in a security which is the subject of approval by one of the Firms stock selection groups for addition to an approved list is prohibited until the tenth business day following the dissemination of that recommendation, or any longer period specified in this Code, |
iii.) | Any transaction in a security which the Advisory Person knows or has reason to believe is being purchased or sold or considered for purchase or sale3 by any investment company advised by the Firm is prohibited until the transaction by such investment company has been completed or consideration of such transaction has been abandoned,4 |
3 | A security is being considered for purchase or sale; the earlier of, when a recommendation to purchase or sell has been made and communicated or the security is placed on the research project list and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. |
4 | Among the clients of the Firm are private investment partnerships (partnerships) in which various Employees of the Firm have equity interests. This trading prohibition shall not restrict purchases or sales for the accounts of such partnerships provided that the Trust and such accounts are treated fairly and equitably in connection with such purchases and sales. |
5
Exhibit (p)(3)
iv.) | Any transaction in a security on the same day or within two business days after any Client, including a registered investment company, advised by the Firm has a pending or actual transaction is prohibited. If an Advisory Person places a same day order for such security prior to the Client placing an order, the Employees order will be canceled, |
v.) | Any transaction involving options5, single stock futures, or other derivatives relating to any security on the Firms approved and project lists, or which are held by any investment company or other client account advised by the Firm that appears to evade the restrictions of the Code is prohibited, and |
vi.) | Any acquisition of an equity security in an initial public offering is prohibited. |
Additionally, no Employee of the Firm shall knowingly sell to or purchase from the Funds or the Trust any security or other property except, in the case of the Funds, securities issued by the Funds. Neither shall the Firm, HASL nor any Employee share in the profits or losses in any account of a customer carried by the Firm or HASL or any other FINRA member, except to the extent provided for by Rule 205-3 of the Investment Advisors Act of 1940 and/or NASD Rule 2330 and/or FINRA Rule 2150, as applicable.
D. | PRIVATE PLACEMENTS AND INVESTMENTS WITH EXTERNAL MONEY MANAGERS. |
No Advisory Person or Access Person shall acquire any security or interest in a private placement or commit initial capital to any account for which such person has any beneficial interest (other than non-affiliated mutual funds where the account is held directly at such fund) with an external investment manager without the prior written approval of the Firms President and Chief Compliance Officer. For purposes of this Code, private placement shall mean any limited offering that is generally not available to the public, including unregistered investment pool vehicles (e.g., hedge funds, commodity pools), Rule 144A securities, limited partnerships, etc.
In deciding whether to grant approval, consideration will be given to whether the investment is consistent with the Firms investment philosophy and guidelines and should be offered to Clients, and whether the investment creates an actual conflict or the appearance of a conflict of interest. An Advisory Person who has acquired a security in a private placement must disclose that investment to the Firms President and Chief Compliance Officer if such Advisory Person later participates in the consideration of that issuer for inclusion on any list of securities approved for purchase by Firm clients.
5 | The only form of equity option trading that is permitted is writing covered calls on equity securities that are not held in clients accounts or on the Firms approved or project lists. Index option trading is permitted subject to having an approved option agreement on file with Pershing prior to trading. |
6
Exhibit (p)(3)
E. | ADDITIONAL RESTRICTION ON FUND MANAGERS OF INVESTMENT COMPANY ACCOUNTS. |
Any Access Person who is a fund manager of any registered investment company that is advised or subadvised by the Firm is prohibited from buying or selling a security for an account in which he or she has a beneficial interest within fifteen calendar days before and after the investment company that he/she manages trades in that security. Any profits realized on trades within the proscribed periods shall be required to be disgorged.6 Any losses realized on trades within the proscribed periods shall be borne by the fund manager if it was the managers actions which caused the violation.
F. | CERTAIN ACCOUNTS EXEMPT FROM REQUIREMENTS OF CODE. |
Any account (including open-end investment companies and limited partnerships) for which the Firm acts as investment adviser or general partner shall be managed in accordance with the Firms trading procedures for a Client account. Any such account shall be exempt from the provisions of Sections C and E of Part II of this Code if: (1) the account has been seeded by affiliated persons of the firm and is being managed in anticipation of investments by persons not affiliated with the Firm; or (2) unaffiliated persons of the Firm are also invested in the account; or (3) the account is operated as a model portfolio in contemplation of management of client accounts in the same or a similar strategy.
G. | PROCEDURES TO IMPLEMENT TRADING RESTRICTIONS AND REPORTING OBLIGATIONS. |
1. | Trading through Harris Trading Desk. |
All Advisory Persons who have personal accounts that hold or can hold Covered Securities are required to maintain such accounts at Pershing LLC (Pershing), the Firms prime broker. All transactions in Covered Securities in which an Advisory Person has any beneficial interest or ownership, or in any accounts in which an Advisory Person has discretion, other than fee paying accounts that are professionally managed on a discretionary basis, must be processed through the Firms trading desk.
Transactions at brokers or banks other than Pershing are not permitted except in unusual circumstances and then only after the Advisory Person has: (i) provided a request in writing to his/her Supervisor and the Chief Compliance Officer prior to opening or placing an initial order in an account with such other broker or bank, (ii) obtained the written approval of his/her Supervisor and the Chief Compliance Officer prior to opening or placing an initial order in such
6 | Any profits disgorged shall be taken as gains in Harriss error account at Pershing. |
7
Exhibit (p)(3)
account, (iii) provided such other broker or bank with a written notice of the Advisory Persons affiliation with Harris and request that copies of confirmations and statements be sent to the Firms Compliance Department, and provide a report to the Firm that includes the name of the broker or bank with whom the account was established, the date the account was established, and the date the report is submitted. A copy of such written notice and request should also be provided to his/her Supervisor and the Compliance Department.
Reportable Funds in which an Advisory Person has any beneficial interest or ownership may be held in a Pershing account, an approved outside brokerage account, directly with the Fund or through the Firms profit sharing and savings plan, and are subject to the reporting requirements described in Section II.G.6 below. Reportable Fund transactions effected pursuant to an automatic investment plan or in any account over which the Access Person has no direct or indirect influence or control do not need to be reported.
Even after an Advisory Person has obtained approval to open a non-discretionary account at a bank or broker to execute Covered Securities transactions, the Advisory Person must still present the Firms trading desk with an order ticket for an order to be executed at the other broker or bank. In those situations in which it is inappropriate for the Firms trading desk to execute the order, the Advisory Person must promptly present Compliance with a completed order ticket reflecting the details of the transaction and clearly indicating that the transaction has been completed. Non-Pershing discretionary account transactions do not need to be presented to Trading for review and approval. Compliance will review these statements upon their receipt.
2. | Monitoring of Trades. |
Transactions for an account of an Advisory Person that are executed through the Firms trading desk are to be monitored by the Trading Department and reviewed and approved by the Chief Compliance Officer (or such party to whom he or she delegates). These transactions are non-discretionary transactions, should be so marked on the original order ticket as unsolicited and unsupervised and may not be executed if they are in conflict with discretionary orders. Should a conflict arise, sharing of executions may be approved by the Chief Investment Officer, or in his/her absence, the Trading Supervisor.
The Firms Compliance Department will access Advisory Person trade information online from Pershing (including the title and exchange ticker symbol or CUSIP number of each Covered Security or Reportable Fund involved, the date of the transaction, the interest rate and maturity rate (if applicable), the number of shares and principal amount of each Covered Security or Reportable Fund involved, the nature of the transaction (i.e. buy/sell), the price at which the transaction was effected, the name of the broker or bank through which the transaction was effected, and the date on which the report is submitted).
8
Exhibit (p)(3)
Transactions at brokers other than Pershing, in addition to being placed through the trading desk, are to be monitored by the Compliance Department. To accomplish this, all Access Persons shall submit to the Compliance Department within thirty days after the month end in which any transaction occurred a report which includes the title and exchange ticker or CUSIP number of the Covered Security or Reportable Fund, the date of the transaction, the interest rate and maturity rate (if applicable), the number of shares and principal amount of each Covered Security or Reportable Fund involved, the nature of the transaction (i.e. buy/sell), the price at which the transaction was effected, the name of the broker or bank through which the transaction was effected and the date on which the report is submitted. This requirement may be satisfied by having the broker or bank send the Firm duplicate copies of confirmations and statements, provided that such confirmations and statements contain all of the information otherwise required to be provided in the report. The Compliance Department will maintain copies of all such transaction reports.
9
Exhibit (p)(3)
3. | Cancellation of Trades. |
Any transaction for an account of an Access Person is subject to cancellation or reversal if it is determined by either the President (or such party to whom he delegates), the Trading Supervisor, or the Compliance Department that the transaction is or was in conflict with or appeared to be in conflict with any Client transaction or any of the trading restrictions of this Code. Cancellations or reversals of transactions may be required after an extended period past the settlement date. The Trading Supervisor may also prevent the execution of orders for an Advisory Persons account if it appears that the trade may have to be canceled or reversed.
Client transactions include transactions for any investment company managed by the Firm, any other discretionary advisory clients or any other accounts managed or advised by Employees of the Firm for a fee.
The determination that a transaction of an Access Person may conflict with a Client transaction will be subjective and individualized and may include questions about timely and adequate dissemination of information, availability of bids and offers, as well as many other factors deemed pertinent for that transaction or series of transactions. It is possible that a cancellation or reversal of a transaction could be costly to an Access Person or his/her family. Therefore, great care is required to adhere to the Firms trading restrictions and avoid conflicts or the appearance of conflicts.
4. | Participation in Dividend Reinvestment Plans and Systematic Purchase Plans. |
Advisory Persons may purchase Covered Securities through dividend reinvestment plans or systematic purchase plans without processing such transactions through the Firms trading desk. Purchases are permitted only after the Advisory Person has: (i) provided notice in writing to his/her Supervisor and the Compliance Department prior to opening an account or placing an initial purchase, and (ii) obtained the written approval of his/her Supervisor and the Compliance Department prior to opening an account or placing an initial purchase. Notice and approval shall not be required in connection with purchase of shares or units of ETFs. Even after the Advisory Person has obtained approval to invest in such a plan, the Advisory Person must provide the Compliance Department with duplicate copies of statements within thirty days after the end of each calendar quarter. Such report or statements must contain all of the information required to be reported with respect to transactions in Covered Securities under II(F)(2) above. The Compliance Department will maintain copies of all such transaction reports.
10
Exhibit (p)(3)
5. | Reporting All Other Securities Transactions. |
Because the obligations of an investment adviser to maintain records of Employees personal securities transactions is broader than the type of transactions discussed above in this Section, all Employees have the following additional reporting obligations. Any transaction in a Covered Security not required to be placed through the Firms trading desk in which an Employee has any beneficial interest or ownership (such as, real estate or oil and gas limited partnership interests and other privately placed securities and funds) must be reported to the Compliance Department. This report must be submitted within thirty days after the end of each calendar quarter and include: the title and exchange ticker symbol or CUSIP number, price, number of shares and principal amount of each Covered Security involved, the date and nature of the transaction (i.e. buy/sell), the name of the broker or bank used, if any, interest rate and maturity, if applicable, and the date on which the report is submitted. This report may be in any form, including a copy of a confirmation or monthly statement. However, no report is necessary for any transaction in an account in which the Employee has no control or influence.
6. | Initial, Quarterly and Annual Reporting Requirements. |
Each Access Person shall initially disclose in writing to the Compliance Department within ten days of becoming an Access Person, and annually thereafter, within forty-five days after each calendar year-end, the title and exchange ticker or CUSIP number, type of security, number of shares and principal amount of all Covered Securities and Reportable Funds beneficially owned by such Access Person, and the date the Access Person submits the report, with information as of a date that is no more than forty-five days from the date of becoming a Access Person, or as of the preceding December 31 for annual reporting, and the name of the broker or bank with whom the Access Person maintains an account in which he or she has beneficial ownership of any security. An Access Person need not make an Initial or Annual Report for Covered Securities held in any account over which the Employee has no direct or indirect influence or control.
Additionally, each Access Person shall submit quarterly transaction reports and responses to quarterly questionnaires no later than 30 days after the end of each calendar quarter.
H. | CONFIDENTIALITY & OBLIGATIONS OF EMPLOYEES |
During the period of employment with the Firm an Employee will have access to certain confidential information concerning the Firm and its clients. This information is a valuable asset and the sole property of the Firm and may not be misappropriated and used outside of the Firm by an Employee or former Employee. Confidential Information, defined as all information not publicly available about the business of the Firm, may include, but is not limited to, Client and prospect names and records, research, trading and portfolio information and systems, information concerning externally managed entities or accounts which have been
11
Exhibit (p)(3)
considered or made on behalf of fee paying clients, and the financial records of the Firm and/or its Employees. In order to protect the interests of the Firm, an Employee or ex-Employee shall not, without the express written consent of the Firms President, disclose directly or indirectly confidential information to anyone outside of the Firm. An Employee should be extremely careful to avoid inadvertent disclosures and to exercise maximum effort to keep confidential information confidential. Any questions concerning the confidentiality of information should be directed to the Chief Compliance Officer or the General Counsel. An abuse of the Firms policy of confidentiality could subject an Employee to immediate disciplinary action that may include dismissal from the Firm.
I. | OUTSIDE EMPLOYMENT, ASSOCIATIONS AND BUSINESS ACTIVITIES7 |
1. | Outside Employment and Associations. |
Harris requires that all Advisory Persons make their positions with the Firm their primary employment. Except in the case of business entities managed or sponsored by the Firm, it is Harriss policy not to permit Advisory Persons to hold outside positions of authority, including that of being an officer, partner, director or employee, in another business entity. The approval of Harris, and in some cases the approval of FINRA, is required before any Advisory Person may hold any outside position with any business organization, regardless of whether such position is compensated or not. Any exception to this policy must be approved in writing by the Firms President or his or her designee and the Advisory Persons Supervisor, and a copy of such approval shall be provided by the Advisory Person to the Compliance Department. Any change in the status of such approved position immediately must be reported in writing to the Compliance Department and the Advisory Persons Supervisor. Any income or compensation received by an Advisory Person for serving in such position must be paid in full to the Firm, unless a waiver is granted by the Firms President. Under no circumstance may an Advisory Person represent or suggest that Harris has approved or recommended the business activities of the outside organization or any person associated with it.
Certain types of associations with non-business entities, charitable or volunteer organizations where the Advisory Person does not hold a position of authority such as a member of the board or senior management, and the activity is voluntary in nature, (e.g., Boy or Girl Scouts leader, condo association board); or involve random and infrequent participation in industry association or marketing focus groups where an honorarium is paid, and other similarly situated positions are exempted from this sections restrictions and reporting.
7 | As used in this section, the terms business entity and business organization include nonprofits such as charities, foundations, religious and arts organizations, universities, and other similar types of entities. |
12
Exhibit (p)(3)
2. | Outside Business Activities. |
To further avoid actual or potential conflicts of interest and to maintain impartial investment advice, and equally important, the appearance of impartial investment advice, each Advisory Person must disclose in writing to the Compliance Department any special relationships and/or investments or business activities that they or their families have which could influence the investment activities of the Firm. If an Employee has any questions about any activities and the need for disclosure, the Employee should be cautious and direct any questions to the Firms General Counsel or Compliance Department.
J. | Certification of Compliance by Access Persons. |
The Firm shall distribute the Code to each Employee and Non-Access Director upon inception of employment and whenever the Code is amended, but no less frequently than annually. Each Access Person and Non-Access Director is required to certify in writing annually that (i) he or she has read and understands the Code, (ii) recognizes that he or she is subject to the Code, and, in the case of Access Persons, (iii) he or she has disclosed or reported all Personal Securities Transactions required to be disclosed or reported under the Code.
Each Access Person who has not engaged in any personal securities transactions during the preceding year for which a report was required to be filed pursuant to the Code shall include a certification to that effect in his or her annual certification.
K. | Annual Report to the Trusts Board of Trustees. |
HALP, as the adviser to the Trust, shall prepare an annual report to the board of trustees of the Trust that:
i.) | summarizes existing procedures concerning personal investing and any changes in those procedures during the past year; |
ii.) | describes issues that arose during the previous year under the Code or procedures concerning personal investing, including but not limited to information about material violations of the Code and sanctions imposed; |
iii.) | certifies to the board that the Trust, the Trusts adviser (HALP), and the Trusts principal distributor (HASLP) have adopted procedures reasonably necessary to prevent their Investment Personnel and Access Persons from violating the Code; and |
iv.) | identifies any recommended changes in existing restrictions or procedures based upon experience under the Code, evolving industry practices, or developments in applicable laws or regulations. |
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Exhibit (p)(3)
III. | POLICY STATEMENT ON INSIDER TRADING |
A. | BACKGROUND |
Trading securities while in possession of material, nonpublic information or improperly communicating that information to others may expose you to stringent penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. The Securities and Exchange Commission (SEC) can recover the profits gained or losses avoided through the violative trading, obtain a penalty of up to three times the illicit windfall and issue an order permanently barring you from the securities industry. Finally, you may be sued by investors seeking to recover damages for insider trading violations.
Regardless of whether a government inquiry occurs, Harris views seriously any violation of this Policy Statement. Such violations constitute grounds for disciplinary sanctions, including dismissal.
The law of insider trading is unsettled; an individual legitimately may be uncertain about the application of the Policy Statement in a particular circumstance. Often, a single question can forestall disciplinary action or complex legal problems. You should direct any questions relating to the Policy Statement to the General Counsel, the Chief Compliance Officer or, in their absence, the President of the Firm. You also must notify the General Counsel, the Chief Compliance Officer or, in their absence, the President immediately if you have any reason to believe that a violation of the Policy Statement has occurred or is about to occur.
B. | POLICY STATEMENT ON INSIDER TRADING |
No person to whom this Policy Statement applies may trade, either personally or on behalf of others (such as Clients), while in possession of material, nonpublic information; nor may such persons communicate material, nonpublic information to others in violation of the law. This Policy Statement is drafted broadly; it will be applied and interpreted in a similar manner. This Policy Statement applies to securities trading and information handling by all Access Persons (including their spouses, minor children and adult members of their households).
The section below reviews principles important to this Policy Statement.
1. | What is Material Information? |
Information is material when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this is information whose disclosure will have a substantial effect on the price of a companys securities. No simple bright line test exists to determine when information is material; assessments of materiality involve a highly fact-specific inquiry. For this reason, you should direct any questions about whether information is material to the General Counsel or Chief Compliance Officer, or, in their absence, the President of Harris.
14
Exhibit (p)(3)
Material information often relates to a companys results and operations including, for example, dividend changes, earnings results, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments.
Material information also may relate to the market for a companys securities. Information about a significant order to purchase or sell securities may, in some contexts, be deemed material. Similarly, prepublication information regarding reports in the financial press also may be deemed material.
2. | What is Nonpublic Information? |
Information is nonpublic until it has been disseminated broadly to investors in the marketplace. Tangible evidence of such dissemination is the best indication that the information is public. For example, information is public after it has become available to the general public through a public filing with the SEC or some other governmental agency, the Dow Jones tape or the WALL STREET JOURNAL or some other publication of general circulation, and after sufficient time has passed so that the information has been disseminated widely.
3. | Identifying Inside Information |
Before executing any trade for yourself or others, including Clients, you must determine whether you have access to material, nonpublic information. If you think that you might have access to material, nonpublic information, you should take the following steps:
i.) | Immediately alert the Trading Department to restrict trading in the security. No reason or explanation should be given to the Trading Department for the restriction. |
ii.) | Report the information and proposed trade immediately to the General Counsel or the Chief Compliance Officer, or in their absence, the President of Harris. |
iii.) | Do not purchase or sell the securities on behalf of yourself or others, including Clients. |
iv.) | Do not communicate the information inside or outside Harris other than to the above individuals. |
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Exhibit (p)(3)
v.) | After the above individuals have reviewed the issue, the Firm will determine whether the information is material and nonpublic and, if so, what action(s) the Firm should take. |
4. | Contacts with Public Companies |
For Harris, contacts with public companies represent an important part of our research efforts. Harris may make investment decisions on the basis of the Firms conclusions formed through such contacts and analysis of publicly-available information. Difficult legal issues arise, however, when, in the course of these contacts, an Access Person becomes aware of material, nonpublic information. This could happen, for example, if a companys Chief Financial Officer prematurely discloses quarterly results to an analyst or an investor relations representative makes a selective disclosure of adverse news to a handful of investors. In such situations, Harris must make a judgment as to its further conduct. To protect yourself, Clients and the Firm, you should contact the General Counsel, or in her absence, a member of the Stock Selection Group, or Compliance Department immediately if you believe that you may have received material, nonpublic information.
5. | Tender Offers |
Tender offers represent a particular concern in the law of insider trading for two reasons. First, tender offer activity often produces extraordinary gyrations in the price of the target companys securities. Trading during this time period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule which expressly forbids trading and tipping while in possession of material, nonpublic information regarding a tender offer received from the tender offeror, the target company or anyone acting on behalf of either. Employees should exercise particular caution any time they become aware of nonpublic information relating to a tender offer.
C. | PROCEDURES TO IMPLEMENT THE POLICY STATEMENT ON INSIDER TRADING |
1. | Personal Securities Trading |
The restrictions on Employee trading and procedures to implement those restrictions and the Firms reporting obligations, which are set forth in Section II above and in the Procedures for Personal Trading by Employees, constitute the same procedures to implement this Policy Statement. Review those procedures carefully and direct any questions about their scope or applicability to the General Counsel or the Compliance Department.
16
Exhibit (p)(3)
2. | Restrictions on Disclosures |
Harris Employees shall not disclose any nonpublic information (whether or not it is material) relating to Harris or its securities transactions to any person outside Harris (unless such disclosure has been authorized by Harris). Material, nonpublic information may not be communicated to anyone, including persons within Harris, except as provided in Section III(B)(3) above. Such information must be secured. For example, access to files containing material, nonpublic information and computer files containing such information should be restricted, and conversations containing such information, if appropriate at all, should be conducted in private.
IV. | RETENTION OF RECORDS |
The Compliance Department or the Secretary of the Trust will maintain the records listed below for a period of five years. Such records shall be maintained at the Firms principal place of business in an easily accessible place:
i.) | a list of all persons subject to the Code during that period; |
ii.) | receipts signed by all persons subject to the Code acknowledging receipt of copies of the Code and acknowledging that they are subject to it; |
iii.) | a copy of each Code of Ethics that has been in effect at any time during the period; |
iv.) | a copy of each report filed pursuant to the Code and a record of any known violations and actions taken as a result thereof during the period as well as a record of all persons responsible for reviewing these reports; and |
v.) | a copy of any decision and the reasons supporting the decision, to approve the acquisition of Limited Offerings. |
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Exhibit (p)(3)
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS AND STATEMENT ON
INSIDER TRADING
Code of Ethics.
Harris Associates L.P. (HALP), Harris Associates Securities L.P. (HASLP) and Harris Associates Investment Trust (the Trust) have adopted a written Code of Ethics and Statement on Insider Trading (the Code) and Procedures for Personal Trading by Employees to avoid potential conflicts of interest by HALP and HASLP personnel and to govern the use and handling of material non-public information. A copy of the Code and Procedures for Personal Trading by Employees is attached to this acknowledgement. As a condition of your continued employment with HALP and HASLP, and/or the retention of your position, if any, as an officer of the Trust or a member of the board of HALPs general partner, you are required to read, understand and abide by the Code and Procedures for Personal Trading by Employees.
Compliance Program.
The Code requires that all personnel (other than Non-Access Directors) furnish to the Compliance Department information regarding any investment account in which you have a beneficial interest. You are also required to furnish to the Compliance Department copies of your monthly or quarterly account statements, or other documents, showing all purchases or sales of securities in any such account, or which are effected by you or for your benefit, or the benefit of any member of your household. Additionally, you are required to furnish a report of your personal securities holdings within ten calendar days of commencement of your employment with HALP or HASLP and annually thereafter. These requirements apply to any investment account, such as an account at a brokerage house, trust account at a bank, custodial account or similar types of accounts.
This compliance program also requires that employees report any contact with any securities issuer, government or its personnel, or others, that, in the usual course of business, might involve material non-public financial information. The Code requires that employees bring to the attention of the General Counsel any information they receive from any source, which might be material non-public information.
Any questions concerning the Code or Procedures for Personal Trading by Employees should be directed to the General Counsel or the Compliance Department.
I affirm that I have read and understand the Code and Procedures for Personal Trading by Employees. I agree to the terms and conditions set forth in the Code and Procedures for Personal Trading by Employees.
Signature |
Date |
1
Exhibit (p)(3)
ANNUAL AFFIRMATION OF COMPLIANCE
FOR ACCESS PERSONS AND NON-ACCESS DIRECTORS
I affirm that:
1. | I have again read and, during the past year to the best of my knowledge, have complied with provisions of the Code of Ethics and Statement of Insider Trading (the Code) and Procedures for Personal Trading by Employees that pertain to me. |
2. | I have provided to the Compliance Department the names and addresses of each investment account that I have with any firm, including, but not limited to, broker-dealers, banks and others. (List of known accounts attached.) (Access Persons only) |
3. | I have provided to the Compliance Department copies of account statements or other reports showing each and every transaction in any security in which I have a beneficial interest, as defined in the Code, during the most recently ended calendar year |
or
during the most recent calendar year there were no transactions in any security in which I had a beneficial interest required to be reported pursuant to the Code. (Access Persons only)
4. | I have provided to the Compliance Department a report of my personal securities holdings as of the end of the most recent calendar year, including all required information for each security in which I have any direct or indirect beneficial ownership. (Access Persons only) |
Signature |
Date |
1
Exhibit (p)(3)
APPENDIX A
Examples of Beneficial Interest
For purposes of the Code, you will be deemed to have a beneficial interest in a security if you have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the security. Examples of beneficial ownership under this definition include:
| securities you own, no matter how they are registered, and including securities held for you by others (for example, by a custodian or broker, or by a relative, executor or administrator) or that you have pledged to another (as security for a loan, for example); |
| securities held by a trust of which you are a beneficiary (except that, if your interest is a remainder interest and you do not have or participate in investment control of trust assets, you will not be deemed to have a beneficial interest in securities held by the trust); |
| securities held by you as trustee or co-trustee, where either you or any member of your immediate family (i.e., spouse, children or descendants, stepchildren, parents and their ancestors, and stepparents, in each case treating a legal adoption as blood relationship) has a beneficial interest (using these rules) in the trust. |
| securities held by a trust of which you are the settlor, if you have the power to revoke the trust without obtaining the consent of all the beneficiaries and have or participate in investment control; |
| securities held by any partnership in which you are a general partner, to the extent of your interest in partnership capital or profits; |
| securities held by a personal holding company controlled by you alone or jointly with others; |
| securities held by (i) your spouse, unless legally separated, or you and your spouse jointly, or (ii) your minor children or any immediate family member of you or your spouse (including an adult relative), directly or through a trust, who is sharing your home, even if the securities were not received from you and the income from the securities is not actually used for the maintenance of your household; or |
| securities you have the right to acquire (for example, through the exercise of a derivative security), even if the right is not presently exercisable, or securities as to which, through any other type of arrangement, you obtain benefits substantially equivalent to those of ownership. |
You will not be deemed to have beneficial ownership of securities in the following situations:
| securities held by a limited partnership in which you do not have a controlling interest and do not have or share investment control over the partnerships portfolio; and |
Exhibit (p)(3)
APPENDIX A
| securities held by a foundation of which you are a trustee and donor, provided that the beneficiaries are exclusively charitable and you have no right to revoke the gift. |
These examples are not exclusive. There are other circumstances in which you may be deemed to have a beneficial interest in a security. Any questions about whether you have a beneficial interest should be directed to the General Counsel or Compliance Department.
Exhibit (p)(8)
MCDONNELL INVESTMENT MANAGEMENT, LLC
CODE OF ETHICS
This Code of Ethics (Code) has been adopted by McDonnell Investment Management, LLC (MIM).
The policy of MIM is to avoid any conflict of interest, or the appearance of any conflict of interest, between the interests of MIM, or its Covered Persons, and the interests of MIMs advisory clients (Clients). Federal securities laws, including the Investment Company Act of 1940 and the Investment Advisers Act of 1940 and rules thereunder, require that MIM establish standards and procedures for the detection and prevention of certain conflicts of interest, including activities by which persons having knowledge of the investments and investment intentions of Clients might take advantage of that knowledge for their own benefit. Implementation and monitoring of these standards inevitably places some restrictions on the freedom of the investment activities of those people.
This Code of Ethics has been adopted by MIM to meet those concerns and legal requirements. Any questions about the Code or about the applicability of the Code to a personal securities transaction should be directed to the Legal/Compliance Department.
I. | DEFINITIONS |
a. | Automatic Investment Plan means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An automatic investment plan includes a dividend reinvestment plan. |
b. | Beneficial Interest in a security means you have, directly or indirectly, the opportunity to profit or share in any profit derived from action in the security, or in which you have an indirect interest, including beneficial ownership by your spouse or minor children or other dependents living in your household, or your share of securities held by a partnership of which you are a general partner. Technically, the rules under Section 16 of the Securities Exchange Act of 1934 will be applied to determine if you have a beneficial interest in a security (even if the security would not be within the scope of Section 16). Examples of beneficial interest are attached as Appendix A. |
c. | Covered Person means any Employee, Officer, or Manager of MIM, except for any Non-Access Manager. |
d. | Non-Access Manager means any person who serves on MIMs Board of Managers but who (1) is not an employee of MIM, (2) has been designated as a Non-Access Manager by the Chief Compliance Officer (CCO) and (3) meets both of the following conditions: |
| such person does not have access to non-public information regarding any MIM clients purchase or sale of securities, or non-public information regarding the portfolio holdings of any Reportable Fund; and |
1
Exhibit (p)(8)
| such person is not involved in making recommendations to MIMs clients with respect to securities, and does not have access to such recommendations that are non-public. |
Non-Access Managers are subject only to Parts II.A. through II.E. of this Code.
e. | Reportable Funds means any investment company (other than money market funds) that is registered under the Investment Company Act for which MIM, or any firm under common control with MIM, serves as adviser, sub-adviser, or distributor. |
II. | STANDARDS OF BUSINESS CONDUCT |
A. | General Prohibitions. All MIM personnel, including Non-Access Managers, must comply with all applicable federal securities laws. The Investment Company Act, Investment Advisers Act, and the rules thereunder make it illegal for any person covered by the Code, directly or indirectly, in connection with the purchase or sale of a security held or to be acquired by Clients to: |
a. | employ any device, scheme or artifice to defraud Clients; |
b. | make any untrue statement of a material fact, omit to state a material fact or in any way mislead Clients regarding a material fact; |
c. | engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon Clients; |
d. | engage in any manipulative practice with respect to Clients; or |
e. | engage in any manipulative practice with respect to securities, including price manipulation. |
B. | Fiduciary Duty. As a fiduciary, MIM has an affirmative duty to act solely in the best interests of its clients and to make a complete and unbiased disclosure of all material facts relating to the investment advice it provides clients, particularly in situations in which MIMs interests may conflict with those of a client. Consistent with this duty, MIM must at all times act in its clients best interests, and its conduct will be measured against a higher standard of conduct than that applied generally in ordinary commercial transactions. Among the specific fiduciary obligations that MIM has are: |
a. | a duty to have a reasonable, independent basis for its investment advice and recommendations; |
2
Exhibit (p)(8)
b. | a duty to obtain best execution for clients securities transactions when the adviser is in a position to select brokers; |
c. | a duty to ensure that its investment advice is suitable and appropriate given each clients objectives, needs, and circumstances; |
d. | a duty to refrain from entering into transactions, including personal securities transactions, that are inconsistent with client interests; and |
e. | an obligation to be loyal to its clients. |
C. | Insider Trading. MIM personnel are forbidden to buy or sell any security, either personally or on behalf of others, while either MIM or the employee is in possession of material, non-public information (inside information) concerning the security or the issuer. A violation of MIMs insider trading policies may result in criminal and civil penalties, including imprisonment and substantial fines. An employee aware of or in possession of inside information must report it immediately to the CCO. Employees should refer to the Insider Information and Ethical Wall Policy of MIMs Compliance Manual or consult the Legal/Compliance Department for further information. |
D. | Confidentiality. There is a basic fiduciary premise that information concerning the identity of security holdings and financial circumstances of clients is confidential. MIM personnel are prohibited from disclosing to persons outside the firm any non-public information about any client, the securities investments made by the firm on behalf of a client, information about contemplated securities transactions, or information regarding the firms trading strategies, except as required to effectuate securities transactions on behalf of a client. |
E. | Regulation S-P. In most jurisdictions, laws and regulations govern MIMs collection and use of personal information about clients and employees, including the disclosure of such information by MIM to business partners and other third parties. In particular, Federal Regulation S-P (Reg S-P) protects consumers and customers (as defined in Reg S-P) from an investment adviser or investment company disclosing their non-public personal information to persons unaffiliated with such adviser or investment company without their knowledge or consent. Employees should refer to the Privacy Procedures in MIMs Compliance Manual or consult the Legal/Compliance Department for further information. |
F. | Personal Securities Transactions. The Code regulates personal securities transactions as a part of the effort by MIM to detect and prevent conduct that might violate the general prohibitions outlined above. A personal securities transaction is a transaction in a security in which a Covered Person has a beneficial interest. Security is interpreted very broadly for this purpose, and includes any right to acquire any security (an option or warrant, for example). |
3
Exhibit (p)(8)
In any situation where the potential for conflict exists, transactions for Clients must take precedence over any personal transaction. Covered Persons owe a duty to Clients to conduct their personal securities transactions in a manner that does not interfere with Clients portfolio transactions or otherwise take inappropriate advantage of their relationship to Clients. Personal securities transactions must comply with the Code and should avoid any actual or potential conflict of interest between your interests and Clients interests. Situations not specifically governed by this Code will be resolved in light of this general principle.
G. | Political Contributions. Rule 206(4)-5 of the Advisers Act, also known as the Pay to Play Rule imposes a two-year compensation ban for advisers if the adviser or its covered associate makes certain political contributions to an official of a government entity client. Pay to play refers to the practice of making contributions to elected officials to attempt to influence the awarding of contracts to manage public pension plan assets and other government investment accounts. Employees are required to preclear all political contributions including spouses and those who are in their household. Employees should refer to the Political Contribution Procedures in MIMs Compliance Manual or consult the Legal/Compliance Department for further information. |
H. | Other Restrictions. The Code also regulates certain other conduct that conflicts, potentially conflicts or raises the appearance of an actual conflict with the interests of Clients, as a part of the effort by MIM to detect and prevent conduct that might violate the policy of MIM regarding conflict of interests or the general prohibitions outlined above. |
III. | RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS |
A. | No Transactions with Clients. No Covered Person shall knowingly sell to or purchase from a Client any security or other property, except securities issued by that Client. |
B. | No Conflicting Transactions / Pending Client Orders. No Covered Person shall purchase or sell a security on a day during which a Client has a pending purchase or sale order in that same security (excluding securities which do not require preclearance). |
C. | Holding Period. All reportable trades, including short sales and permissible option trades, are subject to a 60-day holding period from the trade date, except that a security held for at least 30 days may be sold at a loss or no gain. Any profits realized on trades executed within the 60-day holding period shall be |
4
Exhibit (p)(8)
disgorged to the Client, if applicable, or a charitable organization as approved by the CCO. The holding period restriction requires a waiting period of 60 days prior to the execution of a trade in the opposite direction (i.e., a buy followed by a sale, or a sale followed by a buy). |
D. | Limit Orders. No Covered Person shall enter into limit orders that extend beyond the date that preclearance was obtained (i.e., one day). |
E. | Private Placements. All Covered Persons are prohibited from purchasing a security in a private placement or any other offering exempt from registration under the Securities Act of 1933, as amended, unless they have obtained prior written approval (via the Private Security Transaction Questionnaire) from the CCO; |
Provided, that in determining whether to grant permission for such private placement, the CCO shall consider, among other things, whether such investment opportunity should be reserved for clients of MIM, and whether such transaction is being offered to the person because of his or her position with MIM;
Provided further, that any such Covered Person who has received such permission shall be required to disclose such an investment when participating in any subsequent consideration of such security for purchase or sale by clients of MIM, and that the decision to purchase or sell such security should be made by persons with no personal direct or indirect interest in the security.
F. | Public Offerings. All Covered Persons are prohibited from purchasing securities during an initial or secondary public offering. |
G. | Black-Out Period. All Covered Persons may not buy or sell a security within 7 calendar days before or after any Client, over which MIM exercises investment discretion, trades in such security. |
H. | Short Selling. All Covered Persons are prohibited from short selling any security, whether or not it is held in a MIM client portfolio, except that short selling against broad market indexes and against the box are permitted. |
I. | Market Capitalization Exception. Covered Persons may transact in equity securities (common, ADRs and preferred) that have a market capitalization of greater than $5 billion without preclearance. In addition, equity securities with a market capitalization of greater than $5 billion are not subject to the Black-Out Period and Limit Orders provisions of the Code. Note: The Holding Period of 60 days and Short Selling provisions of the Code still apply to equity transactions which are not required to be precleared. |
J. | Restricted List Securities. Covered persons are prohibited from trading any security which is listed on the Firm Wide Restricted List. The Firm Wide Restricted List can be found at: S:\Public\Compliance. |
5
Exhibit (p)(8)
IV. | TRANSACTION PRECLEARANCE REQUIREMENTS |
The preclearance requirements for each security type are listed in the chart below. All precleared personal securities transactions must be executed within the same business day after preclearance, otherwise the preclearance will expire and the request must be made again. Important: For securities that do not require preclearance, restrictions as noted in Section III still apply unless specifically noted.
Security Type |
Preclearance Required | |
Equity Securities and Options on Such Securities (Common, ADRs, and Preferred Stock) where the underlying issuer has greater than $ 5 billion in market capitalization | No | |
Equity Securities and Options on Such Securities (Common, ADRs, and Preferred Stock) where the underlying issuer has less than $ 5 billion in market capitalization | Yes | |
Exchange Traded Funds | No | |
Closed End Funds | No | |
Open Ended Mutual Funds | No | |
Unit Investment Trusts | No | |
US Agencies | Yes | |
Corporate Bonds | Yes | |
Municipal Bonds | Yes | |
Mortgage Backed /Asset Backed Securities | Yes | |
Direct Obligations of the US Government | No | |
Variable Annuities | No |
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Exhibit (p)(8)
Listed index options and futures | No | |
Money Market Instruments (Certificates of Deposits, Time Deposits, Bankers Acceptances, Repurchase Agreements) | No | |
*Automatic Investment Plans and Dividend Reinvestment Plans (DRIPs) | No | |
Private Placements | Yes | |
Restricted List Securities (Firm Wide and Private Information ) | Prohibited | |
New Issues and Secondary Offerings | Prohibited | |
Initial Public Offerings (IPOs) | Prohibited | |
Short Sales | Prohibited |
For the preclearance requirements of any security which is not listed on the chart above, please contact the Legal/Compliance Department.
* | Initial subscriptions to automatic investment plans and redemptions of dividend reinvestment plans are required to be precleared (subject to market capitalization exemptions). |
V. | OTHER EXEMPT TRANSACTIONS |
The provisions of this Code are intended to restrict the personal investment activities of Covered Persons only to the extent necessary to accomplish the purposes of the Code. Therefore, the provisions of Section III (Restrictions on Personal Securities Transactions) and Section IV (Transaction Preclearance Requirements) of this Code shall not apply to:
A. | Purchases or sales effected in any account over which the Covered Persons have no direct or indirect influence or control; |
B. | Purchases or sales in any account (including an investment advisory account, trust account or other account) of such Covered Person (either alone or with others) over which a person other than the Covered Person (including an investment adviser or trustee) exercises investment discretion if: |
| the Covered Person does not know of the proposed transaction until after the transaction has been executed; |
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Exhibit (p)(8)
| the Covered Person previously has identified the account to MIM and has affirmed to MIM that (in some if not all cases) he or she does not know of proposed transactions in that account until after they are executed. |
This exclusion from the preclearance requirement is based upon the Covered Person not having knowledge of any transaction until after that transaction is executed. Therefore, notwithstanding this general exclusion, if the Covered Person becomes aware of any transaction in such investment advisory account before it is executed, the Covered Person must seek preclearance of that transaction before it is executed.
C. | Certain qualified tuition programs established pursuant to Section 529 of the Internal Revenue Code of 1986, (529 Plans) where MIM or a control affiliate does not manage, distribute, market or underwrite the 529 Plan or the investments and strategies underlying the 529 Plan that is a college savings plan. |
D. | Certain corporate actionsany acquisition of securities through stock dividends, dividend reinvestments, stock splits, reverse stock splits, mergers, consolidations, spin-offs, or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities; |
E. | Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities to the extent such rights were acquired from such issuer, and sales of such rights so acquired; |
F. | Purchases or sales which receive prior approval because they are not inconsistent with this Code or the provisions of Rule 17j-l(a) under the Investment Company Act. |
VI. | COMPLIANCE PROCEDURES |
A. | Execution of Personal Securities Transactions. All personal securities transactions by Covered Persons must be conducted through brokerage accounts that have been identified to MIM. Each such brokerage account must be set up to deliver duplicate copies of all confirmations and statements to MIM. No exceptions to this policy will be made. |
B. | Preclearance MIM has implemented a web based personal trading application, PTCC, in order to facilitate the preclearance requests and required Code of Ethics certifications. |
1. | All Covered Persons must preclear their transactions by submitting a Trade Authorization Request via PTCC; |
8
Exhibit (p)(8)
2. | The Legal/Compliance Department shall verify whether the purchase or sale of any security is in compliance with the Code and shall preclear any such transaction if it does not violate the Code; |
3. | The Legal/Compliance Department shall grant their approval via PTCC; |
4. | The Legal/Compliance Department shall maintain all records of the request and any approval/denials via PTCC; and |
5. | The Legal/Compliance Department shall review all Covered Person duplicate confirmations and statements (whether electronically via PTCC or by hardcopy) to verify that all personal securities transactions have been properly precleared. |
VII. | REPORTING AND DISCLOSURE OF PERSONAL HOLDINGS AND TRANSACTIONS |
A. | Disclosure of Personal Holdings. Each Covered Person shall disclose his or her personal securities holdings no later than ten (10) days after commencement of employment with MIM via PTCC, and annually thereafter via PTCC as of December 31 of each year.1 Annual reports shall be delivered to MIM no later than January 30 of the following year. |
Security Type |
Initial and Annual Holdings Disclosure Required? | |
Equity Securities | ||
Equity Securities and Options on Such Securities (Common, ADRs, and Preferred Stock) where the underlying issuer has greater than $ 5 billion in market capitalization | Yes | |
Equity Securities and Options on Such Securities (Common, ADRs, and Preferred Stock) where the underlying issuer has less than $ 5 billion in market capitalization | Yes | |
Exchange Traded Funds | Yes |
1 | the information must be current as of a date no more than 45 days prior to the date the person becomes an employee or, for annual reports, no more than 45 days before the report is submitted. |
9
Exhibit (p)(8)
Closed End Funds | Yes | |
Open Ended Mutual Funds (other than Reportable Funds) | No | |
Reportable Funds | Yes
*Holdings Disclosure Forms are located at Appendix B | |
Unit Investment Trusts | Yes | |
Fixed Income Securities | ||
US Agencies | Yes | |
Corporate Bonds | Yes | |
Municipal Bonds | Yes | |
Mortgage Backed /Asset Backed Securities | Yes | |
Direct Obligations of the US Government | No | |
Other | ||
Variable Annuities | No | |
Listed index options and futures | Yes | |
Money Market Instruments (Certificates of Deposits, Time Deposits, Bankers Acceptances, Repurchase Agreements) | No | |
Automatic Investment Plans, including automatic 401(k) plan investments, and Dividend Reinvestment Plans (DRIPs) | Yes | |
Private Placements | Yes |
B. | Reporting Personal Securities Transactions. |
1. | Each Covered Person shall (i) identify to MIM any brokerage or other account in which the person has a beneficial interest and (ii) instruct the broker or custodian to deliver to MIM duplicate confirmations of all transactions and duplicate account statements. |
10
Exhibit (p)(8)
2. | Each Covered Person shall report all personal securities transactions during a quarter to MIM no later than thirty (30) days after the end of the quarter. |
Quarterly transaction reports shall include the following information:
For each transaction:
| the date of the transaction; |
| title, interest rate and maturity date (if applicable), number of shares and the principal amount of each security involved; |
| the nature of the transaction (i.e., purchase, sale, gift, or other type of acquisition or disposition); |
| the price at which the transaction was effected; |
| the name of the broker, dealer or bank with or through which the transaction was effected; and |
| the date the report is submitted. |
In addition, for each account established during the quarter in which securities are held for the benefit of a person, the quarterly report shall include:
| the name of the broker, dealer or bank with whom the account was established; |
| the date the account was established; and |
| the date the report is submitted. |
C. | Reports may be in any form. Quarterly transaction reports filed pursuant to Section VII (B)(2) of this Code may be reported via PTCC or in any form (including copies of confirmations or account statements) that includes the information required by Section VII (B)(2). |
Any personal securities transaction which for any reason does not appear in the trading or brokerage records described above shall be reported as required by Section VII (B)(2) of this Code.
11
Exhibit (p)(8)
Security Type |
Quarterly Transaction Reporting Required? | |
Equity Securities | ||
Equity Securities and Options on Such Securities (Common, ADRs, and Preferred Stock) where the underlying issuer has greater than $ 5 billion in market capitalization | Yes | |
Equity Securities and Options on Such Securities (Common, ADRs, and Preferred Stock) where the underlying issuer has less than $ 5 billion in market capitalization | Yes | |
Exchange Traded Funds | Yes | |
Closed End Funds | Yes | |
Open Ended Mutual Funds (other than Reportable Funds) | No | |
Reportable Funds | Yes
*Transaction Disclosure Forms are located at Appendix B | |
Unit Investment Trusts | Yes | |
Fixed Income Securities | ||
US Agencies | Yes | |
Corporate Bonds | Yes | |
Municipal Bonds | Yes | |
Mortgage Backed /Asset Backed Securities | Yes | |
Direct Obligations of the US Government | No | |
Other | ||
Variable Annuities | No | |
Listed index options and futures | Yes |
12
Exhibit (p)(8)
Money Market Instruments (Certificates of Deposits, Time Deposits, Bankers Acceptances, Repurchase Agreements) | No | |
Automatic Investment Plans, including automatic 401k plan investments, and Dividend Reinvestment Plans (DRIPs) | No | |
Private Placements | Yes |
D. | Monitoring of Transactions. The CCO, or his designee, will review the holdings and transaction reports filed and monitor the trading patterns of Covered Persons. |
E. | Certification of Compliance. Each Covered Person is required to certify annually that he or she has disclosed all reportable holdings required to be disclosed or reported under the Code. To accomplish this, an annual holdings certification shall be distributed via PTCC. |
In addition, on a quarterly basis, each Covered Person is required to complete a Quarterly Affirmation of Compliance in which he or she certifies that they have reported all personal securities transactions and/or investment accounts required to be disclosed or reported under the Code via PTCC no later than the 30th calendar day following the end of the quarter.
Also, whenever there is a material Amendment to the Code, each Covered Person is required to submit an acknowledgement via PTCC that they have received, read, and understood the amendments to the Code.
F. | Review by the Boards of Directors/Trustees of Investment Company Clients. |
Where required, MIM shall prepare an Annual Issues and Certification Report to the boards of Directors/Trustees of investment company Clients that:
1. | summarizes existing procedures concerning personal investing and any changes in those procedures during the past year; |
2. | describes issues that arose during the previous year under the Code or procedures concerning personal investing, including but not limited to information about material violations of the Code and sanctions imposed; |
3. | certifies that MIM has adopted procedures reasonably necessary to prevent violations of the Code; and |
13
Exhibit (p)(8)
4. | identifies any recommended changes in existing restrictions or procedures based upon experience under the Code, evolving industry practices, or developments in applicable laws or regulations. |
G. | Reporting Misconduct. If you believe you may have violated any laws, this Code of Ethics, or other standards of conduct adopted by MIM, you are expected to report it to MIM immediately. In addition, if you observe or become aware of any illegal or improper conduct on the part of another employee or a consultant, supplier, client, counterparty or other third party, you should communicate that information to your direct supervisor and, if appropriate or necessary, to a more senior manager or the General Counsel, to make certain the situation will be addressed. All violations, or allegations of violations, of this Code must be reported to the CCO. |
VIII. | GIFT AND ENTERTAINMENT |
A. | Accepting Gifts. No Covered Person may accept any gift or other thing of more than a $100 value, per calendar year, from any person or entity that does business with or on behalf of MIM, or seeks to do business with or on behalf of MIM. Gifts in excess of this value must either be returned to the donor or paid for by the recipient. It is not the intent of the Code to prohibit the everyday courtesies of business life. Therefore, excluded from this prohibition is an occasional meal, ticket to a theater, entertainment, or sporting event that is an incidental part of a meeting that has a clear business purpose. However, any entertainment event provided to a Covered Person where the host is not in attendance is treated as a gift and is subject to the aforementioned $100 limit. The receipt of cash gifts is absolutely prohibited. |
B. | Solicitation of Gifts. Covered Persons may not solicit gifts or gratuities. |
C. | Giving Gifts. In general, no Covered Person may give any gift or other thing of more than a $100 value, per calendar year, from any person or entity that does business with or on behalf of MIM, or seeks to do business with or on behalf of MIM. Gifts in excess of this $100 must be approved in writing by the Covered Persons Supervisor and the Legal/Compliance Department. Again, it is not the intent of the Code to prohibit reasonable or customary meals and entertainment with a bona fide business purpose. However, frequent or extravagant entertainment with the same party is not covered by this exception. Any entertainment where a MIM employee is not in attendance is treated as a gift and is subject to the aforementioned $100 limit. Cash gifts are absolutely prohibited. |
D. | Gift Reporting. Covered Persons must report all gifts, whether given or received, valued at $25 or more to the Legal/Compliance Department on a quarterly basis. If the exact amount of the gift is not known, you must make a good faith estimate of the items fair market value. In circumstances where a gift received was shared among a group (i.e. gift baskets), the amount of the gift may be prorated among those with whom it was shared. |
14
Exhibit (p)(8)
E. | Gifts in Connection with Labor Organizations. The Labor-Management Reporting and Disclosure Act (LMRDA) requires MIM to file an annual report when employees make payments to Taft-Hartley union officials or union employees in excess of $250 on form LM-10. Payments are identified broadly to include meals, travel expenses and reimbursements, gifts, tickets, products or services, social events, fees paid to union sponsored events, and payments to charities including payments made from your personal funds. The LM-10 must be signed by the President and Treasurer under penalty of perjury. Criminal and/or monetary penalties may apply for false filings or failure to file. In order to maintain accurate tracking of payments to Taft-Hartley union officials or union employees, MIM employees are required to provide sufficient information regarding the names and titles of the union officials/employees and a description of the nature and value of the gift or entertainment in order for the firm to satisfy its regulatory filing requirement. |
F. | Entertainment Reporting. Covered Persons must report all entertainment, from any person or entity that does business with or on behalf of MIM, or seeks to do business with or on behalf of MIM to the Legal/Compliance Department on a quarterly basis. This policy applies to entertainment provided or received and the information required to be reported includes: the event, individual/entity which provided the entertainment, the persons being entertained, and the approximate value of the entertainment. Reportable entertainment also includes situations whereby MIM participates in entertainment in relation to the monitoring of a particular company for investment or research purposes. |
On a quarterly basis, Covered Persons are required to affirm that they have reported gifts given or received and entertainment provided or received in accordance with the Code of Ethics.
IX. | OUTSIDE BUSINESS ACTIVITIES |
No Covered Person may become an officer, director or employee of a company not affiliated with MIM, or otherwise engage in outside business activities without receiving prior written approval from the Legal/Compliance Department via the Outside Business Activity Questionnaire. Failure to obtain such approval may subject MIM to regulatory penalties and civil liability and you to disciplinary action, up to and including termination of employment. Activities on behalf of trade associations are not included in this prohibition. In no event may you participate in any outside activity that interferes with your duties at MIM.
15
Exhibit (p)(8)
Covered Persons are required to request and receive written approval from their supervisor and the CCO (or the CCOs designee), before they may: (1) engage in any business other than that of MIM; (2) accept employment or compensation from any person or organization other than MIM; (3) serve as an officer, director, member, partner, or employee of a business organization other than MIM; or (4) except as provided below, own any stock or have any financial interest, directly or indirectly, in any other business organization.
Also, note that involvement in an outside business activity that begins permissibly may evolve into a violation of applicable laws and regulations if the nature or scope of that business or participation changes. Covered Persons should notify the Legal/Compliance Department promptly of any changes to the business plan or business lines of the outside business activity or of any changes in participation.
On an annual basis, Covered Persons are required to affirm via PTCC that they have reported and received approval for all Outside Business Activities in accordance with this policy.
X. | EXCEPTIONS |
A. | Notwithstanding the foregoing, the CCO, or his designee, in keeping with the general principles and objectives of this Code, may refuse to grant clearance of a personal securities transaction in their sole discretion without being required to specify any reason for the refusal. |
B. | Other persons that are not full time employees of MIM (such as independent contractors, consultants, temporary employees, interns, and individuals engaged through a temporary staffing agency) will be reviewed on a case by case basis to determine if they have access to client investment transactions and recommendations. If it is determined by the CCO that they do have such access, the person will: |
a. | Be subject to the reporting requirements as noted in Section VII (Reporting and Disclosure of Personal Holdings and Transactions), Item B (Reporting Personal Securities Transactions) of this Code from the time in which the consulting arrangement, temporary employment, or internship began. |
b. | Be subject to the restrictions on Personal Securities Transactions as noted in Section III, (Restrictions on Personal Securities Transactions), and the preclearance requirements as noted in Section IV (Transaction Preclearance Requirements), of this Code after six months from the commencement of the consulting arrangement, temporary employment, or internship. |
16
Exhibit (p)(8)
The CCO may grant exceptions to this policy based upon his or her determination of specific circumstances. The CCO may also in his or her determination, subject the consultant, temporary employee or intern to all or only a portion of the provisions of this Code at the commencement of the consulting arrangement, temporary employment or internship based upon specific circumstances.
C. | Upon proper request by a Covered Person, the Chief Executive Officer (CEO), or his designee, will consider for relief or exemption from any restriction, limitation or procedure contained herein, which restriction, limitation or procedure is claimed to cause a hardship for such Covered Person. The CCO will in his/her sole discretion determine whether the request is appropriate for consideration by the CEO. The decision regarding such relief or exemption is within the sole discretion of the CEO. |
XI. | CONSEQUENCES FOR FAILURE TO COMPLY WITH THE CODE |
Compliance with this Code of Ethics is a condition of employment by and membership of MIM. Taking into consideration all relevant circumstances, MIM will determine what action is appropriate for any breach of the provisions of the Code. Possible actions include letters of sanction, financial penalty, suspension, termination of employment, or removal from office, or in serious cases, referral to law enforcement or regulatory authorities.
Reports filed pursuant to the Code will be maintained in confidence but will be reviewed by MIM to verify compliance with the Code. Additional information may be required to clarify the nature of particular transactions.
XII. | RETENTION OF RECORDS |
MIM shall maintain the records listed below for a period of five years at MIMs principal place of business in an easily accessible place:
A. | A list of all Covered Persons during the period; |
B. | Electronic certification by all Covered Persons acknowledging receipt of copies of the Code and acknowledging that they are subject to it; |
C. | A copy of each code of ethics that has been in effect at any time during the period; |
D. | Holdings and transactions reports made pursuant to the Code, including any brokerage confirmation and account statements made in lieu of these reports; |
E. | A record of any violation of the Code and any action taken as a result of such violation for five years from the end of the fiscal year in which the violation occurred; and |
17
Exhibit (p)(8)
F. | A record of any decision and supporting reasons for approving the acquisition of securities by Covered Persons in limited offerings. |
Adopted effective: June 24, 2013
18
Exhibit (p)(8)
Appendix A Examples of Beneficial Ownership
For purposes of the Code, you will be deemed to have a beneficial interest in a security if you have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the security. Examples of beneficial ownership under this definition include:
| securities you own, no matter how they are registered, and including securities held for you by others (for example, by a custodian or broker, or by a relative, executor or administrator) or that you have pledged to another (as security for a loan, for example); |
| securities held by a trust of which you are a beneficiary (except that, if your interest is a remainder interest and you do not have or participate in investment control of trust assets, you will not be deemed to have a beneficial interest in securities held by the trust); |
| securities held by you as trustee or co-trustee, where either you or any member of your immediate family (i.e., spouse, children or descendants, stepchildren, parents and their ancestors, and stepparents, in each case treating a legal adoption as blood relationship) has a beneficial interest (using these rules) in the trust. |
| securities held by a trust of which you are the settlor, if you have the power to revoke the trust without obtaining the consent of all the beneficiaries and have or participate in investment control; |
| securities held by any partnership in which you are a general partner, to the extent of your interest in partnership capital or profits; |
| securities held by a personal holding company controlled by you alone or jointly with others; |
| securities held by (i) your spouse, unless legally separated, or you and your spouse jointly, or (ii) your minor children or any immediate family member of you or your spouse (including an adult relative), directly or through a trust, who is sharing your home, even if the securities were not received from you and the income from the securities is not actually used for the maintenance of your household; or |
| securities you have the right to acquire (for example, through the exercise of a derivative security), even if the right is not presently exercisable, or securities as to which, through any other type of arrangement, you obtain benefits substantially equivalent to those of ownership. |
You will not be deemed to have beneficial ownership of securities in the following situations:
| securities held by a limited partnership in which you do not have a controlling interest and do not have or share investment control over the partnerships portfolio; and |
| securities held by a foundation of which you are a trustee and donor, provided that the beneficiaries are exclusively charitable and you have no right to revoke the gift. |
These examples are not exclusive. There are other circumstances in which you may be deemed to have a beneficial interest in a security. Any questions about whether you have a beneficial interest should be directed to the Legal/Compliance Department.
Exhibit (p)(8)
Appendix B
McDonnell Investment Management, LLC
Transaction Reporting FormReportable Funds
Print Name:
Reporting Date:
I represent that:
1. | I have effected the following transactions in the securities indicated below for my own account or other account in which I have a beneficial interest. I affirm that these transactions are not based on any material, non-public information, and I am not aware of any facts suggesting that these transactions represent potential conflicts of interest. |
2. | Prior to reporting transactions, I have reviewed the Reportable Fund list for the applicable quarter. |
3. | I have reviewed and am in compliance with the holding period requirements for the securities listed below. |
Account Name/ Number |
Firm where account is held |
Trade Date |
Name of Fund | Ticker | B/S | Number of Shares |
Principal Amount |
If more space is needed, you may submit multiple forms to Compliance.
I have no Reportable Fund transactions that I am required to report.
Signature | Date |
Exhibit (p)(8)
Appendix B
McDonnell Investment Management, LLC
Initial Holdings Reporting FormReportable Funds
Print Name:
Reporting Date:
I represent that:
1. | I have reviewed the Reportable Fund list for the applicable reporting period. |
2. | I have reviewed all accounts in which I have a beneficial interest, including those that are not otherwise reportable. |
3. | I have reviewed and am in compliance with the holding period requirements for the securities listed below. |
Account Name/ Number |
Firm where account is held |
Name of Fund | Ticker | Number of Shares |
Principal Amount |
If more space is needed, you may submit multiple forms to Compliance.
I have no Reportable Fund holdings that I am required to report.
Signature | Date |
Exhibit (p)(8)
Appendix B
McDonnell Investment Management, LLC
Annual Holdings Reporting FormReportable Funds
Print Name:
Reporting Date:
I represent that:
1. | I have reviewed the Reportable Fund list for the applicable reporting period. |
2. | I have reviewed all accounts in which I have a beneficial interest, including those that are not otherwise reportable. |
3. | I have reviewed and am in compliance with the holding period requirements for the securities listed below. |
Account Name/ Number |
Firm where account is held |
Name of Fund | Ticker | Number of Shares |
Principal Amount |
If more space is needed, you may submit multiple forms to Compliance.
I have no Reportable Fund holdings that I am required to report.
Signature | Date |
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